Hynes: Lawmakers must act to prevent fiscal slide

By Jamey Dunn

If lawmakers fail to act on budget solutions, the state could face $7 billion to $10 billion in unpaid bills by the end of the current fiscal year, according to a quarterly fiscal report issued today by Comptroller Dan Hynes.

At the midpoint of this fiscal year, the backlog of unpaid bills is higher than it was at this time last year.

The total is greater in part because the General Assembly and Gov. Pat Quinn have not yet put a plan in place for making this fiscal year’s payment into the public employee pension system. More than $6 billion in bills from fiscal year 2011 have yet to be paid, including $1.8 billion unpaid pension obligations. The oldest bill dates back to the middle of last July, the first month of the current fiscal year.

The state did manage to pay off all its late bills from fiscal year 2010 by the end of last calendar year with some one-time cash infusions. The sale of bonds against some of state’s portion of a national tobacco settlement brought in $1.25 billion. A tax amnesty program raised $392 million, and $354 million came from inter-fund borrowing. “While the almost $2 billion in revenues helped reduce the overall backlog of unpaid bills, the state’s fiscal condition has not improved,” Hynes said in his report.

Paying off the $1.3 billion in short-term borrowing — made last July — by next June will result in more than $4 billion in fiscal year 2011 funds going toward fiscal year 2010 obligations.

On the revenue side, the personal income tax brought in $129 million more during the last six months, an increase of 3.4 percent. The corporate tax generated $235 million in growth over six months, an increase of 45.8 percent. Much of the growth came from delinquent tax payments paid during the tax amnesty period. Sales tax revenues went up 3.5 percent, not counting the portion paid under the amnesty, indicating some economic recovery.

Since legislators are considering several pieces of budget-related legislation while also mulling a possible tax increase package, Hynes’ future projections are not specific. The reports notes that a borrowing plan to make pension payments would prevent the need to take the money out of this fiscal year’s general revenues. Hynes cautions that borrowing would also limit future budget flexibility. According to Senate President John Cullerton, a tax package would also likely include borrowing almost $4 billion for the pension payment and more than twice that amount to pay down the unpaid bills for this fiscal year.

“Any use of bonds to deal with the state’s fiscal condition will continue to impact the state’s cash management practices in the future, as the state must adjust to those higher debt service obligations,” Hynes said.

However, Hynes warned that if legislators do not move some combination of new revenues, bonding and “budget restructuring,” the situation will only decline. Illinois received $600 million in federal funds for education in FY2010, which will not be coming again this year. The feds are also ramping down an elevated Medicaid match that was part of the stimulus package.

“Absent any significant budgetary developments, such as the initiatives currently under discussion in the General Assembly, the outlook for the state’s fiscal condition does not look to show any improvement and in fact is expected to weaken further,” Hynes said.

He added if that happens, legislators likely would have to extend the lapse period when the state is allowed to pay obligations from the previous fiscal year out of funds from the current year.