CHICAGO - Illinois' growing backlog of unpaid bills - reaching $1.8 billion in the last quarter - and record payment delays threatens the state's fiscal position in the current and next fiscal years, Comptroller Daniel Hynes warned in his latest quarterly report.
The report is one in a series that provides evidence of the fiscal stress facing Illinois due to the economic slump. The state closed out the first quarter of fiscal 2009 on Sept. 30 with a cash cushion of just $188 million, down $573 million from last year, while the amount of bills owed stood at $1.8 billion compared to just under $1.4 billion last year at the same time. That left a negative cash balance.
The time it takes to pay the bills also grew to a "historical record" - 42 days for the first quarter of a fiscal year. The delays threaten to erode the foundation of the state's health care and social service infrastructure as Medicaid and other health providers face long delays, the report warned.
"If a decline or minimal growth in key economy-driven revenue continues, there will be no opportunity to improve the state's current fiscal position ... The negative cash position and the number of days backlogged will only grow to more dangerous levels over the next few months."
Hynes warned that if revenues don't pick up, Illinois is on track to close out the fiscal year with $2 billion in what's known as lapse-period spending, where some bill payments are pushed off till the next fiscal year. That would exceed the $1.4 billion figure experienced in the recessionary fiscal years of 2002 and 2003.
"Obviously starting fiscal 2010 with that amount of prior year obligations will dramatically impact the state's ability to pay bills immediately, especially if the historical Medicaid spending pattern continues," the report said.
The quarterly briefing followed one issued by the Illinois Department of Revenue raising concerns over the state's fiscal picture as it reported that revenues were $200 million behind projections for the first quarter. Individual income tax collections grew at a rate of around 1.2%, down from budgeted projection of 3.3%. Officials blamed the sluggishness on the state's high unemployment rate of 7.3% and stagnant wages. Officials said they see no improvement on the near horizon.
Sales tax collections were about 0.5% below original projections, a decline blamed on poor consumer spending amid rising unemployment, declining home equity, and stagnant wages. Collections from taxes on the transfer of real estate properties, cigarettes, and motor fuel are also down.
The Revenue Department anticipates the sluggish numbers will only deepen given weak credit conditions, growing food prices, and the impact of a volatile stock market on corporate income taxes. The numbers also don't reflect what affect the expanding credit crunch and fiscal crisis will have on spending as consumers grow more worried about the economy amid all the attention focused on the federal government's adoption of a massive bank bailout plan last week.
Illinois' share of gaming revenues also is falling, according to the General Assembly's nonpartisan Commission on Government Forecasting and Accountability. The state collected about $1.2 billion in casino taxes in the last fiscal year, down 6.5% from the previous year. Riverboat casinos accounted for about $564 million of the total, down about 18% from the previous year. Commission and industry officials believe the numbers will worsen.
State budget officials have not said how Gov. Rod Blagojevich will handle the decline in revenues. The legislature rejected many of the governor's proposals for the fiscal 2009 budget and eventually adopted a $59 billion operating budget. The governor then cut about $1.4 billion from that spending plan, saying the state did not have the resources to pay for it.
Another dose of bad news came late last week from Illinois Treasurer Alexi Giannoulis, who stressed in a statement that the state's $14 billion investment portfolio is safe although earnings will suffer due to market turmoil.
As investors dump riskier equity instruments and turn to U.S. Treasury and agency securities, the state is seeing the yield on its investments fall. Sluggish revenues are also generating less income to invest. Interest income in fiscal year 2008 totaled $375 million, compared to almost $426 million a year earlier. Current projections indicate that interest income will total between just $138 million and $180 million in the current fiscal year.
The treasurer's office manages the investing of about $8 billion raised from state taxes and fees and another $6 billion from state agencies, local governments, and other taxing bodies. Illinois invests in fixed-income assets, including securities and some short-term, non-asset-backed commercial paper. The office does not buy stocks. Most of the state's $21 billion bond portfolio is fixed rate, with only about $600 million of variable-rate securities and no derivative exposure.
"We do not feel there is any substantial credit risk," Giannoulis said. "There is market risk inherent in all portfolios but it's mitigated by our substantial percentage of U.S. Treasuries and government agency securities."
To focus more attention on the fiscal situation, the Civic Federation of Chicago, a local, business-funded government watchdog group, is launching a new institute with a multi-year grant from the John D. and Catherine T. MacArthur Foundation. The institute's formal mission is to improve the state's decision-making process by providing timely fiscal policy analysis and recommendations to state officials, the media, and public to promote a more sustainable fiscal environment.
The Civic Federation has issued stinging assessments of the recent budgets proposed by the governor, and pushed for the state to do more to address its debts and escalating costs in the area of health care. Illinois' debts - outside of its bonded debt - include a $42 billion unfunded pension liability and $24 billion of other post-employment benefit liabilities. The federation has recommended pension and health care benefit reforms and urged the state to rapidly rein in growing costs by enacting reforms.
Fitch Ratings and Standard & Poor's rate the state's GOs AA, with Fitch assigning a negative outlook, and Moody's Investors Service rates the state Aa3.