State revenue: that elusive bottom line

If a state's economic health were measured by its bank balances, Illinois' would be robust. The state ended April with $480 million in the bank, compared to $68 million a year ago. Cash has rolled into the state coffers at near record rates, and lawmakers are talking about spending more for schools and other services. The Capitol's June debates will center on how much money the state has available to spend next year, including how much it will have in the bank on June 30 and how much of that ending balance can be spent.

Underpinning the economic growth are the state income and sales taxes. Ignoring the refund fund (an account created January 1 that equally reduces both general funds revenues and spending) personal income tax collections through April are up $228 million (8.2 percent) over the first 10 months of the previous year. Corporate receipts for the same period are up $43 million (7.7 percent). Also growing at healthy rates are sales taxes, up $168 million (5.8 percent); lottery profits, up $65 million (15.9 percent); and interest on investments, up $32 million (42.7 percent).

Another general funds source that grew considerably was federal funding. The payment of backlogged bills from doctors, nursing homes and hospitals for service to the poor resulted in higher reimbursements for the federal 50 percent share. Higher spending pushed federal receipts were up $142 million, or 10.8 percent.

Overall, general funds revenues increased by $643 million, or 6.8 percent for the first 10 months of the fiscal year that will end June 30 (fiscal 1989). That represents true natural revenue growth because it exceeds the fiscal year's 4.5 to 4.7 percent projected inflation rate. The difference means that Illinois had natural revenue growth of $200 million instead of natural revenue shrinkage, which had become the norm for years when growth in revenues trailed inflation.

Revenues are booming because Illinois' economy is growing. According to the Bureau of the Budget's April Quarterly Financial Report, employment increased by 300,000 since July 1. And during January, February and March the unemployment rate averaged 5.6 percent, the first time in nine and a half years that the quarterly average rate was below 6 percent. Working people pay income taxes on their earnings and purchase more goods on which sales taxes are collected.

But it is not revenue growth alone that has resulted in the higher bank balances. Like any of its citizens, Illinois puts money in the bank only if it does not spend all of its income. Ten months' revenues (uncorrected for the refund fund) in the general funds were up $500 million or 5.3 percent. Ten months' spending was up $180 million or 1.9 percent. (Refunds paid from the tax refund instead of the general fund totaled $127 million and would have boosted spending by $307 million (3.2 percent.) Comparable 10-month spending increases were $323 million (3.5 percent) in fiscal 1988, $249 million (2.8 percent) in fiscal 1987, and $722 million (8.8 percent) in fiscal 1986.

The state bank balances hit $717 million on May 10 and sparked a preemptive strike from Democrats. On May 12 Sen. Howard Carroll (D-1, Chicago), chairman of the Appropriations I Committee and his fellow Democratic appropriations committee chairs and vice chairs, charged in a Statehouse press conference that Thompson was sitting on millions of dollars. "On the very day that the governor was sitting on $717 million in the bank, he cried wolf about the need for a tax increase at the Save our Schools rally on the Capitol steps," charged Sen. Penny L. Severns (D-51, Decatur), vice chair of the Appropriations I Committee. Carroll offered no specific number for the June 30 balance. He suggested that it could range from $350 million to $550 million. "We have several hundred million of additional revenue that they [the Thompson administration] have refused to admit, and we're saying, 'Why? Let's admit it and let's allocate it.' "

The Thompson bashing drew a response within the hour from Robert L. Mandeville, the governor's budget director. Mandeville said that to pick a given day's balance and make multi-year spending assumptions was unwise. The Democrats did draw out a higher revenue estimate from Mandeville, however. The budget director said if he had to make an estimate that day, he would say that revenues would be up $150 million and the ending balance would be $400 million. Spending the money in the year-end balance for ongoing programs will produce revenue shortfalls later, which is largely what happened four years ago when much of the education reform program was paid with the record year-end balances.

What Carroll did not say was that part of the reason that balances are up is because lawmakers based the current year's spending plan on the administration's revenue estimates, which were $150 million below those of the legislature's Economic and Fiscal Commission. They will not face that choice this spring. Both the Bureau of the Budget and the Economic and Fiscal Commission are predicting slower economic revenue growth next year, and their numbers are only $9 million apart.

House Speaker Michael J. Madigan's May 17 income tax hike plan will not foreclose the debate on bank balances. But, fiscal health is not measured by those balances, and the spring's balances reflect both economic growth that is not expected to continue and the low priority given by legislators and the governor to schools and human services. Raise spending too much and Illinois will return to its fiscal sickbed.

June 1989 | Illinois Issues | 26