CHICAGO — The battle for the Democratic nod in the Illinois governor’s race centered on state finances yesterday as Comptroller Dan Hynes — Gov. Pat Quinn’s primary rival — issued a warning over the state’s dire fiscal condition, including $5.1 billion in unpaid bills and the looming repayment of $2.25 billion of cash-flow notes.

Hynes warned that the state’s liquidity is so strained it is facing “the most dangerous fiscal conditions in modern history,” in a statement accompanying his office’s quarterly report. The state enters the third quarter of fiscal 2010 with record bills, payment delays, and debt.

Illinois closed out December with $5.1 billion in unpaid bills, compared to $1.84 billion a year earlier. It was also behind in paying bills by 92 days, compared to 48 days a year earlier. Both the dollar amount and the delay are record highs.

An additional burden on cash flow is the looming repayment of $2.25 billion of cash-flow certificates due before the state closes the books on the fiscal year on June 30. Hynes warned that when another $1.4 billion of unpaid health care bills — not yet submitted to his office — are counted, the state faces an overall backlog of $8.75 billion.

“This ongoing fiscal disaster is threatening to permanently harm programs and services serving children, seniors, and the disabled, and if that is allowed to happen, this state will have failed our most vulnerable citizens,” Hynes said.

Quinn fired back, placing some of the blame on Hynes for his refusal to sign off on a plan late last year to borrow $500 million using cash-flow certificates to pay down bills.

“Gov. Quinn is working diligently to pay down the state’s bills and will continue to carry on that mission through sound fiscal management. The pain now being endured by the state’s vendors would have been eased in December had the comptroller approved a short-term, cash-flow borrowing that Gov. Quinn requested,” a statement from the governor’s press office read. “The comptroller’s denial of that request is contributing to this growing backlog of unpaid obligations.”

Short-term borrowing in Illinois requires the approval of the comptroller and the treasurer.

Quinn also said the liquidity crunch would be eased somewhat following the state’s issuance this week of $3.5 billion of taxable general obligation bonds to cover its pension payments, freeing up general funds. Hynes countered that position, calling it a temporary salve as the $2.25 billion of notes come due.

The two face off in the Democratic primary scheduled for Feb. 2. The general election is in November.

Quinn sought an increase in the state’s flat income tax rate last year, but lawmakers refused. He is expected to resurrect the request in some form after the primary. Hynes has proposed shifting to a progressive tax-rate structure requiring higher-income individuals to pay more.

Service agencies and school districts have warned of cuts as they await state funds. Illinois is behind $1 billion in grants to school districts and preschool programs and by $775 million to higher education institutions, while local governments and transit districts are owed $478 million. The University of Illinois Tuesday announced that administrators and professors were being required to take unpaid furlough days because the state owes the system more than $400 million in funding.

Revenue for the fiscal year to date continue to falter. Corporate income taxes fell 16.3%, sales taxes are down 12.6%, and individual income taxes are down 7.6% over figures for the same time last year.

Illinois has suffered a round of downgrades, with analysts citing as factors the liquidity crisis, the state’s overall poor economic performance, its reliance on non-recurring revenues to deal with a $12 billion deficit, and its ongoing structural budget deficit.

Fitch Ratings rates the state A on negative watch, Moody’s Investors Service rates it A2 with a negative outlook. Standard & Poor’s rates it A-plus with a negative outlook.

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