Illinois Could Owe $8 Billion by End of 2012: Report

When Gov. Pat Quinn signed a bill enacting a state income tax increase from 3 to 5 percent, the act was supposed to alleviate the state's staggering budget crisis.

"What's right isn't always popular and what's popular isn't always right," the governor said, clearly aware of the political ramifications of the tax hike.

Now, a government watchdog group reports added pension and debt costs will swell the state government’s deficit to $5 billion by next July and a total backlog closer to $8 billion.

In a report released Monday, the Civic Federation said he actual operating gap between revenues and expenditures dropped this year to $454 million from $3.9 billion because of the income tax increase. Yet when accounting for all unpaid bills, the state will have a payment backlog that could be as high as $8.3 billion by the end of the 2012 fiscal year, said Laurence Msall, the president of the non-partisan budgetary think tank.

“While the $454 million seems like a small amount, it's still half a billion dollars,” Msall said. “When accounting for the manipulation of the healthcare budget and the existing backlog related to business tax refunds, we've manipulated the budget calculation to make it seem like we owe less than we do."

In a report released Monday, the Civic Federation said reductions from the tax increase and spending cuts will be offset by the $1.98 billion in pension contributions and $1.14 billion in increased borrowing costs. Additionally, the report says the state government has manipulated the budget to push $1.7 billion in Medicaid costs into next year.

“All of that combines to make the state very fiscally unstable,” Msall said.

Currently, payments on pension bonds account for 17 percent of the General Fund, a figure Msall said the state needs to address. While there is proposed legislation to reduce future payments to existing employees, such measures are constitutionally questionable and of course, politically unpopular.

That means the governor may have to make more unpopular cuts if he hopes to keep the state solvent.