CHICAGO – Illinois is on pace to close out the fiscal year with a $10 billion to $12 billion backlog of unpaid bills as the state moves into the fiscal year's eight month without a budget in place, state comptroller Leslie Geissler Munger warned Tuesday.
The state is on pace to be further behind on its bills than the record $9.9 billion backlog seen in 2012 under former Gov. Pat Quinn. The state was able to shave the figure down to a few billion over the next several years as revenues from a temporary 2011 income tax flowed into state coffers.
The backlog currently stands at $7 billion, but it's growing quickly, Munger said.
The $10 billion to $12 billion projection comes from combining an inherited backlog of about $4 billion at the close of fiscal 2015 with a shortfall of $5 billion in revenues this year due to the partial expiration of the 2011 income tax hike in January 2015 and $1.2 billion in higher spending so far this year.
Spending is higher based on various court orders, consent decrees, and continuing appropriations that in some cases require ongoing payment as a level required to meet existing services, Munger said.
"The bottom line is that the state cannot go bankrupt and we cannot print money," Munger said. "Taxpayers are going to have to pay this bill."
The more time that goes on without a budget the deeper the hole grows, making it harder to find a pathway to regain the state's fiscal footing, she said. "The long term financial implications of this impasse pose an equally daunting threat to our businesses, our taxpayers, and our social service organizations."
The state's three-year budget forecast released early last month showed the backlog rising to $25 billion in fiscal 2019 from fiscal 2015's $4.4 billion based on current levels of spending and revenues.
The backlog, if left unchecked, could pressure the state's already battered credit rating, Moody's Investors Service warned last week.
Such concerns factored into the rating agency's October downgrade of the state's general obligation rating to Baa1 from A3. Illinois was already the lowest-rated state before the downgrade. Moody's assigns a negative outlook.
Fitch Ratings rates the state at the same level at BBB-plus with a stable outlook and Standard & Poor's assigns the state an A-minus rating and negative outlook.
Munger, who was appointed to the post last year by GOP Gov. Bruce Rauner after the death of the incumbent Judy Baar Topinka, highlighted the dire impact on social service agencies, some of which have shuttered due to months-long delays in payments or the absence of payments without an appropriation.
She also warned that state colleges and universities are borrowing, cutting staff, and draining reserves to keep their doors open, which will damage future enrollment and recruiting. Chicago State University said it will run out of money to pay its debt and payroll next month.
Rauner, in his State of the State speech last week, softened his tone against Democrats and called for bipartisan cooperation but also again stressed the need to pass his policy and governance agenda items like term limits, worker compensation reforms, and local government union curbs as part of the budget. Democrats oppose them and want Rauner to tackle the budget with a tax hike separately. Rauner will present a fiscal 2017 budget later this month.
The gridlock showed little sign of easing this week. Democratic and Republican lawmakers differed over a bill to fund college scholarships and Rauner pledged to veto the Democratic version that passed.
Rauner and Senate President John Cullerton, D-Chicago, agree on a pension reform package that would offer employees a choice between two benefits that could trim an estimated $1 billion of the state's fiscal 2017 contribution of $7.8 billion. Supporters believe the plan can withstand a legal challenge. The state is saddled with $113 billion in unfunded obligations and the limited reform options after the Illinois Supreme Court voided a more sweeping package last May.
Cullerton however said he doesn't expect actual legislation to be voted on anytime soon due to upcoming elections and union opposition. Cullerton said the legislation could be part of a larger package that includes a budget agreement.
The state has seen spreads on its general obligation paper widen in secondary trading. Municipal Market Data said spreads were trading at more than 170 basis points to the top-rated benchmark compared to the 160 basis point spread on the state's $480 million sale earlier this month.