The Illinois fiscal 2012 budget doesn’t address the state’s “sizeable backlog of unpaid bills and an unsustainable ascent” in spending for pension benefits, Moody’s Investors Service said in a report.
The increase in state corporate and individual income tax- rates that took effect in January will contain growth in total liabilities of almost $120 billion, and the budget ends a practice of issuing bonds to pay current-year expenses, Moody’s said in a “special comment” yesterday.
Still, the tax increases are a short-term solution because the rates decrease in 2015, leaving the state with a “significant funding burden” to meet its unfunded pension liability of about $80 billion and the likelihood that late payments to vendors will persist, Moody’s said.
“The state may be able to use increased tax revenue to chip away at its large balance of past-due budgetary payment obligations, but it has not adopted a comprehensive plan to do so,” the company said.
Comptroller Judy Baar Topinka has estimated that the amount outstanding was $7.4 billion as of June 30, including $3.8 billion of general unpaid bills, $1.3 billion of vouchers, $1.2 billion of unpaid health insurance costs and $650 million of corporate tax refunds, Moody’s said.
Illinois, which borrowed to make its two most recent annual pension payments, is the lowest-rated state in the estimation of Moody’s, at A1. Standard & Poor’s has it at A+.
Moody’s said that other risks to the state’s fiscal 2012 budget are reduced aid payments caused by cuts in federal funding from the debt-ceiling agreement and a faltering economic recovery.
“Because of its financial weakness, Illinois is less well positioned than other states to handle a renewed downturn in the national economy,” Moody’s said.
To contact the reporter on this story: Mark Niquette in Columbus, Ohio, at mniquette@bloomberg.
To contact the editor responsible for this story: Mark Tannenbaum at email@example.com