CHICAGO — Thanks to rising tax revenue, Illinois managed to chip away slightly at the unpaid obligations on its books going into the new fiscal year on July 1, but the number remained at a staggering $7.5 billion to $8 billion, Comptroller Judy Baar Topinka reported Monday.

The state closed out the two previous fiscal years, 2010 and 2011, with about $8.5 billion in bills for schools, transit systems, employee health insurance and Medicaid. That number shrank to $7.5 billion to $8 billion at the close of fiscal 2012 on June 30 as an income tax increase that took effect in January 2011 brought an infusion of cash to help ease the state’s cash crunch.

The bill backlog for fiscal 2012 includes $3.65 billion of unpaid general fund vouchers and fund transfers, down from $3.8 billion a year earlier, as well as $670 million in educational funds.

In addition, $3.5 billion of fiscal 2012 vouchers mostly related to Medicaid and state employee health care are expected to be submitted to the comptroller’s office by an Aug. 31 deadline. The state also still owes corporate income tax refunds.

“The state’s massive backlog has remained, despite a fiscal year increase of $2.3 billion in base revenues,” the comptroller’s quarterly report says.

Most of the additional revenue, representing a 7.4% growth rate, went to help make the state’s $4 billion in pension payments, which in the two previous year were covered with borrowing. “That change increased immediate spending by $2 billion, but alleviated the need for further borrowing.”

Individual income tax revenue leaped 38.2%, or $4.3 billion, while corporate tax collections rose by 33% to generate an additional $610 million. State coffers also benefited from increased consumer spending as sales taxes rose by 5.8%, raising an additional $393 million.

Overall growth, however, was hurt by a loss in federal funds which declined by $1.7 billion, or 31.6%. The drop was due in part to the expiration of a higher Medicaid reimbursement rate last summer.

While other taxes offered a mixed bag of results during the last fiscal year, the state did receive its final installment of $73 million for a 10th riverboat casino license.

General fund base spending rose by 6.3% or $2 billion.

Gov. Pat Quinn’s  office issued a statement noting that $1.3 billion in the fiscal 2013 budget will go to pay down the backlog and that Medicaid reforms  will also cut the future bill backlog. “We need additional changes, particularly to the state's pensions, in order to prevent the ongoing squeeze on all areas of state government,” spokeswoman Kelly Kraft said. “The governor cannot act alone and continues to work with the General Assembly to address these pressing challenges.”        

The $33.7 billion fiscal 2013 budget signed late last month by Quinn provides $1.3 billion to aid in further bringing down the backlog by the end of the fiscal year, but a sizeable mountain of bills is expected to remain one of the state’s central challenges.

Topinka also warned that the appropriation in the new budget for state employee health insurance falls far short of what is likely needed and may fund only half a year’s bills.

State officials could be banking on increased retiree contributions for their premiums expected under a new law, but those changes are still subject to state and union negotiations and the law is the subject of two lawsuits filed by retirees.

The state also is on pace to exhaust funds for child care by next spring. Aging programs may also fall short. The state will face pressure to come up with the needed funds to cover public university subsidies and university teacher pension payments.

“While Illinois has made gains by making its pension payments and addressing spending growth, there remains a long way to go. As a result, long-standing delays for providers of state services will continue into fiscal year 2013,” the report reads.

Investors and rating agencies are paying close attention to how the state deals with its bills as a sign of its liquidity position.

“If the state does not implement meaningful changes to further align revenue and spending and address its accumulated deficit for fiscal 2013, we could lower the rating this year,” Standard & Poor’s has warned.

Standard & Poor’s rates Illinois A-plus with a negative outlook.

The agency is also watching to see what action the state takes to rein in growing pension obligations and mammoth unfunded liabilities.

Reforms stalled during the General Assembly’s spring session and Quinn is prodding lawmakers to act this summer or fall.

Moody’s Investors Service rates Illinois’ general obligation debt A2 with a stable outlook. Fitch Ratings assigns an A and a stable outlook.

The state plans this week to sell nearly $1.5 billion of double-A rated unemployment insurance bonds to repay the federal government.

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