CHICAGO — Illinois closed the books on fiscal 2010 last week in the “worst fiscal position in its history,” with a record $4.7 billion in unpaid bills as floundering revenues failed to cover spending, Comptroller Dan Hynes reported in his quarterly overview of the state’s fiscal condition.
That figure will grow as pending bills are submitted, Hynes cautioned, noting that the state will need to successfully complete several financings to pay off the vouchers by a December deadline and tap $1 billion from surpluses in non-general fund accounts. The issues include $1.3 billion of general obligation cash-flow certificates slated for July 21 and a tobacco bond sale that is expected to generate $1.2 billion in proceeds.
“The precise timing of these events is uncertain, but they are essential for the state to meet its fiscal year 2010 obligations,” Hynes said in the report.
The backlog of bills owed and requests for fund transfers is up from the $2.8 billion recorded at the close of fiscal 2009. The length of time it takes the state to pay vouchers also hit a record high of 153 days during fiscal 2010, up from 99 last year.
The amount of bills due in fiscal 2010 will mount as Illinois observes a lapse period in which it accepts fiscal 2010 bills through August. As much as $2.6 billion of fiscal 2010 general fund appropriations have not yet been submitted for reimbursement.
Hynes warned in his report that the final number could reach $6 billion. Gov. Pat Quinn and lawmakers anticipated owing $6 billion and extended the period during which the state can pay off prior fiscal year bills until the end of December.
Base spending for the year fell 8.8% due to the backlog of bills and state borrowing to cover a $3.5 billion fiscal 2010 pension payment. Base revenues fell by 4.2%. Revenue from corporate income taxes was down by 20.5%; sales taxes were short 6.9%, or $465 million; and individual income taxes fell 7.7 %, or $712 million. Stimulus aid totaled $1.6 billion, up $41 million from 2009, Hynes reported.
June revenues dropped $588 million, helping to drag overall revenues for fiscal 2010 down $2 billion, with nearly all key state income sources feeling the recession’s impact, according to the June report from the nonpartisan Commission on Government Forecasting and Accountability. The commission advises the General Assembly.
Hynes predicted a worsening situation, unless action is taken.
“The state will likely end fiscal year 2011 with a general revenue fund bill backlog significantly higher than that at the end of fiscal 2010,” the report reads, without “significant changes to the current budget plan either through reserves, appropriation reductions, pension bonding, or major revenue enhancements.”
The commission also struck a cautionary note for the new fiscal year, saying that “the immediate future is still quite somber as a weak recovery effort continues to suppress optimism about a meaningful economic turnaround.”
Reluctance in Washington to render continued financial assistance to the states could jeopardize the precarious financial picture, according to the report.
Fiscal experts generally agree that Illinois must adopt a multi-year plan to address an ongoing $12 billion structural deficit through a mix of spending cuts and revenue increases. The General Assembly, facing re-election along with Quinn in November, refused to do so. Instead, it gave the governor sweeping powers to trim expenses.
Quinn signed a fiscal 2011 all-funds budget last month of about $50 billion and announced $1.4 billion in cuts. The governor hopes lawmakers will approve both a tax increase and a plan to issue $3.7 billion of bonds to cover the state’s 2011 pension payment.
Illinois’ financial troubles are having a negative impact on its ratings and the state paid a premium on its recent bond issues due to negative fiscal news and an abundance of issuance.
Fitch Ratings and Moody’s Investors Service recently downgraded the state’s $25.7 billion of GO debt. Fitch lowered Illinois’ rating to A from A-plus and assigned a negative outlook. Moody’s downgraded the credit to A1 from Aa3 and assigned a stable outlook. Standard & Poor’s affirmed the state’s A-plus, which is on negative watch.
In addition to the certificates later this month and the tobacco deal planned for later this year, the state will sell $900 million of GO taxable Build America Bonds next week.