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Through the first three quarters of fiscal year2010, the states cash flow position contin-ued to deteriorate with the backlog of

General Revenue Fund bills reaching his-toric levels. At the end of March, the volumeof unpaid bills from the General Funds in theComptrollers Office stood at $4.496 billionwhile at this time last year payables totaled$3.401 billion. Just as significantly, the statehas had to prioritize critical payments suchas debt service and other obligations vital tothe operating of state programs such asGeneral State Aid to Education. The statehas also had to accelerate large Medicaiddisbursements in order to continue qualify-

ing for increased federal stimulus fundingrevenues. As a result, the backlog includesunpaid transfers and vouchers from the firstquarter of the fiscal year and those delayshave become increasingly problematic.

In March the state made the first payment of$506 million towards $2.25 billion in short-term borrowing loans that were issued toaddress fiscal year 2009 bills. The remain-ing $1.75 billion plus interest must be repaidby June 10th of this year, further exacerbat-

ing cash flow issues for the remainder of thefiscal year.

In January the state issued $3.5 billion inpension bonds which were used to pay themajority of the states obligations to theretirement system in fiscal year 2010. Someof those revenues were available to repaythe General Funds for retirement paymentsalready made during the fiscal year but theresults of the sale and the reduction in pen-sion contributions prior to that sale impact-

ed both expenditure and revenue patterns forthe year.

The chart of adjusted General Revenue Fund(GRF) balances shows the balance on March31, 2010 to be a negative $4.489 billion.Throughout the first nine months the adjust-ed balances have been consistently and sig-nificantly lower than previous years. Majorfactors in the decline of the cash flow posi-tion include continued weakness in thestates economy-driven revenues, a structur-al imbalance in the enacted fiscal year 2010budget, and the states inability to addressthe deficit in the fiscal year 2009 budget

resulting in over $3.9 billion in fiscal year2010 revenues expended for last years bills.

While base revenues increased7.9% throthree quarters of fiscal year 2010, it isfurther declines in economy-driven reve

sources that continue to threaten the stafinancial stability. Even though there isdence of improving economic conditiostate corporate income tax receipts wdown 11.4%, sales tax receipts decrea$506 million or 9.8%, and individual incotax receipts fell $536 million or 8.Federal revenues tied to the AmeriRecovery and Reinvestment Act of 2was essentially the only strong revesource and transfers from the pension boled to the growth in revenues.

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CASH POSITION DETERIORATESAS STATE

BEGINS TO REPAY SHORT-TERM BORROWING

C

Q

THE ILLINOIS STATE

Edition 35, April 20DANIEL W. HYNES, COMPTROLLER

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Base Revenues

At the end of March, fiscal year 2010 baserevenues had increased $1.535 billion or7.9% for a total of $20.971 billion. Statesources of revenue were down $222 millionor 1.4% while federal sources increased$1.757 billion (53.7%) which includes

$1.459 billion from the federal stimulus pro-gram. At the end of March, income taxeshad decreased $648 million with individualincome taxes down $536 million (8.1%)while corporate income taxes declined $112million (11.4%) compared to last year.

With the recession continuing to impacteconomy-driven revenues, sales tax receiptsdecreased $506 million or 9.8%.

Cash receipts from other sources decreased$149 million or 6.3% due primarily to the

expected declines in investment income(down $37 million or 64.9%), inheritancetax receipts (down $52 million or 23.7%),Cook County IGT (down $9 million), insur-ance taxes (down $12 million due to timingof deposit), and public utility taxes (down$48 million or 5.5%). The only state sourcesof revenue to increase for the year so farwere corporate franchise tax and fees (up $7million) and liquor taxes (up $1 million).

For the first three quarters of the fiscal year,

transfers from other state funds increased by$1.081 billion. The major impact on trans-fers was the $835 million transfer in Januaryfrom the Pension Contribution Fund to theGeneral Funds. This transfer was due to theissue of $3.5 billion in Pension GeneralObligation bonds and was primarily a repay-ment for teacher retirement payments madeduring the fiscal year. State Gaming Fundtransfers are down $57 million while LotteryFund transfers were the same as last year.All other transfers increased $303 million

primarily due to fiscal year 2010 fundsweeps legislation leading to transfers of$220 million and $61 million in legislatedtransfers from the Capital Projects Fund.

Federal sources of revenue increased $1.757billion or 53.7%, due to the federal stimuluslegislation which has generated $1.459 bil-lion so far in fiscal year 2010.

Base Expenditures

In prior years quarterly reports, comparativeanalysis has been utilized between cate-gories of spending such as awards and grantsand operations. Major agencies or groups ofagencies spending were compared by cate-gory. However, due to the manner in which

the budget was appropriated, that level ofdetail is incomparable to previous fiscalyears and this report instead will presentcomparisons based on agency spending.

Through March, base General Funds spend-ing increased by $530 million or 2.5%. Forthe month of March base spending was up$74 million.

Through nine months of fiscal year 2010, theTeachers Retirement System had the largestdrop in vouchers presented for payment

among the major agencies of $276 million or23.0% due to the sale of pension bonds. TheDepartment of Healthcare and FamilyServices had the second largest drop with adecline of $194 million or 3.2%. HumanServices is down $155 million or 4.7%,Higher Education declined $131 million or6.0%, Corrections was down $95 million or9.5%, State Board of Education is down $89million or 1.6% and Children and FamilyServices was down $5 million or 0.7%.

Increased spending occurred for the StatePolice (up $82 million or 64.6%) and theDepartment on Aging (up $44 million or10.4%). The increase to the State Police isdue from a funding shift away from the RoadFund to GRF. Regular transfers out for thefirst nine months of fiscal year 2010 declinedby $347 million or 16.7%.

What Lies Ahead

While federal sources accounted for most of

the growth through three quarters of fiscalyear 2010, this will be offset in the last quar-ter since federal ARRA monies in fiscal year2009 totaled $1.566 billion, all of which wasreceived in the fourth quarter of last year.The creation of the Healthcare ProviderRelief Fund will transfer both Medicaidspending and the resulting federal reim-bursements to that fund. The result is thatthere will be a significant decline in federal

revenues to the General Revenue Fund in fourth quarter of fiscal year 2010 compato fiscal year 2009. From a cash manament perspective, the new fund offers opportunity for liquidity in GRF only ifanticipated $400 million in delayed federeceipts is deposited into that fund alowith the proceeds from an approved $2

million one-year bond sale, and MedicARRA spending is then shifted to that fuAbsent such events, the states abilityimpact the existing backlog of payablesalmost negligible. However even if thactions are taken, the backlog of bills at end of June will likely exceed $5.5 billiabsent any other developments.

In the next three months, it is imperative tthe state prioritize the remaining $1.75 billin short-term borrowing and make the f

pension bond payment of $52 million in adtion to normal debt service demanTherefore, with the decline in revenues (frfederal sources) as well as increases in speing (repayment of short-term borrowing apension debt) the states cash flow positfor the final quarter of fiscal year 2010 loexceedingly difficult. Additional paymdelays on the states service providers avendors as well as those elements of the plic sector dependent on state subsidies incling K-12 and higher education and local g

ernments are a virtual certainty.

Previous quarterly reports have discusthe risks that the states cash position plaon providers and the public sector in genal and those dangers have only intensifiedcontinued increase in the backlog of unpbills and the states inability to pay thbills will lead to further erosion of the stservice infrastructure. Eventually, maproviders of essential state services mayunable to continue their operations at curr

levels and those vulnerable segments of population to whom they provide serviwill suffer the consequences. The abilityoperate state programs for children, senioand the disabled will become increasinimpaired. There appear to be limioptions left for the remainder of this fisyear to substantially mitigate these contions and the outlook for fiscal year 201even more ominous. I

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