Budget Summary

              Budget Summary
Last year the National Governors Association (NGA)
drew upon the movie “The Perfect Storm” to
characterize the fiscal crisis impacting every state:
“States are facing a perfect storm: deteriorating
tax bases, an explosion in health care costs, and
a virtual collapse of capital gains and corporate
profit tax revenues.”
Beginning with the recession in 2000, the perfect
fiscal storm the NGA described has resulted in
massive deficits for states across the country.
Governments, like individuals and businesses, suffer
during a recession, but even more so. Costs like
Medicaid increase, while revenues, particularly taxes,
don’t increase or even fall.
The national recession has resulted in a loss of
almost 2.4 million jobs. Moreover, a job-malaise
characterizes the national economic recovery that
began in 2003. Fewer workers has meant lower
income and sales taxes and more families receiving
Medicaid benefits.
Illinois was dramatically impacted by the perfect fiscal
storm described by the NGA. Last year, Illinois was
headed toward a record $5 billion deficit. However,
the state has survived its perfect storm, reflecting the
underlying strength and resiliency of the Illinois
economy, in conjunction with significant fiscal year
2004 budget balancing actions taken by Governor
Blagojevich.
FISCAL DISCIPLINE
The fiscal facts are clear; the fiscal solutions will
remain difficult. Driving those solutions is an ongoing
commitment to fiscal discipline. Fiscal discipline in
Illinois means not doing business as usual. That
means no more inflated revenues or underestimated
expenses which hide deficits and result in budgets
that are balanced only on paper, but not in reality.
Fiscal discipline also means that the state must better
manage its financial affairs and the business of the
state. The fiscal year 2004 budget represented a
major step in taking responsibility for the fiscal
dilemma facing Illinois and offering a budget plan that
addresses key factors behind the structural deficit.
Key elements of the fiscal year 2004 budget included:
• Cutting administrative costs;
• Reducing the workforce to lowest total in more
than 30 years;
• Restructuring pension debt and investing
additional assets to reduce pension liability;
• Increasing and diversifying base revenues:
o Closing loopholes,
o Raising non-consumer user fees, and
o Ending internal subsidies to hundreds of
other funds;
• Authorizing contemporary debt management
tools and techniques;
• Using short term financing at an annual rate of
less than 1 percent to pay down high interest rate
debts owed to state vendors (12 percent under
the Prompt Payment Act) and past due income
tax refunds (at a 6 percent interest rate);
• Committing to fund a Rainy Day Fund and to
increasing that fund every year.
In fiscal year 2004, the Governor also introduced a
series of management controls including:
• Budgetary Reserves: Two percent of the annual
authorized spending for all state funds, for every
agency under the Governor, is held in reserve at
the beginning of the year and cannot be spent
without approval.
• Quarterly Allotments: The annual budget of
each agency under the Governor is allocated into
four quarterly budgetary allotments in order to
ensure flexibility and adjust spending plans
throughout the year.
• Monthly Reporting: Each agency under the
Governor must adjust its annual budget to reflect
quarterly allotments and the 2% budgetary
reserve, and then forecast and report monthly
expenditures. Actual spending is then compared
to the forecasted amount for each month and a
variance analysis must be provided to the
Governor’s Office of Management and Budget
(GOMB) for any significant differences. The
Monthly BAV (Budget-Actual-Variance) Report
must also contain a corrective action plan to
ensure budget control is maintained.
• Strategic Planning: Using the priorities
established to resolve last year’s $5 billion deficit
without cutting education, healthcare or public
safety, the Governor’s Office instituted a new