CHICAGO — Illinois escaped short-term “financial catastrophe” by raising the income tax and using a one-time infusion of cash from two bond sales and a tax amnesty, but challenges persist as overdue bills mount and debt service is on the rise, Comptroller Judy Baar Topinka warned in her office’s quarterly report published Friday.
“While the state took action to increase its immediate cash flow, its fiscal standing remains precarious,” warned the report, which provides a picture of the state’s balance sheet for the first three quarters of fiscal 2011.
In the fourth quarter of the fiscal year, the state must repay $1.3 billion of short-term certificates issued last July as debt service on other obligations also continues to rise.
Base revenues rose in the current fiscal year by more than 14% over last year, but about 70% of the increase is due to one-time revenue sources such as the sale of $1.5 billion of tobacco bonds and the fall tax amnesty program, according to the report, which covered the first three quarters of fiscal 2011.
The state has begun to see greater cash flow as a result of the passage in January of an increase in the individual income tax rate, bringing it to 5%, and an increase in the corporate rate to 7% from 4.8%. On the expenditure side, general fund spending rose by 11.35%, or $2.45 billion, over the same period in the last fiscal year.
Individual income tax collections were up by 17.4% and corporate collections rose by 27.6%. In a sign of the improving economy, sales tax collections were up by $414 million, rising by 8.9%. Federal revenues fell by $745 million, or 14.8%, due to the end of stimulus funding.
The state’s $3.7 billion issue earlier this year to cover pension contributions also helped ease the strain as a portion went to reimburse the general fund for fiscal 2011 payments already made.
Even with the extra funds, the general fund bill backlog remains at or above record levels, with $4.5 billion in unpaid bills — an amount similar to the same time last year — being held in the comptroller’s office. Some of the bills date back to mid-October.
“Given the logjam, the comptroller’s office has had to prioritize critical payments such as debt service and other funding vital to the operation of state programs, such as general state aid to school districts,” the report warned. The office also has tried to prioritize Medicaid reimbursements in order to capture the higher federal reimbursements rates that remain in place through June.
Even with growing tax revenues, the comptroller warned that the state is on pace to close out the fiscal year June 30 with a backlog similar to last year. The state entered fiscal 2011 carrying $4.7 billion of bills but that number grew by another $1.7 as final vouchers were submitted.
A similar backlog would likely force the state to again extend its traditional lapse period — the time during which prior year’s bills can be paid in the new fiscal year. Last year, the state extended the lapse period to Dec. 31 from August 31.
“If that is indeed the case, the amount of fiscal year 2011 liabilities carried over would impact the fiscal year 2012 cash position as well, meaning any revenues used to pay for fiscal year 2011 bills will be unavailable for the following year’s obligations,” the report said.
Gov. Pat Quinn has proposed borrowing $8.75 billion to pay down the backlog and for other expenses as part of his $53 billion fiscal 2012 budget that is pending before the General Assembly. Lawmakers have refused to budge and pass the bill. Quinn recently pressed for a $2 billion borrowing plan to pay off Medicaid bills, but no vote has been taken.
