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Bad news for state government finances

Posted February 07, 2008 10:00 pm

Doug Finke

The state of Illinois got bad financial news from two directions Thursday, suggesting further problems for a state government already struggling to pay its bills.

The Commission on Government Forecasting and Accountability, the General Assembly's financial forecasters, warned in a report that state revenues may fall $600 million or more short of what's needed to balance this year's state budget.

And Illinois Treasurer Alexi Giannoulias said returns on state funds invested by his office are taking a nosedive because of woes in financial markets.

If those warnings are accurate, it will mean further problems for a state already struggling to pay a staggering backlog of bills.

The commission said that when the current state budget was put together last summer, officials counted on revenue growing by $1.6 billion this budget year, mostly the result of natural economic expansion.

But with a slowing economy, all signs "point to revenues falling well short of those expectations," the commission report says.

The commission will not make an official projection until March 5, but said it appears the state will be "struggling even to reach $1 billion" in new revenue this fiscal year, which ends June 30.

Jim Muschinske, who wrote the report, said the commission expects a slowdown in revenue from the personal income tax during the final months of the budget year.

Money from the personal income tax had been one of the few bright spots in the state's economic picture this year. Both the state sales tax and the corporate income tax have fallen short of expectations.

One mitigating factor, Muschinske said, is that Gov. Rod Blagojevich cut $450 million in spending shortly after lawmakers approved the budget.

"If that money is not put back in, (the revenue drop impact) won't be as bad," Muschinske said.

Kelley Quinn, spokeswoman for Blagojevich's budget office, issued a written statement that the administration is not surprised by the numbers because it believed lawmakers overestimated revenues when they passed the budget in August.

"We're asking legislators to take immediate action to raise new revenues," Quinn said, citing as examples an end to business tax breaks and allowing the administration to tap into restricted state funds to cover other expenses.

Comptroller Dan Hynes is responsible for paying the state's bills. On Thursday, the office had a backlog of $1 billion in outstanding bills, said Hynes spokeswoman Carol Knowles. It's taking 30 business days to pay those bills. Based on past experience, she said, it will get worse.

"We anticipate the amount of bills will increase from February on, and the payment cycle will get longer," Knowles said.

"The comptroller is looking at the (commission) report," she added. "The news isn't good, but it certainly isn't unexpected."

It isn't good news, either, to vendors who rely on state payments. John Watt of Watt Brothers Pharmacy in Springfield said the last time he checked, the state owed the pharmacy $50,000 and was taking 60 days to make a payment.

"That's not pocket change. It's a substantial amount," Watt said.

House Minority Leader Tom Cross, R-Oswego, last week urged the state to obtain a short-term loan to reduce the bill backlog. Such a loan must be OK'd by Blagojevich, Hynes and Giannoulias.

Hynes will support the idea, Knowles said, although it doesn't solve the problem that the state doesn't budget adequate money to pay all of its health-care costs. A quirk in state law allows health-care bills to be pushed from one year into the next, something Hynes said should stop.

Giannoulias said he is open to the idea but wants assurances that the loan can be repaid and that it would be used only to pay medical expenses. In a letter to Cross, Giannoulias said he, too, believes the loan is only a "temporary fix to an on-going financial problem for the state."

Blagojevich will consider the proposal, Quinn said, and the administration also wants lawmakers to pass a supplemental spending bill that will bring additional federal dollars to the state for medical expenses.

The commission report was issued the same day Giannoulias warned that his office is seeing a sharp drop in investment income. Giannoulias' office invests state money until it is needed.

In a letter to lawmakers, Giannoulias warned the stock market decline will "trigger a significant reduction in interest income" in the current fiscal year.

Giannoulias said the state probably will collect $38 million to $50 million less in investment income this year than last, and the decline is likely to accelerate in the next fiscal year.

In the last full budget year, Giannoulias' office made $426 million in investment income. Next year, Giannoulias said, he expects the state will collect at most $243 million from investments.

Doug Finke can be reached at (217) 788-1527.

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