SPRINGFIELD, Ill. -- The Illinois General Assembly early Friday approved an approximately $26 billion all-funds budget for the fiscal year that began July 1, ending a 19-day budget impasse.

The state, which had been facing a budget imbalance of about $1.5 billion for fiscal 1992, incorporated a number of one-time revenue and federal dollar gains to bring the budget into balance.

Legislators and the governor's office said the budget was balanced in part by using about $515 million of onetime savings and transfers to general funds from earmarked accounts.

The one-shots package is comprises $182 million of fund transfers, $172 million gained by delaying one school aid payment until the next fiscal year, $111 million in accelerated sales and gasoline tax collections, and $50 million in savings from an employee early retirement program, according to legislative and administration documents.

The state would also receive about $157 million for the current fiscal year and $99 million in fiscal 1993 under a compromise reached on the 20% income tax surcharge that expired June 30. That compromise would give the state a share of the $708 million surcharge revenues for only two years. Under the previous surcharge plan, the revenues were split equally between schools and local governments in the state.

The use of the onetime revenue sources prompted some lawmakers to claim the state was digging itself into a hole for fiscal year 1993.

"Next year will be a fiscal meltdown," said Sen. Richard Luft, D-Pekin, chairman of the Senate Revenue Committee.

Gov. Jim Edgar said the agreement represented a balanced budget that would allow the state to pay off a $627 million backlog of old bills and raise its general funds balance to $200 million at the end of the current fiscal year from $100 million at the end of the last fiscal year.

"We have taken enormous and historic strides to restore fiscal integrity and stability to state government," the governor said.

Still, the governor, speaking to reporters late Wednesday night after the agreement had been struck with legislative leaders, said he was not certain the new budget would satisfy the bond rating agencies.

"This package goes a long way, but I can't be 100% sure how the credit agencies will react," he said. "We've done all that we can."

A shrinking general funds cash balance led to Standard & Poor's Corp.'s placement of about $7 billion of state debt on Creditwatch with negative implications earlier this year. Officials at the agency could not be reached for comment.

George Leung, vice president and managing director of state ratings at Moody's Investors Service, said he would need to review the details of the budget before making a comment.

Gov. Edgar and legislative leaders--who hashed out the compromise budget agrement after nearly three weeks of cantankerous negotiations past the Legislature's scheduled June 30 adjournment date -- said this year's extended budget battle was the toughest in memory.

"I've been a member of the legislature for 21 years, and this was the hardest budget of all," said House Speaker Michael Madigan, D-Chicago.

Deputy Budget Director George Hovanec said it would take a few days to analyze the dozens of appropriations bills that were passed by the Legislature to determine exact spending levels for fiscal 1992, but he added that the final package was close to the $25.6 billion all-funds budget and $13.1 billion general funds budget the governor proposed in March.

The all-funds budget also contains $558 million in additional federal Medicaid revenues through a hospital assessment plan under which hospitals will be taxed by the state for funds that would be matched by the federal government. Hospitals would then receive back from the state the amount they were assessed, plus a portion of the federal matching funds, according to Dean Schott, a spokesman for the Department of Public Aid.

Sen. Howard Carroll, D-Chicago, a backer of the plan, acknowledged the plan was somewhat risky, because the Bush administration has warned that it might issue new Medicaid rules by the end of September that would eliminate the ability of states to assess hospitals to leverage federal funds. Seventeen dollars using the assessment plan, Sen. Caroll said.

"If that happens, we'll have to plug that hole," he said.

Sen. Penny Sevens, D-Decatur, who sponsored the plan, said state officials would approach senior Illinois congressmen such as Rep. Dan Rostenkowski, the chairman of the House Ways and Means Committee, and Rep. Robert Michel, the House minority leader, to lobby the White House not to change the rules.

The overall budget package includes:

* A permanent 10% increase in the state income tax that will raise about 395 million a year for education. A 10% two-year income tax surcharge will raise $157 million for local governments. In the second year of the temporary surcharge, local governments would receive $228 million.

* Tightened eligibility requirements and makes cuts for a savings of about $800 million in state-generated funds from fiscal 1991 general funds spending levels from social service, such as the general assistance program, public aid health care payments, subsidies for the elderly and poor for pharmaceutical purchases and heating assistance. However, much of that funding will be restored with the $558 million in federal funds from the hospital assessment plan, Mr. Hovanec said.

Compromises on other issues that the governor and legislative leaders said led to a resolution of the budget stalemate included:

* Annual property tax collections in five suburban Chicago counties that will be capped at 5% or the rate of inflation, whichever is lower. Debt service on bonds approved before the law goes into effect Oct. 1 or bonds approved by referendum would be exempt from the caps. In addition, property tax assessments in suburban Cook County will be freezed for one year.

* All municipalities in the state will be allowed to enact a two-year interstate message tax in order to partially make up for reduced revenues due to changes in the income tax surcharge distribution. In addition, Chicago will for the first time share in a statewide photo-processing tax and is expected to receive increased revenues by having the state Department of Revenue collect the city's Motor Vehicle Use Tax for two years, according to House Speaker Michel Madigan, D-Chicago.

Rep. Madigan said those changes should amount to about $30 million in annual revenues for the city and cushion the blow of the approximately $22.5 million the city had budgeted but will not receive in the last six months of this calendar year from the income tax surcharge.

"Chicago did very, very well," Rep. Madigan said.

Not so lucky was the Chicago Board of Education, which saw the sound defeat of a plan to close its budget deficit by using $60 million of Title 1 money dedicated to special programs for the poor. The board, which must submit a balanced budget to the Chicago School Finance Authority by Aug. 1, has estimated its budget deficit for the fiscal year that begins Sept. 1 as high as $312 million.

The state's $4.28 billion general obligation debt is rated Aaa by Moody's Investors Service and AA-plus by Standard & Poor's Corp. The state is on Standard & Poor's Creditwatch with negative implications.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.