Illinois Deficit Forecast Grows as Financial Ills Deepen, Comptroller Says

Tuesday, October 05, 2010

Illinois’s deteriorating financial condition threatens to swallow up more than half its general- fund budget in the next fiscal year, Comptroller Dan Hynes said.

The financial picture drawn by Hynes in a report yesterday projects a fiscal 2012 deficit of $15 billion or more, while this year’s budget calls for $26 billion in spending. The state’s financial condition “continues to deteriorate,” Hynes said, citing a 36 percent surge in fiscal 2010 bills to be paid from current-year revenue.

The amount of unpaid obligations for the current year may balloon to $8 billion by June 30, when fiscal 2011 ends, Hynes said. That figure may increase if the state doesn’t make $3.7 billion in pension payments due this year, he said. The deficit and late payments of current debts may create “chaotic fiscal conditions as the situation snowballs,” he said.

“The ability of the state to maintain any reasonable level of education and social-service funding -- and just as importantly, to pay for those services on a timely basis -- will be severely jeopardized,” Hynes said.

State revenue was little changed in the three months through September, rising $3 million to $6.45 billion compared with fiscal 2010’s first quarter, as the “sluggish” economy acted as a drag on tax receipts, Hynes said. In a previous report, he said the state’s fiscal position was the worst ever on June 30. Since then, the general fund’s negative balance deepened to $4.93 billion on Sept. 30 from $4.7 billion.

Payment Commitment

Governor Pat Quinn “is committed to paying all” bills from 2010, which ended in June, by the end of this year, said Kelly Kraft, a spokeswoman. Quinn, a Democrat, is working to reduce the deficit and will need the help of the Legislature, she said.

Payments to vendors who do business with the state will continue to be delayed, beyond “the historic levels seen recently,” and may not be made until December, according to Hynes’s report. The state has unpaid bills dating back to March.

“This will lead to more providers facing financial hardship and further threaten both the level and quality of services provided to Illinois citizens,” Hynes said.

The state earlier was forecast to face a deficit of $13 billion when the governor presents his fiscal 2012 budget in January.

Last month, Moody’s Investors Service changed the outlook on the state’s credit rating to negative from stable, which may indicate a cut will be made in grades affecting $25 billion of A1 rated general-obligation bonds. Moody’s cited the state’s failure to take steps to correct a “structural budget imbalance” and pension finances.

Illinois’s general-fund deficit almost tripled in a year to $7.7 billion for fiscal 2009, Moody’s said Sept. 23. The rating company cut the state’s credit grade to A1 on June 4. Lower ratings can increase the cost of borrowing as investors demand higher returns to compensate for increased risk.