CHICAGO — Illinois could end the fiscal year owing more than $8 billion in bills, a level that underscores the need to cut spending in order to stabilize its balance sheet, Comptroller Judy Baar Topinka warned Wednesday.
The state is on pace to end fiscal 2011 on June 30 with a backlog of at least $4.5 billion. When other fiscal 2011 obligations are added after their submission in the first few months of the next fiscal year, the figure rises by $3.8 billion, including $850 million in corporate tax refunds and $1.2 billion for state employee health insurance.
The comptroller’s office currently has more than 208,000 vouchers requesting $4.52 billion in payments from schools, universities, hospitals, social service providers, transit agencies, and private businesses with some obligations dating back as far as Nov. 5, Topinka said in an interview Wednesday.
The figures resemble those reported at the same time last year, but Topinka said the public anticipated an improvement in fiscal stability, given the passage earlier this year of an individual and corporate income-tax increase that is expected to generate $6 billion to $7 billion annually.
“The money is gone and the unpaid bills are still unpaid. We are still spending more than we take in,” she said. “The only thing that is going to stabilize the state is if the governor and the Legislature rein in spending.”
Topinka has outlined $1 billion in cuts for consideration.
In the comptroller’s quarterly report issued earlier this month, Topinka warned that the state escaped short-term “financial catastrophe” by raising the income tax and using a one-time infusion of cash from two bond sales and a tax amnesty.
In the fourth quarter of the fiscal year, the state must repay $1.3 billion of short-term certificates issued last July, and debt service on other obligations also continues to rise.
Base revenue rose in the current fiscal year by more than 14%, but about 70% of the increase is from one-time revenue sources such as the sale of $1.5 billion of tobacco bonds and the fall tax amnesty program, said the report, which covered the first three quarters of fiscal 2011.
The state has begun to see greater cash flow as a result of the passage in January of an increase in the individual income-tax rate to 5% from 3%, and an increase in the corporate rate to 7% from 4.8%. On the expenditure side, general fund spending rose by 11.35%, or $2.45 billion, over the same period in the last fiscal year.
Topinka issued her warning as lawmakers return from a brief spring hiatus this week to focus on budget bills. It also echoes the comments of analysts and investors who have said the effects of the income tax increase, though positive, won’t solve the state’s fiscal crisis.
Gov. Pat Quinn initially wanted to borrow $8.75 billion to pay down the bill backlog and for other expenses as part of his $53 billion fiscal 2012 budget, but that plan ran into bipartisan opposition.
Quinn recently pressed for a $2 billion borrowing plan to pay off Medicaid bills, which would allow the state to capture higher federal reimbursement rates that expire June 30, but no vote has been taken.
A Quinn budget spokeswoman said the governor agrees with the comptroller’s figures and believes borrowing is still needed as part of an overall fiscal stability plan. “Gov. Quinn is committed to solving an inherited budget crisis through job creation, reducing spending, enacting major reforms and restructuring overdue bills at lower interest rates,” said Kelly Kraft.
The state treasurer and Topinka must sign off on any cash-flow issuances, but such a borrowing would do little to ease the state’s liquidity woes because those certificates must be repaid by the end of the fiscal year in which they are issued.
Quinn wants more time to repay the new debt, and any other borrowing authorization must receive a two-thirds vote of the General Assembly to win passage. Quinn is a Democrat and his party controls both houses of the General Assembly, but lacks a two-thirds majority in the House.
Topinka and Treasurer Dan Rutherford are Republicans. Topinka said she supports paying off Medicaid bills, but wants to see spending cuts before embracing any short- or long-term borrowing.
After a series of downgrades, Illinois’ general obligation bonds are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.