Politics: An uncertain economy could force lawmakers to pare down the budget

Nov 1, 2001

Charles N. Wheeler III
Credit WUIS/Illinois Issues

The terrorist attacks that toppled the twin towers of the World Trade Center in New York City some eight weeks ago also dealt a serious blow to the state's fiscal well-being. The economic fallout from the attacks, coming as the state already was feeling the impact of a slumping economy, led Gov. George Ryan and administration budget officials to take belt-tightening steps not seen since the fiscal crisis of a decade ago. 

Moreover, continuing uncertainty over state tax receipts could force Illinois lawmakers to pare down the state's current $53.4 billion budget when they return in a few weeks for the fall session. Even under the best scenario, legislators are sure to face a difficult task next spring when they must craft a budget for the fiscal year starting July 1, four months before the November general election when all 177 legislative seats, as well as all statewide offices, are to be filled. 

The numbers tell the story. During the first three months of the current fiscal year ? July, August and September - revenues into the state's key bill-paying account, the general funds, totaled $5.3 billion, according to state Comptroller Daniel Hynes. That?s $296 million less than came in during the same three-month period last year, and $416 million less than the estimates used last spring in putting together the current budget. 

Some of the shortfall can be chalked up to timing factors, with receipts from certain sources coming in more slowly than anticipated, according to Mike Colsch, a deputy director of the Bureau of the Budget. But $200 million to $250 million of the shortfall is a result of economic difficulties, Colsch said. 

The next three-month period may bring even more bad news, some revenue watchers fear, as the full impact hits home of income and sales tax receipts lost due to massive layoffs and anemic consumer spending in the wake of September 11. 

"With the tragic events [of September], we are going to face even greater challenges than we had already anticipated," said Hynes, who last spring warned that the budget?s revenue estimates were too optimistic. 

In the weeks after the attacks, the governor imposed austerity measures intended to help keep the budget afloat, including a 2 percent set-aside of general revenue fund allocations, a freeze on most hiring, equipment purchases, out-of-state travel and data processing contracts, and a ban on agencies using funds approved for one purpose to pay for something else. The controls are expected to shave $350 million from this year?s spending. 

Meanwhile, the revenue shortfall has forced Hynes to juggle - and in some cases hold onto - the state's bills. At roughly $6.1 billion, spending in the first quarter outstripped revenues by some $740 million. And the comptroller reported an additional $300 million in bills that were awaiting payment at quarter's end due to lack of available cash. 

The crunch centered on the General Revenue Fund, the state?s largest operating fund and a major component, along with several education accounts, of the general funds. The General Revenue Fund ended September with a balance of only $8 million, down $490 million from the previous year. In fact, Hynes reported, general fund payment demands exceeded available cash on 27 out of the 63 working days in the quarter, at one point by $364 million. 

The squeeze has meant his office has been using cash management techniques since August, Hynes added, the first time since fiscal year 1995 that cash flow difficulties surfaced so early in the budget year. 

In addition to the measures already taken, the governor and his top budget aides may be forced to take other steps to hold down spending. Legislative approval in the fall session could be needed if the belt-tightening involves such items as reducing Medicaid coverage or borrowing from other earmarked funds, methods employed in earlier fiscal crises.

But the situation is not as dire as a decade ago, when a national recession savaged revenue estimates and forced state leaders to take extraordinary measures in an effort to balance the fiscal year 1992 budget. During that fiscal crisis, then-Gov. Jim Edgar and legislators chopped 1,300 state jobs; sliced some $260 million from education, human services and other programs; shifted $150 million into the general funds from other earmarked accounts; and accelerated tax collections. Despite their efforts, the state posted an $887 million budgetary deficit for fiscal year '92, the largest in history. 

In contrast, budget officials foresee ending fiscal year '02 in the black, with more than enough money in the bank on June 30 to pay all outstanding bills. "The current condition of the state?s finances is much, much better than it was 10 years ago," Colsch observed. "Even with the revenue revisions, we still expect a positive balance," the sixth in a row. 

The greater challenge will come next spring, when lawmakers must balance feeble revenue growth and unavoidable spending increases against a desire for election-year largesse made keener for incumbents running on unknown turf, thanks to redistricting. 

Early projections anticipate fiscal year '03 revenue growth of about $500 million, less than a third of the $1.6 billion posted in fiscal year 2000. A large chunk of the new money already is obligated for various built-in increases; some $115 million, for example, must go to shore up the state-funded pension system for public schoolteachers. 

Such budget math leaves little room for tax relief like the $280 million rebate checks issued a few weeks before the 2000 election or for the hundreds of local projects lawmakers have come to expect since Ryan's $12 billion Illinois First public works program was enacted in 1999. 

"It's going to be a tough budget year," Colsch predicted. 

So legislators may have to make a virtue of frugality ? and one suspects their constituents won't complain. 

 

Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois at Springfield.

Illinois Issues, November 2001