In classical legend, Cassandra was a daughter of the last king of Troy, a woman gifted with the ability to foretell the future but cursed by the fact that no one would believe her.

As Illinois embarks upon a new fiscal year with its economy purring and bank balances at near-record levels, state Comptroller Daniel W. Hynes shouldn't be faulted if he feels a certain kinship with the mythical Trojan princess.

Hynes is trying to preach a message of fiscal caution, alerting other public officials and taxpayers alike to what he believes may be the early warning signs of potential trouble. At first blush, his theme seems quite at odds with the boom-time spirit of the FY 2001 budget Gov. George Ryan signed into law a few weeks ago. After all, aren't the economic indicators continuing to suggest that the good times will keep on rolling? Didn't the rating agencies give Illinois good marks in preparation for last month's $300 million bond offering? And isn't the state beginning the new fiscal year with close to $1.4 billion in the bank? So what's to worry about?

Well, all that is true, but there are several elements Hynes believes merit close watching. Perhaps the most serious is the potential for a cash crunch this fall, when the state's current hefty balances might not be enough to cover all of the checks that will need to be written.

Bill paying is always more dicey in the first half of a fiscal year because of seasonal deviations in the state's revenue collections. Largely due to income tax deadlines, most tax receipts arrive in the second half of the fiscal year -- 53 percent on average over the last five years. Spending, on the other hand, is more uniformly spread throughout the fiscal year. Thus, the general funds balance can be expected to decline from July to December, as it has for 16 consecutive years before rebounding in the second half of the fiscal year. So the state needs a cushion going into each fiscal year to avoid cash flow problems.

Hynes' concern is that the FY 2001 cushion is not deep enough. Even though the state is starting with a general funds available balance of some $1.4 billion, almost $900 million is needed to pay outstanding FY 2000 bills within the two-month budget lapse period that ends August 31.

Moreover, in mid-July, some $260 million will be shifted into a special fund intended to pay for a host of Illinois First projects that don't qualify for bonding, further draining the balance.

Finally, while the overall general funds balance has been the traditional barometer of the state's fiscal health, what's really critical is how much is available in one component fund, the general revenue fund (GRF), which pays for most day-to-day operations. On three occasions last year, the GRF daily balance dipped below $200 million, causing Hynes' office to consult with the Department of Revenue to make sure each day's bills could be paid.

Now, as FY 2001 gets underway, the general revenue fund is likely to be some $300 million below its level of a year ago, and that, Hynes says, could present a problem. "If you apply this same pattern and overlay it for next year [FY 2001] and if you start $300 million below where we were last year, then we could hit a zero point sometime in those same months, if not sooner," he says.

At that point, the state would have to either delay payments or borrow funds to cover its checks.

"I've talked to a lot of average citizens who were impacted by the cash crunch in the early 1990s," Hynes says. "I've talked to pharmacy owners who had to wait months and months to be paid. ... If they have direct dealings with government, then they know all too well what happens when revenues don't come in as we expect them to -- they wait for their money." Even folks who don't do business with the state can appreciate the problem, he adds. "It's just common sense."

As Hynes notes, Illinois is no stranger to delayed payments. In fact, the FY 2001 budget plan lawmakers

July/August 2000 Illinois Issues 42---Also available in PDF