Illinois Governor Rod Blagojevich, who likes to speak in superlatives, once claimed to have inherited "the worst budget crisis the state has ever known." The budget shortfall when he took office in 2003 was $5 billion--not calamitous, compared with those of some other states, but plenty daunting nevertheless, especially in view of the governor's commitment not to raise income or sales taxes. Moreover, in addition to the short-term deficit, Illinois was facing the long term fiscal consequences of a disastrously expensive early retirement program and the nation's most underfunded state pension plan.

That all underscores the confidence the governor placed in budget director John Filan, who was given the challenging task of coping with both the immediate and the long-term problems. In general, the governor's confidence seems to have been well placed. Filan has kept the budget in balance without raising broad-based taxes. He has done it by using methods that have been consistently innovative and often controversial. In a few cases, they have been declared illegal. But he keeps seeking new approaches.

Filan has been as aggressive as any state official in the country in streamlining and consolidating bureaucracy. Over the past two years, the number of state agencies has shrunk by nearly a third, from 66 to 46, while the total number of state employees is holding at levels not seen since the 1970s. The operational cost of government in Illinois has gone down, while grants to school districts and other service providers have gone up. The state now has five data centers servicing its technology needs, instead of the previous 22.

"Few people have as good of a perspective on what is driving the cost of state government as John Filan," says Laurence Msall, president of the Civic Federation, a business-funded watchdog group in Chicago.

Filan, who is 58 years old, worked for the state's last Democratic governor, some 30 years ago, and went on to found a large accounting firm that consults with local governments and some state departments. He says he recognizes that "there's a lot more negotiation and give and take that's involved in the public sector than in a top-down business environment."

In fact, though, Filan has earned the enmity of other government officials because of what some complain is a high-handed manner. Legislators gave Filan the authority in 2003 to pay for shortfalls in general services with money from some of the state's 649 dedicated funds but found that he wasn't averse to dipping into their favorite earmarked programs. On occasion, legal authorities have ruled that Filan's dipping tactics were in violation of state law.

One court ruled, for example, that he couldn't use money from an environmental trust fund for purposes that weren't environmental in nature. The attorney general blocked Filan's attempted capture of highway toll money and invalidated a Chicago real estate deal the state made, saying it had overstepped its bounds in taking on long- term debt.

Filan says some of the problems he's encountered simply grew out of the challenge of forcing major change on a grand scale in a short time. "You're not going to get it right every time," he says. And, indeed, the administration has sounded more conciliatory tones this year. Both Blagojevich and Filan have gone out of their way to publicly praise legislators, including Speaker Michael Madigan, a frequent sparring partner.

Filan and Blagojevich are going to need all the help they can get as they start a new budget cycle in which revenue growth is fairly stagnant and major changes to Medicaid and employee health insurance are inevitable. Pensions remain a big problem, too. "John Filan has an unenviable job," says Donne Trotter, chair of the Illinois Senate Appropriations Committee. That may be just as true in 2005 as it was in 2003.