In 1992, economic recession and the resulting drop in anticipated revenues placed the Illinois educational system in a state of financial crisis. Two related developments included delayed state aid payment and a 3-percent budget recision. This paper presents findings of a study that examined the effect of the decline in funding on Illinois public schools. A questionnaire mailed to all 939 Illinois school districts in March 1992 elicited a total of 486 responses, approximately a 52 percent response rate. The districts' responses to questions about their fiscal capacity were compared to data for 1990. Other sources were not used to verify the self-reported data. The data show a dramatic drop since 1990 in the percentage of school districts reporting their finances as adequate. There was no significant variation by school district type, region, or enrollment size. The data also show that fewer districts attempted to pass tax referendums in 1992 than in 1990; property-tax relief/reform remained a significant issue in many districts; taxpayer pressure appeared to keep taxes lower than the statutory maximums in some regions of the state; superintendents would spend any extra tax revenue on additional programs, teachers, and supplies; and finally, the recision and delayed state aid payments resulted in cutbacks in classroom supplies, reduced expenditures in maintenance and equipment purchases, and increased short-term debt. The paper also provides a brief overview of state-school financial initiatives. Eight tables are included. (LMI)