October 9, 2014 / 5:40 PM / 5 years ago

Illinois budget to increase unpaid bills to $6.4 bln -report

CHICAGO, Oct 9 (Reuters) - The current Illinois state budget is underfunded, relies on borrowing and will boost the state’s stack of unpaid bills to an estimated $6.4 billion, the first such increase in three years, according to a review of the budget released on Thursday.

The Civic Federation, the fiscal watchdog group that undertook the review, said while Illinois had whittled down the bill backlog from $8.8 billion in fiscal 2012 to about $6 billion in fiscal 2014, the fiscal 2015 budget “represents a return to unsustainable fiscal practices”.

The state’s 2015 fiscal year began on July 1.

Illinois delays payments of bills from vendors, service providers, as well as money owed to local units of government and for employee health insurance to help it manage cash flow.

“Before this budget, we had several indications that Illinois was capable of addressing its enormous fiscal problems,” Laurence Msall, president of Chicago-based Civic Federation, said in a statement. “The gimmicks of this year’s short-sighted budget send the opposite message and move Illinois in the wrong direction.”

The group said the budget’s “one overriding fiscal issue” is the loss of about $1.9 billion due to a partial rollback of income tax rate hikes. The rollback will take effect on Jan. 1, the halfway point of fiscal 2015.

In passing the 2015 budget, state lawmakers ignored Governor Pat Quinn’s recommendation to make permanent the temporary tax-rate increases that were enacted in 2011. They also failed to cut spending, relying on $650 million from other state funds and revenue shifts from the previous fiscal year to cover operating expenses, the Civic Federation report said.

Quinn, a Democrat running for reelection next month, chastised lawmakers earlier this year for passing “an incomplete budget”.

“Legislative leaders have said they will have to return in the middle of the fiscal year to discuss new revenues for the budget,” said Abdon Pallasch, Illinois’ assistant budget director.

A spokesman for Bruce Rauner, the Republican candidate for governor, did not immediately respond to a request for comment on the budget review.

Whoever is elected governor on Nov. 4 will face a tough budget year in fiscal 2016, the Civic Federation said.

It added that Illinois’ fiscal situation is also clouded by constitutional challenges to the state’s new pension reform law. Attorneys for the state and for labor unions and other parties that have sued over the law will face off in Sangamon County Circuit Court on Nov. 20.

“State pension contributions from all funds would have declined by an estimated $1.2 billion in fiscal 2016 under the new pension law compared with existing statutorily required contributions, but the law has been put on hold due to legal challenges,” the budget review says.

Illinois has the worst-funded retirement system among U.S. states and its $100 billion unfunded pension liability and other fiscal woes have pounded its credit ratings to the lowest among states. (Reporting By Karen Pierog; Editing by Peter Galloway)

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