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Bad News In Illinois, Wisconsin

CHICAGO - Illinois owes nearly $4 billion in unpaid Medicaid and general revenue bills - a state record - and that number could grow to $5 billion by next March, Comptroller Dan Hynes warned yesterday in a letter to state leaders urging action on legislation to expand borrowing rules.

Hynes said given the magnitude of the backlog, a traditional short-term revenue anticipation note issue for cash-flow purposes would fall short of addressing the state's liquidity problems because the notes would have to be repaid by the end of the fiscal year on June 30.

"It will not allow sufficient liquidity or flexibility since the state would have to immediately begin allocating almost all remaining fiscal 2009 revenues .... This would leave the state's finances in virtually the same status in only a few months as now exists," Hynes wrote in a letter yesterday to Gov. Rod Blagojevich and the General Assembly's leadership.

Hynes urged that existing debt statutes be "modified to permit greater flexibility within Illinois' constitutional parameters" in order to "address this looming crisis." He also pressed state lawmakers to establish a revolving credit line to address fiscal pressures.

"I cannot stress enough the serious nature of the issues confronting our state. While it may have become a habit to dismiss my pronouncements as more of the same gloom and doom, the consequences of inaction are very real and potentially catastrophic" Hynes warned.

The record 12-week delay in payments could hurt local governments' ability to meet payroll and state police purchases of fuel; transit agencies could have difficulty maintaining operations, and nursing homes and day care centers could be forced to borrow on their own or close their doors. Hynes also fears the delays could grow to 20 weeks by spring.

The comptroller recently called on Illinois' two Democratic U.S. senators, Dick Durbin and President-elect Barack Obama, to help pressure the federal government to advance the state $2 billion in Medicaid revenues it is to receive this fiscal year.

Lawmakers are currently meeting in their annual fall veto session, so could act quickly on any legislative changes. Blagojevich spokeswoman Katie Ridgway said the governor's office would review the proposals.

"This touches on the poor national economy ... and we agree that short-term borrowing could be helpful," she said, adding that the governor has called on state departments to cut spending.

The Illinois Department of Revenue on Monday estimated the shortfall in the current $59 billion budget at $800 million, and warned that it could grow to $1 billion by the end of the fiscal year if income and sales tax revenue collections worsen.

Fitch Ratings and Standard & Poor's rate Illinois' $25.5 billion of general obligation debt AA, with Fitch assigning a negative outlook, while Moody's Investors Service rates the state Aa3.

The state's northern neighbor, Wisconsin, also this week issued somber fiscal news. Gov. Jim Doyle said the latest review of revenues and budget requests shows a $5 billion shortfall in the current $57 billion two-year budget that runs through June 30 and the next two-year budget cycle.

Doyle warned of spending reductions, job cuts, and some tax and fee increases, although a hike in the sales or income taxes would remain a last resort.

"There's no doubt there's going to be reductions in jobs. There just have to be when you're dealing with this kind of budget," he said. The deficit includes a $400 million to $500 million shortfall in the current budget.

The state now anticipates a 2.5% drop in tax revenues this year and a 1.5% decline in the next fiscal year. Formal revenue numbers along with a projected deficit based on departmental spending requests for the next biennium will be formally released on Thursday.

Wisconsin's $5.8 billion of GO debt is rated AA by Standard & Poor's, AA-minus by Fitch, and Aa3 with a negative outlook from Moody's.

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