The state of the State

When Gov. Jim Edgar briefed reporters on his fiscal year 1993 budget in April, he said he had "inherited" a $1.4 billion fiscal year 1991 deficit under Generally Accepted Accounting Principles (GAAP). At the same time. Rep. Bill Edley (D-95, Macomb) was championing legislation that would require that GAAP standards be used to construct the state budget.

Normally, an arcane concept like how the state keeps its books would pale beside the serious business of state government. There is a third Chicago airport to build, a package of downstate water systems to refurbish, video poker games to install in bars, and public schools to finance.

But these are hardly normal times. The state is experiencing financial difficulties, in part because of late-June dealmaking undertaken without much thought as to how to pay for the deals.

Increased use of GAAP is being touted as a way to avoid future problems. The accounting system is widely used in the private sector and makes it impossible to carry obligations from one fiscal year to another. The comptroller already reports Illinois' financial condition on a GAAP basis after the end of the fiscal year.

Comparison of general funds budget balances under three accounting systems — available balance, bugetary balance and GAAP, fiscal years 1982-1991 ($ millions)
Fiscal year	Available balance		Budgetary balance			GAAP basis
1982	—	$ 10	—	$ 310	—	$288
1983	—	77	—	357	—	311
1984	+	107	—	172	+	522
1985	+	262	+	45	+	216
1986	—	191	—	153	—	270
1987	—	134	—	318	—	326
1988	+	92	-	76	+	232
1989	+	294	+	148	+	281
1990	—	146	-	191	—	482
1991	-	295	—	666	—	806
Source: Comptroller's records.

To understand highlights of the GAAP difference, consider the example of the fiscal year 1991 general funds budget under three accounting systems — the available balance basis, the budgetary balance concept and GAAP.

First, the available balance concept uses the straight-cash basis that considers only the cash on hand on June 30. The state began the 1991 fiscal year with $395 million in the bank, received $13,261 million in revenues between July 1, 1990, and June 30, 1991, and spent $13,556 million during the same 12-month period. It ended the year with $100 million in the bank, which means that spending exceeded revenues by $295 million.

Second, the budgetary balance concept says that the cash on hand on June 30 should cover obligations that remain unpaid. The numbers are the same as in the available balance system except for the spending number which totaled $13,736 million over 15 months. Added to the 12-month spending was the $766 million spent during the three-month lapse period (between July 1, 1990, and September 30, 1991). The budgetary balance comes up a negative $666 million: $100 million available on June 30, 1991, minus the $766 million in lapse-period spending.

Third is the GAAP basis, which charges revenue when collected and spending when obligated. Under GAAP, the state had $13,515 million in revenues for fiscal year 1991, slightly more than under either of the other concepts. Spending, however, was $14,322 million, much greater than under either of the other concepts. The GAAP result was an $806 million deficit, which added to the $557 million deficit carried over from the previous year, brings the total GAAP deficit to Edgar's $1.4 billion figure.

As the examples prove, the change to GAAP would shift revenues slightly but not materially change them. Sales taxes collected in late June, for example, but

6/July 1992/Illinois Issues

not remitted to the state until July would be credited to the fiscal year that ended in June rather than the following one.

The big change, again referring to the examples, comes on the spending side. Under current law certain items can be charged to any year's appropriations, most notably Medicaid payments, state workers' health insurance and the federally supported programs for new mothers. Under GAAP such bills would have to be charged against the year in which the goods or services were provided.

One of the casualties of a change to the GAAP concept is lapse-period spending. Under current law bills received during July, August and September can be charged to the previous year's appropriation. GAAP does not permit that practice.

GAAP does not change the way that bills are paid nor save any money, but it does give a clearer picture to the pattern of postponing then catching up on the payment of bills. For the last 10 years, on a GAAP basis, the state has alternated two years of pushing off bills with two years of paying off old bills. (See table.) GAAP also emphasizes both surpluses and deficits at year end.

Rep. Edley, who owns an auto parts store in Macomb, says that the state must stop pretending that it has a balanced budget and begin presenting a fair fiscal picture to its citizens. Accumulated bills will have to be paid, he says, and citizen's should be told about them:

"If you can get goods and services without paying for them, it's the same as printing money."

Ediey wants to shift state budgeting to a GAAP basis. His proposed legislation provides for a five-year phase-in of the change, beginning in fiscal year 1993. Ediey, who faces a difficult election from a new district that extends from just south of Moline to Jacksonville, says the change plays well with voters. He calls his measure "truth in budgeting" and says voters are in the mood to fix the system.

The change would tie the hands of both lawmakers and governors who employ smoke and mirrors to balance budgets. Given last year's financial problems, voters may be more interested in arcane accounting than new spending.