Bloomberg News

Illinois Confronts ‘Potentially Paralyzing’ Backlog of Bills

February 01, 2012

(Updates with governor’s response in seventh paragraph.)

Jan. 30 (Bloomberg) -- Illinois’s unpaid bills may more than triple to $34.8 billion by 2017 unless lawmakers and Democratic Governor Pat Quinn immediately bring Medicaid and pension spending under control, said a research group.

The “potentially paralyzing” backlog, projected to reach $9.2 billion when this fiscal year ends June 30, would be fueled by an “unsustainable” increase in Medicaid spending, according to the Civic Federation in Chicago, a nonpartisan government research organization.

“Failure to address unsustainable trends in the state’s pension and Medicaid systems will only result in financial disaster for the state of Illinois,” Laurence Msall, president of the federation, said in a press release today.

Illinois had its general-obligation bond rating reduced Jan. 6 by Moody’s Investors Service to A2 from A1, making it the company’s lowest-graded U.S. state. Moody’s revised its outlook because the state “took no steps to implement lasting solutions to its severe pension underfunding or to its chronic bill payment delays.”

The combination of declining revenues, brought on by the scheduled 2015 end of a temporary corporate and personal-income tax increase, a projected 40 percent jump in Medicaid costs and a 35 percent increase in pension payments will increase the shortfall, the Civic Federation report said.

Red Ink Rising

The amount of unpaid bills would almost equal projected expenditures in fiscal 2017, $36 billion, the report said.

Kelly Kraft, a spokeswoman for Quinn, said the governor has secured pension and changes to Medicaid that “have begun to address decades of financial mismanagement in Illinois.”

Quinn “is committed to further pension reforms” and “an aggressive restructuring of the Medicaid system,” she said in an e-mail.

The state’s unfunded pension liability in 2010 was $85 billion, and the system has assets to pay only 45 percent of promised benefits, according to a study by Bloomberg Rankings. It is the lowest so-called funded ratio of any U.S. state.

The Governor’s Office of Management and Budget has projected surpluses in the next two fiscal years and a deficit in 2015 of $818 million.

Quinn is to deliver his fiscal 2013 budget Feb. 22.

--Editors: Stephen Merelman, Mark Tannenbaum

To contact the reporter on this story: Tim Jones in Chicago at Tjones58@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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