April 27, 2011 / 2:43 PM / 8 years ago

UPDATE 2-Illinois faces $8 bln backlog of bills-comptroller

(Adds comment from governor’s office, background on pensions)

By Karen Pierog

CHICAGO, April 27 (Reuters) - Illinois is on track to end fiscal 2011 with $8 billion in unpaid bills and other obligations, the state comptroller said on Wednesday.

“After years of hand-wringing about the state’s finances and deficit spending, here we are looking to end yet another fiscal year in the red,” said Comptroller Judy Baar Topinka in a statement.

The $8 billion owed to school districts, hospitals, and social service agencies, as well as for state employee health insurance and to cover $850 million in corporate tax refunds, would match the amount of unpaid obligations the state had at the end of fiscal 2010, according to the comptroller.

Deferring payment of bills incurred in fiscal 2011 into fiscal 2012, which begins on July 1, would help perpetuate Illinois’ structural budget gap despite a big income tax rate increase enacted earlier this year.

Illinois’ widening structural deficit, huge unfunded pension liability, inability to pay bills on time, cascading bond ratings, and its propensity to borrow its way out of financial problems have made the state a top concern in the $2.9 trillion U.S. municipal bond market.

Topinka, however, said her projection could change depending on actions taken by state lawmakers.

After Democratic Governor Pat Quinn’s plan for a $8.75 billion bond issue to pay off the bills stalled in the Democrat-controlled General Assembly, he pushed for a smaller $2 billion borrowing for Medicaid-related receivables.

“As we work to address these challenges, discussions to restructure our debt continue with legislators and are paramount to stabilizing the budget,” according to a statement from the governor’s office. “Governor 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.”

Topinka, a Republican who took office in January, said recent action by legislators to ensure the state makes its fiscal 2012 pension payments instead of raising the money through a bond issue was commendable, but substantial spending reforms were needed.

Illinois has sold a total of $7.16 billion of taxable bonds for its fiscal 2010 and fiscal 2011 pension payments. A report this week by the Pew Center on the States found Illinois’ pension funding level was the lowest among the states at 51 percent in fiscal 2009, down from 54 percent a year earlier.

Editing by Padraic Cassidy

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