State finances still not on solid ground

By Jamey Dunn

Despite the passage of an income tax increase, Illinois lawmakers still have work to do to steer the state to stable financial footing.

The backlog of unpaid bills has remained “near or above record highs,” according to Comptroller Judy Baar Topinka’s report for the third quarter of the fiscal year—the first quarterly report she has issued since taking office. In fact, at $4.515 billion, the backlog is greater than it was at this time last year when the total of unpaid bills was $4.496 billion.

Topinka said if the trend continues, the state might not be able to pay off its late bills for this fiscal year before the August deadline. Legislators extended the deadline to pay off last year’s bills to last December, and Topinka predicts that such a move could happen again. “If the backlog of general funds bills at the end of the fiscal year is indeed similar to last year, the state will be unable to close the fiscal year 2011 lapse period by the traditional August end. In fact, Illinois was unable to pay off all of fiscal year 2010’s liabilities until December 31st last year, and could face similar challenges this year,” the report said.

Topinka said the ongoing backlog has caused her office to prioritize “critical payments,” such as general state aid to school districts and payments on the state’s borrowing. Illinois is also keeping up a 30-day payment cycle on certain Medicaid bills to capture temporarily elevated federal matching funds for the program. As long as the state pays providers within a month, the federal government will give Illinois 57 cents on the dollar instead of the standard 50-cent match. The higher reimbursement rates expires at the end of June. Although paying those bills brings in more federal money, Topinka said it also ties up cash flow.

On the revenue side, Topinka said money from the income tax increase is just starting to come into the state’s coffers. The state saw a revenue increase of 7 percent over the last quarter. Some of the money came from one-time sources, such as the tax amnesty program and the selling of bonds against money the state was awarded in a national settlement with tobacco companies. Sales tax revenues increased 8 percent, but $164 million out of the $414 million in sales tax revenues were brought in through the tax amnesty program. As stimulus funds dried up, federal revenues dropped $745 million, or 15 percent, over the third quarter. “While the state took action to increase its immediate cash flow, its fiscal standing remains precarious,” Topinka said.

Illinois has to pay off $1.3 in short-term borrowing over the next three months and faces a larger monthly debt service payments than it did this time last year. Topinka also notes that the state shifted $2 billion in Medicaid payments over to funds outside of the General Revenue Fund in the fourth quarter of Fiscal Year 2010, a move the comptroller said the state couldn’t repeat this year.

Sen. John Sullivan, a Rushville Democrat, has been calling on Topinka to release a current total for the backlog of overdue bills. He said now that the number is out, the state needs to delve deeper into who is owed and how long they have been waiting for their payments. “The next step is to say…how much of that is 60 days past due, how much is 90 days, how much is 120 days, and so on and so forth,” Sullivan said

Sullivan said borrowing the amount the state would need to trim the late payments down to a 30- or 60-day cycle could be an alternative to Gov. Pat Quinn’s proposed $8.75 billion in borrowing to pay off all the state’s overdue obligations at once.

“Every bill does need to be paid,” Sullivan said. “But maybe we need to operate under a 30-to-60-day backlog. That’s certainly better than were we are now. It’s an improvement.” He added that the proposal would only be a temporary solution ,and the state should continue paying Medicaid bills in 30 days to bring in more federal money.

Sullivan said he hopes to help craft a compromise borrowing bill pay off some of the state’s overdue debts. Minority Leader Christine Radogno has said she supports “responsible” borrowing that is part of an overall plan to balance the budget. However, she has said there need to be more cuts to the budget for her to consider borrowing. She has also said that Quinn wants to borrow more than Republicans can support. Senate Republicans proposed about $5 billion in cuts from Quinn’s budget plan for next fiscal year. They say their plan would balance the budget and pay down the backlog without borrowing, although paying off the bills would happen over time. House Speaker Michael Madigan has said there is little support for Quinn’s plan in his chamber.