CHICAGO – Illinois entered the New Year with $9 billion in unpaid bills and the strain shows no sign of ebbing with that backlog on course to grow to $22 billion in 2018 as pension costs escalate and a state tax hike partially expires, according to reports published Monday.

The near-term snapshot of the state’s liquidity woes came from state Comptroller Judy Baar Topinka’s office in its quarterly review of the state’s balance sheet. The state closed out the second quarter of fiscal 2013 Dec. 31 with $6.9 billion of vouchers dating as far back as August awaiting payment. The backlog rose to $9 billion when counting additional bills held by state agencies.

“Two years after Illinois raised individual and corporate tax rates, the state continues to suffer through substantial bill backlogs and payment delays,” the comptroller’s report said. The state used a total of $5 billion in fiscal 2013 revenues to cover fiscal 2012 bills and is on pace to carry an additional $500 million more in unpaid bills into next fiscal year July 1.

Revenues climbed by $1.1 billion, or 7.1%, in the first half of the fiscal year over a year earlier with individual income taxes rising by 4.8% and corporate income taxes by 29.7% while sales taxes rose by 1.1%.

Lawmakers recently approved additional appropriations to pay for services considered critical and are likely to face further pressure to increase current year appropriations. “Decision makers will continue to be faced with difficult budget decisions throughout the spring and during the crafting of the fiscal year 2014 budget,” the comptroller’s report reads.

A separate report published Monday with state budget recommendations from the Civic Federation of Chicago’s Institute for Illinois’ Fiscal Sustainability warns that the bill backlog will jump to $22 billion in fiscal 2018. That’s due to rising pension payments and potential Medicaid expenses that will consume more of the state’s general fund while a portion of the state’s 2011 income tax increase expires in 2015. State revenues could drop off by about $4 billion from fiscal 2014 to fiscal 2016 due to rate changes.

“This long-range outlook shows just how far the state has to go in order to stabilize its finances,” said the federation’s president, Laurence Msall. “Lawmakers need to adopt a long-term mindset and restructure the unaffordable pension systems that are keeping the state in its fiscal downspin.” The state has $95 billion of unfunded pension obligations.

Though sizeable, the $22 billion figure is actually down from the federation’s projection of $35 billion last year. The drop is due to $2.7 billion in Medicaid reforms adopted last year. The state anticipates closing out its current $34 billion fiscal 2013 operating budget with a balance -- when the backlog is not counted -- but red ink returns and will grow to $4.2 billion in fiscal 2018.

Pension payments and debt service on pension bonds will rise to $8.6 billion in 2018 from $6.7 billion this year.

The federation used the figures to underscore its call for state legislative action on pension reforms that cut benefits and gradually shift school district pension costs from the state to districts. The state also needs to craft a long-term plan to accommodate a potential rise in Medicaid costs and should end the practice of covering one year’s bills with the next year’s revenues.

A series of pension reform bills are pending before the General Assembly which has failed to act even as the state’s credit rating has fallen in large part due to the mammoth strain of its pension liabilities. Analysts have warned of further deterioration absent action in the coming months. The state’s bill backlog is another central strain on the state’s credit.

Gov. Pat Quinn will release his proposed fiscal 2014 budget next week. His administration said it welcomed the federation’s report.

“The Civic Federation gets it,” deputy budget director Abdon Pallasch said. “Numerous good government and economic development organizations get it. We need lawmakers to work together with us in a bipartisan way to address these challenges this spring session.”

The state’s general obligation debt is rated A-minus with a negative outlook by Standard & Poor’s, A and on negative watch by Fitch Ratings, and A2 with a negative outlook by Moody’s Investors Service.

The state in late January pulled a $500 million competitive general obligation sale over concerns it would pay too steep an interest rate penalty following negative credit action ahead of the sale. The state has not yet set a new sale date and typically steers clear of the market for seven to 10 days before and after major financial announcements. The budget release is set for mid-next week and the offering statement and rating agencies would then need to be updated so late March is the earliest the state could be ready to sell.

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