The Comptroller's Office reports that as of the end of September, the state owes $1.823 billion in over 100,000 unpaid bills.  The state usually has unpaid bills at this point in the year, however the amount of unpaid debt is much larger this year than in previous years.  This time last year the state owed $1.393 billion.  That's a $430 million increase over last year. 

In addition, the numbers of days bills have been backlogged at the Comptroller's Office reached an all time high of 42 at the end of September. 

Still paying last year's debt
According to the Comptroller, in July the Department of Health Care and Family Services still owed
$1.6 billion in Medicaid bills to health care and human service workers from FY 2008.  That means those Medicaid bills were NOT paid in FY 2008 and carried over into FY 2009.  So FY 2009 started out $1.6 billion in the hole. 

The Comptroller warns that going into FY 2009, the General Funds cash position is weaker than it ever has been at this point in the year.
 

• There is over $1.8 billion in current unpaid bills
   
• The state experienced the fastest and largest decline from year to year in the adjusted cash balance position
• Economy-driven revenues are down in the first quarter (Read last weeks revenue roundup here).
   
• All entities reliant on state payments could face significant delays in anticipated payments
   

What Lies Ahead
Unfortunately, with revenues underperforming the amount of debt will only grow.  Take, for instance, FY 2008 when the state owed $1.393 billion at the end of September.  That debt grew to $1.720 billion by the end of December. The number of days bill were backlogged increased from 16 to 34 days over the same time frame. 

With revenues flat or declining for the year, the Comptroller warns the growth in the current backlog of $1.823 billion and 42 days will experience an even greater increase by the end of the calendar year and beyond.

With fiscal year 2009 already in a worse cash flow position than in previous years, lapse period spending could approach or even exceed $2 billion.  Starting fiscal year 2010 with that amount of prior year obligations will dramatically impact the State's ability to pay bills. 

The Impact
Payment delays have a serious impact on the vendors that provide state services and the populations they serve.  The Randolph County Herald Tribune reports that the failure of the Illinois Department of Human Services to pay overdue bills of more than $400,000 to Human Services Center of Southern Illinois forced it to shutdown on Monday, September 29th. 

The Human Services Center had already laid off  27 employees-32% of staff.  The staff layoff reduced mental health and development disability care to 100-300 current clients and denied care to the 35-40 new individuals who seek care each month.

"We have pleaded with the Department of Human Services and Secretary Carol Adams for payment of its overdue bills, and we have warned the state that we would have to fire staff, slash care, and turn people away without immediate payment," said Gary Buatte, Executive Director.  "The state has failed to pay-so that day has come."

Since 1975, the Human Service Center has been providing a wide range of professional mental health and developmental services to meet the needs of residents in Southern Illinois. Last year, the Human Service Center served over 1,400 people through adult and youth mental health services, services to people with developmental disabilities, adult and youth substance abuse services, assistance to people experiencing an emotional and behavioral crisis, community support and case management services, home-based care and group living services for people with a mental illness and people with developmental disabilities.

Revenue Problems
The Illinois Commission on Government Forecasting and Accountability (COGFA) reports that August Revenues were down $457 million over the same month last year.  Overall Fiscal Year revenues are down $305 over last year.
 

CTBA analysis finds that at this point in the fiscal year, if revenues grew with inflation the state would find itself UP $185 million.  Unfortunately it seems revenues will miss the inflation mark again for FY 2009. (See the FY 2008 analysis here).  That makes it almost impossible to increase appropriations, even as actual costs for funding programs continue to rise with inflation. (Read more about the Illinois' revenue system and how to fix it here).

COGFA places the blame on the slowing of reimbursable spending and weak transfers.  Federal reimbursable spending was down $338 million.


FISCAL YEAR TO DATE:
COGFA reports that through August, overall base revenues were down $305 million for the fiscal year, mostly due to a $204 million decline in federal sources. That's because, according to COGFA, "spending on reimbursable programs such as Medicaid has been erratic over the first two months."

Aside from a slow economy, several things, including a new increase in the refund percentage for the personal and corporate income tax will limit revenue growth in FY 2009 (view the list on page 6 here),
 

Department of Revenue Warns Revenues May be Down
$200 Million for the Fiscal Year
Due to revenue reports, like that issued by COGFA, showing revenues down for the first two months of the fiscal year, the Department of Revenue warns the state revenue forecast could be overestimated by as much as $200 million for the fiscal year.  Sales and income tax revenues are the main concern.

From the Department of Revenue (as reported on thecapitolfaxblog.com)
As a poor national economy weighs heavily on state revenues across the country, Illinois is experiencing a triple threat of lower-than-projected revenue for the first two months of the fiscal year. Sluggish income tax collections, along with weak sales tax on an annual basis, would result in as much as $200 million short of the state's already conservative projections.

The Illinois Department of Revenue (IDOR) reports that revenue from individual income tax is growing at a rate just over 1.2 percent, which is below OMB's projected 3.3 percent growth anticipated in the FY09 budget. Income tax makes up the largest portion of Illinois' revenue, and thus has the most influence on a balanced budget. A high statewide unemployment rate at 7.3 percent and stagnant wages suggest this trend could only get worse.

Sales tax revenue for the same period of FY09 was .5 percentage points below the level projected for the FY09 budget, the result of a decline in consumer spending due to rising unemployment, declining home equity, and stagnant wages. IDOR suggests that the ongoing financial market crisis will likely exacerbate already weak credit conditions, meaning further constraining consumer spending. Higher food prices mean people will spend less on other goods.

Finally, the corporate income tax makes the department wary. Since about 10 percent of the corporate income tax comes from the financial services sector, IDOR is concerned that September's volatile stock market will further hurt FY09 revenue.

For other revenue sources, IDOR also noted that revenue from the real estate transfer tax, cigarette tax, and motor fuel tax is down.

Read more about the revenue situation here.