September 15, 2011
Largely due to the income tax increase that took effect in January 2011, the State of Illinois’ operating deficit is expected to shrink from $3.9 billion in FY2011 to $454 million in FY2012. However, as previously discussed here, FY2012 costs are understated because appropriations do not cover the full cost of the Medicaid program. The operating budget underfunds projected Medicaid costs by as much as $1.7 billion.
In addition, revenues are higher because the State plans to divert less revenue to pay for business income tax refunds than required under a statutory formula.
The projected operating deficit also leads to an expected increase in the total General Funds deficit, including amounts accumulated from prior years, to $5.0 billion in FY2012 from $4.6 billion in FY2011.
As shown in the table below, borrowing for operations in FY2011 resulted in an operating surplus after borrowing of $1.5 billion, which was applied to the $6.1 billion deficit that had been carried forward from FY2010. The enacted FY2012 budget does not include additional borrowing for operations to make up for its operating shortfall, leading to a 10.4% increase in the total General Funds deficit at the end of the year.
One way that Illinois deals with its General Funds deficit is by delaying payments to vendors and local governments. The following table shows the State’s General Funds backlog of unpaid bills, or accounts payable, at the end of FY2011 and under the enacted budget plan for FY2012. Preliminary results for FY2011 show that $1.2 billion of the $1.5 billion operating surplus was used to pay down $6.2 billion of unpaid bills, leaving a remaining backlog of $5.0 billion. The budget plan for FY2012 shows an increase of $454 million in accounts payable for a year-end total of $5.5 billion.
The accounts payable shown above do not include other liabilities outside of the General Funds. The next table provides estimates of business income tax refunds and Medicaid and employee health insurance bills owed by the State at the end of FY2011 and FY2012.
The FY2012 General Funds appropriation for employee group health was intended to cover annual costs of the program and leave the backlog of unpaid health insurance claims unchanged at roughly $1.2 billion. However, FY2012 costs for the program are uncertain because of a dispute over the awarding of health insurance contracts; as a result, a projection of unpaid health claims at the end of FY2012 is not currently available. If unpaid group health claims remained unchanged at the end of FY2012, total non-General Funds liabilities would be approximately $4.2 billion.