CHICAGO -- East St. Louis, Ill., met a critical deadline last Friday in its continuing efforts to solve its financial ills by submitting a fiscal 1992 budget to a state-created watchdog group.

By presenting a purportedly balanced $6.5 million budget for the fiscal year that begins Jan. 1 to the East St. Louis Financial Advisory Authority, the city moved a step closer to complying with a financial restructuring program devised by the authority that eventually could lead to a $30 million bond-financed bailout of the impoverished city.

The authority was created last year after passage by the Illinois General Assembly of the Financially Distressed Cities Act. That law set up a general framework for rescuing troubled cities, but was drafted specifically with East St. Louis in mind.

At that point, East St. Louis no longer had money to fix broken police and fire vehicles or pay for garbage collection.

Earl Lazerson, authority chairman, said yesterday the authority has 30 days to review the submitted budget to determine whether the city's revenue and expenditure estimates are reasonable. The authority can accept the budget, or reject it and make the city draft a new one.

By meeting the Nov. 1 deadline, East St. Louis maintained access to a $3.75 million loan fund created by the authority earlier this year to assist the city in paying its bills on time.

The authority had voted on Oct. 26 to cut off access to the loan fund if the city did not submit a balanced budget by Nov. 1.

"It was clear at our Oct. 26 meeting that the city had made no progress in preparing a budget and that it was doubtful that they would have one ready by Nov. 1," Mr. Lazerson said.

But the City Council and Mayor Gordon Bush met every day last week before approving a budget on Friday afternoon, according to Wallace Anderson, the city manager.

Submitting a balanced budget is the first step in restructuring the city's finances, Mr. Lazerson said. The next step is developing a long-term financial plan that would involve documenting the city's outstanding debt, now estimated at $50 million.

The city and authority are currently working on the long-term plan, and no date has been set for its completion, according to Mr. Anderson.

After the plan is completed, Mr. Lazerson said the financial advisory authority would request that the Illinois Development Finance Authority issue $30 million of bonds and loan the proceeds to the city to assist in paying off its long-term debt, as authorized by the Financially Distressed Cities Act.

The city would be responsible for paying debt service on the bonds. In case the city failed to make debt service payments, the financial advisory authority would have the power to intercept the city's annual $3 million of state income and sales tax revenues. As added security, the bonds would also carry the moral obligation pledge of the state.

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