Illinois Fiscal 2014 Gains Overshadowed

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CHICAGO — Illinois made headway in paying down its bill backlog in fiscal 2014, bringing the total to under $5 billion for the first time in years, as state revenues showed growth on par with estimates, according to various fiscal reports.

The fiscal momentum on the backlog could reverse course in the new fiscal year that opened July 1 given the General Assembly's failure to either extend an expiring 2011 income tax hike or cut spending. Standard & Poor's revised the state's outlook to negative last week in large part due to concerns over the state's structural budgetary woes.

The state closed out fiscal 2014 June 30 with $2.4 billion of unpaid general fund vouchers and transfers awaiting payment, Comptroller Judy Baar Topinka said in her July report. That's down from $3.28 billion at the end of fiscal 2013. Another $2.2 billion of bills are being held by other state agencies, bringing the total bill backlog of payables carried into fiscal 2015 to $4.6 billion.

The state closed out fiscal 2013 with a $6.1 billion backlog and fiscal 2012 with a $7.5 billion backlog, down from a previous high of $9.9 billion in 2010.

The figures illustrate the steady improvement the state has made in paring down its backlog, which is closely watched by the rating agencies as an indication of the state's structural budget condition.

Standard & Poor's analyst Robin Prunty said the rating agency is concerned the new budget "will contribute to growing deficits and payables that will likely pressure the state's liquidity."

The outlook revision to negative from developing on the state's A-minus rating — the lowest among states — also reflects the implementation risk associated with recent reforms related to postretirement benefits, she wrote.

The state closed out fiscal 2014 with $104 million, or 0.6%, more in individual income tax revenue while corporate income taxes were down $13 million, or 0.4%. Sales tax collections rose by $321 million, or 4.4% for the year.

"The comptroller's office will focus this month on paying down carried over bills from fiscal year 2014 during the lapse period," Topinka's report read. The current backlog of bills is expected to remain steady in July as Medicaid bill payment will benefit from the transfer of $600 million from the general fund approved by lawmakers this spring.

The comptroller's numbers conflict slightly with those released by Gov. Pat Quinn who in a statement this month put the bill backlog at $3.9 billion, the lowest since he took office.

"Today Illinois is in a stronger financial position than we were five years ago and we have more work to do to continue moving our finances in the right direction," Quinn, who faces re-election in November, said in the statement.

The difference between the governor and comptroller's number reflects the comptroller's practice of counting Medicaid invoices when the bills are received. Quinn does not count the bill until it is overdue.

The Republican comptroller recently warned that the state stand can't afford the sudden expected drop of $1.9 billion in revenue during fiscal 2015 and $2.9 billion in fiscal 2016 due to inaction on making the tax rates permanent or enacting spending cuts. She suggested the state phase in the income tax rollback over several years. Lawmakers are expected to revisit the tax issue after the November election.

"This level of revenue decline, at the same time the state has continued spending pressures in the areas of education, health care, human services and pensions, will be very difficult to absorb," another report from the comptroller read.

The General Assembly's Commission on Government Forecasting and Accountability reported that state revenue performance in fiscal 2014 was solid, with modest growth and performance that reflected estimates.

"While the final tally for the fiscal year shows gains of only $654 million or 1.8%, that really doesn't paint an accurate picture of the fiscal year's success," revenue manager Jim Muschinske wrote.

Sales taxes performed well the entire year, posting a $321 million gain. The gains in fiscal 2014 would have looked better if not for the "April surprise" in the previous year when revenues were inflated by $1.3 billion as taxpayers sought to capitalize on federal rates ahead of a scheduled increase.

"Given that perspective, and adding that the fiscal year finished $1.272 billion higher than originally budgeted, it's clear that revenues performed very well in fiscal year 2014," Muschinske wrote.

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