The state's path "is particularly troubling," Comptroller Judy Baar Topinka warned.

CHICAGO — Illinois' fiscal position in the last quarter improved but it may be short-lived as bills are again mounting and the income tax windfall that has eased payment of the prior year's bills as fiscal 2014 began won't be repeated, Comptroller Judy Baar Topinka warned in a quarterly fiscal report.

The state was able to pay off all of its previous-year bills during the first quarter that ended Sept. 30. In contrast, the state closed out the first quarter of the 2013 fiscal year with $1.4 billion of prior year bills.

The state was able to pay off last year's bills at the fastest pace since 2009 because it carried fewer bills into fiscal 2014 on July 1 and took in stronger-than-expected revenues for the first quarter.

The state had been aided by an infusion of more than $1 billion last April as taxpayers sought to take advantage of fiscal 2012 rates on capital gains. Sales taxes have climbed faster than expected this year, and the general fund received an unexpected transfer of $400 million from an income tax relief fund.

In the new fiscal year the state has received $4.18 billion of fiscal 2013 bills, down from nearly $5 billion the previous year, and all are now paid. The report cautioned that number could still rise due to Medicaid appropriations.

The state' unpaid bill backlog at the end of September totaled $4.6 billion, down $1.3 billion from the same time last year. "The backlog of bills …accounts for only what has been submitted for processing and not what is held at other state agencies. When estimates of bills being held at state agencies are included, the state's total bill backlog approximates $7.5 billion," the report said.

Income tax revenues collected in the first quarter grew by $205 million, or 6%, while sales taxes rose by $139 million, or 7.7%, due to economic growth aided by strong automotive sales. Federal revenues fell by $184 million, or 20%, due to a decrease in eligible Medicaid reimbursements from the previous year. Spending increased by $725 million, or 9%.

"While there have been some positive circumstances that impacted the backlog of bills in the last six months, the state remains in a financially precarious position," Topinka warned. The one-time surge in income tax receipts last year won't recur this year and economic uncertainty could hit sales tax collections. Expenditures are also up.

The state's path "is particularly troubling as fiscal year 2014 is the last full year of added revenue from the temporary income tax increase," Topinka added. A portion of the state's 2011 income tax rate hike is set to expire in fiscal 2015.

The size of the state's bill backlog is one of several central factors in the state's credit deterioration, although it's taken a backseat in credit reports to the General Assembly's failure to tackle pension reforms. Illinois' general obligation rating is the lowest among states at the low-single-A level and it carries a negative outlook from all three rating agencies.

The General Assembly ended it veto session Thursday without acting on a state pension fix. Legislative leaders said they have made progress on a new proposal and could return in a special session to vote on it before the end of the year.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.