CHICAGO -- Gov. Jim Edgar of Illinois has told state lawmakers that revised revenue and spending estimates have revealed a shortfall in the state's fiscal 1992 general funds budget that could reach $520 million.

Mike Lawrence, a spokesman for the governor, said the state Bureau of the Budget estimated this week that general funds revenues are $285 million short of the $14.7 billion estimate made when the budget for the fiscal year that began July 1 was put together.

The new forecast closely follows an October projection by the Illinois General Assembly's Economic and Fiscal Commission that showed a revenue shortfall of $298 million.

The budget bureau also is estimating that, because of the recession, spending on entitlement programs, such as public aid, could grow $235 million more than was projected in the budget, Mr. Lawrence added.

He said the $235 million increased spending estimate was a "soft" number that represented a worst-case scenario if the recession does not end soon.

Although the potential shortfall in the budget is estimated as high as $520 million, Mr. Lawrence said initial talks with legislative leaders on Tuesday focused on cutting $350 million out of the budget.

But, he added, more cuts may be needed if the economy does not pick up.

Mr. Lawrence emphasized that the governor would not consider a tax increase to avoid spending cuts.

"The solution to the budget problem is budget cuts," Mr. Lawrence said. "Tax increases are not an option."

Nevertheless, a tax increase could be on the table when the General Assembly reconvenes next month, according to Steve Brown, a spokesman for House Speaker Michael Madiga, D-Chicago.

"The speaker has been getting calls from other legislators suggesting that a temporary tax increase ought to be one of the alternatives," Mr. Brown said. "He has not endorsed that, but he is not adverse to taking a look at it."

The legislature is only scheduled now to meet one day in January to hear the governor's state-of-the-state address. But Mr. Brown said more days will likely be scheduled to address the budget problem.

Mr. Lawrence also said the governor does not favor short-term borrowing as an option to bridge a budget shortfall.

In August, the state sold $185 million of general obligation certificates that must be paid off by June 15, 1992. The proceeds were used to pay bills.

The state has a deteriorating financial position caused by overspending during the past two fiscal years. This was cited by Standard & Poor's Corp. when it downgraded $4.2 billion of the state's GO debt to AA from AA-plus in August.

Moody's Investors Service lowered its rating on $4.3 billion of GO debt to Aa1 from Aaa in September.

George Leung, vice president and managing director for state ratings at Moody's, said the state's options in cutting the budget will be "more constrained" when the legislature returns in January because the fiscal year that ends June 30 will be half over.

Mr. Brown said major cuts in the state budget could mean state aid to the Chicago Board of Education could be reduced.

That would put further pressure on the cash-strapped board, which narrowly avoided a teachers strike last month by promising a 2% pay raise to teachers this year at a cost of $18 million.

That raise will be funded by $12 million in cuts from the board's $2.3 billion budget and savings derived from a refinancing of a portion of the board's $479 million outstanding lease-revenue debt that has been issued on behalf of the board by the Chicago Public Building Commission.

Standard & Poor's Corp. on Oct. 6 assigned a negative outlook to the board's BBB rating on $75 million of outstanding general obligation debt, in part because of the financial pressures the school system will face in coming years.

The board is already estimating a $278 million shortfall for the fiscal year that begins Sept. 1, 1992.

A spokesman for the board could not be reached for comment yesterday.

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