CHICAGO — With its coffers bolstered by an income tax increase, Illinois has whittled down its backlog of bills to $3.8 billion from $5.5 billion at this time last year, but Comptroller Judy Baar Topinka warned in her quarterly report that “staggering fiscal challenges remain.”

Nearly $1.2 billion of the backlog of vouchers requesting payment from schools, transit agencies, health care providers, and other state aid recipients and contractors are bills incurred in the last fiscal year that must be paid by the end of December, according to the report released Friday. It is available at www.ioc.state.il.us/index.cfm/resources/comptrollers-quarterly/.

The comptroller’s report, which covered the first quarter of the new fiscal year from July through September, showed progress on paying down bills. But it warned that the numbers “should not create a false sense of security, as further improvement in the next quarter is not expected.”

That’s because one-time revenues that bolstered revenues last year from a tax-amnesty and tobacco bond issue won’t again be available this year.

The state carried over $3.8 billion of bills from fiscal 2011 into the new fiscal year in July and received invoices for another $1.34 billion in recent months, bringing to $5.1 billion the amount of bills carried over.

Base revenues rose by $1 billion, or 15.8%, during the last quarter, with stronger income and sales tax collections offsetting a drop in federal revenues. Individual income taxes jumped by 71.6%, providing an infusion of $1.4 billion into state coffers due to the imposition of an income tax increase in January. Corporate income taxes rose by 78.9 % providing an extra $209 million.

Greater consumer spending drove a 13.3% increase in sales taxes, raising an additional $214 million. Federal revenues fell off by $905 million for a 61.9% drop.

“The decline was due primarily to a decrease in the federal match rate on Medicaid payments and a slowdown in payments eligible for those reimbursements,” the report read.

State vendors and aid recipients likely will continue to face lengthy payment delays, and will now include Medicaid service providers whose payments previously had been sped up so that the state could capitalize on increased federal reimbursement rates that have now ended.

Topinka’s report warned that staggering fiscal challenges remain and so the remainder of the fiscal year is clouded. In addition to the bill backlog, the state owes employee health insurance bills and unpaid corporate income tax refunds. Another $486 million borrowed from non general funds last year must eventually be repaid, including $350 million in the current fiscal year.

“While increased revenues will continue from higher income tax rates, they will be offset by the loss of one-time revenue sources and the need to make pension payments that were addressed through borrowing last year,” Topinka said.

Absent a worsening of the economy, the report noted that general fund revenue projections are likely to exceed budgeted spending. But Topinka warned that any move by lawmakers to increase spending would limit the office’s ability to further pay down the backlog.

A spokeswoman for Gov. Pat Quinn’s budget office acknowledged the state’s struggles, saying: “Illinois continues to face serious fiscal challenges due to many years of budget mismanagement. Gov. Quinn is committed to solving an inherited budget crisis through job creation, reducing spending, enacting major reforms, and restructuring overdue bills at lower interest rates.”

The report is the latest in a series this year from independent analysts, state agencies and constitutional officers warning of ongoing fiscal pressures that are offsetting strides in reducing red ink through spending caps and the income tax increase expected to generate $6.8 billion annually.

A recent special report from Moody’s Investors Service noted that Illinois’ liabilities including debt, unfunded pension liabilities, its structural deficit, and overdue bills that total $120 billion.

After a lull in borrowing in recent months, officials anticipate issuing about $1 billion of new-money debt through December in three transactions and selling between $2 billion to $3 billion in the current fiscal year ending June 30.

Illinois’ GOs are rated A1 by Moody’s, A-plus by Standard & Poor’s, and A by Fitch Ratings.

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