Lawmakers faced the second state fiscal crisis in six months when Gov. Edgar asked them January 8 for authority to cut state spending by $350 million. Edgar proposed a 3 percent cut in annual spending, which translates into a 7 percent cut during the last five months of the fiscal year. The initial Democratic response was the same as during the last spring's budget fracas, criticism of the Republican governor's human service cuts.

In telling lawmakers of the need for the cuts, Edgar took great pains to blame the problem on the national recession. He claimed that when he took office Illinois had a spending problem but that now it and most other states face a revenue problem: "Our current budget gap is not the Legislature's fault. It is not the Governor's fault. We showed fiscal discipline in July."

Whatever Edgar might say, fiscal discipline in Illinois state government remains an oxymoron.

The budget gap that the governor and lawmakers wrestled with for 19 days in July was closed, in part, by fiscal gimmickry. Having used up those fiscal tricks to balance the budget in July, Edgar and lawmakers did not have them available when revenues fell. The result put lawmakers and the governor back where they stood last spring: facing program cuts.

Recall that:

• Last March, Edgar proposed a budget that called for 12-month general funds spending of $14.2 billion. In July, after March, April, May and June revenues tumbled $200 million below his estimates, Edgar signed a budget that set general funds spending at $14.4 billion. Revenue estimates assumed economic recovery.

• Major cuts were made in programs: $25 million in welfare payments to single adults; $44 million in heating assistance to the poor; $40 million in payments for drugs to low-income senior citizens.

• Other cuts included 1,300 layoffs and budget reductions for most state agencies except for certain human service agencies.

• July's one-time fixes included the postponement of $175 million in school aid payments from June of 1992 into July, redirecting to the state $78 million of income tax surcharge money sent to local governments, $111 million in accelerated sales tax collections and $60 million in other transfers.

All of the above left Edgar with a budget stretched thin in many places. When the economic downturn continued, the budget began to unravel.

In mid-December Edgar told legislative leaders that revenues were coming in $285 million below estimates. Edgar's shortfalls included $40 million in individual income taxes, $40 million in corporate income taxes, $80 million in sales taxes, $35 million in interest earnings, $40 million in federal aid and $50 million in transfers.

On the spending side, caseloads were coming in above estimates, forcing state spending estimates upward by $235 million.

Halfway through the fiscal year, state revenues had increased $549 million, or 8.8 percent, over the previous year. That is a record high increase, but not as lucrative as it appears. Comptroller Dawn Clark Netsch attributes $380 million of the increase to one-time occurrences, namely short-term borrowing, sales tax acceleration, redistribution of the income tax and transfers.

Without the one-time increases, base revenues grew $169 million in the first six months of the fiscal year. That translates to a 2.7 percent increase in base revenue growth.

Revenues have come in consistently below estimates. In the first three months of the fiscal year, revenues were $83 million below the governor's Bureau of the Budget (BOB) projections. By the end of December, general funds revenues were $167 million below BOB projections. In practice, the BOB'S revenue estimates have been too high for three consecutive years.

Revenue estimates by other forecasters have been consistently more conservative than BOB'S. The estimates of the legislature's Illinois Economic and Fiscal Commission stood $298 million below BOB'S pre-crisis December projection. The comptroller's office, which makes revenue estimates for internal use but does not make them public, said in its December general funds report that BOB estimates had run "several hundred million dollars" higher than its own.

All that means that Edgar is correct in saying that state government has a revenue problem. What he did not say was that at least some of the problem resulted from his overly optimistic revenue estimates.

State government's problem is far more complex. Edgar took the reins of a state government facing serious financial problems. The only way out was to cut spending or increase revenues. The plan that he and lawmakers worked out in July called for some spending cuts and some one-time fixes to allow state revenues to catch up with demands. The plan failed when revenues plummeted. The "easy" one-time fixes can't be used twice in a fiscal year. That leaves deep spending cuts.

January's budget cuts It took state lawmakers and Gov. Jim Edgar two weeks to hammer out mid-year budget cuts. Lawmakers balked at handing over the budget ax to Edgar and demanded specifics. He provided them January 15. Lawmakers tinkered for a week and on January 21 approved $260 million in cuts and $90 million in transfers to the troubled general funds. Lawmakers attempted to protect elementary and secondary education and welfare programs. They restored $28 million of the $37.2 million that Edgar would have cut from the school aid formula. Lawmakers also restored $32.7 million that Edgar had proposed to cut from the Department of Public Aid, including $25.7 million in cuts to Aid to Families with Dependent Children. Included in the $260 million in cuts were: $49.2 million to higher education (Edgar's proposed number); $62 million to elementary and secondary education (down from the $100 million proposed by Edgar); $54 million to the Department of Public Aid (down from the $130 million first proposed by Edgar). Also part of the package was $90 million in new transfers to the general funds including $35 million in transfers from special state funds and $29 million in sales taxes that would have gone to the Road Fund between February and June 30. Lawmakers protected Chicago schools by allowing the drawdown of $13.3 million from reserves held by the Chicago School Finance Authority. Finally, they gave Edgar another month to come up with next year's budget, putting off his budget address from March 4 to April 7. Michael D. Klemens

26/February 1992/Illinois Issues