January 20, 2012
Six months after the end of the last fiscal year, the Illinois State Comptroller is reporting that $5.2 billion of FY2012 revenues were needed to pay off the State’s bills from FY2011.
Paying off the previous year’s bills with current revenues is one of the ways the State deals with its accumulated deficits, which have reached historic highs over the last five budget years. At the end of each fiscal year, which for Illinois ends on June 30, the State typically has 60 days to pay off the last of its bills. This is known as lapse period spending. However, due to the magnitude of its deficits in FY2010 and FY2011 the State extended the lapse period through emergency budget measures in from 60 days to six months.
The $5.2 billion in FY2011 expenditures paid off using FY2012 revenues accounted for 15.3% of the total $34.0 billion in expenditures for FY2011. The previous year set a State record for lapse period spending with $6.5 billion of FY2011 revenues going toward FY2010 bills.
The FY2010 lapse period spending accounted for 19.1% of the total $33.3 billion annual General Funds expenditures. To put this in perspective, at the beginning of the recent economic recession in FY2008, the State’s lapse period spending totaled just under $1 billion and only accounted for 3.0% of the total annual General Funds expenditures.
The following chart compares the State’s annual lapse period spending to its total General Funds expenditures for FY2008 through FY2012.
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As shown in the table, based on the FY2012 budget as currently enacted, lapse period spending is projected to grow again in FY2012. The $5.7 billion in projected lapse period spending for FY2012 is based on the State’s projected General Funds accounts payable at the end of the year. This amount could change if the State manages these bills using other deficit financing measures.
The lapse period is an indicator of the General Funds deficit but excludes other amounts carried forward outside of the General Funds. For instance, Medicaid and employee health insurance claims in Illinois may be paid out of future years’ appropriations under a provision of Section 25 of the State Finance Act. The provision has repeatedly been used to budget an insufficient amount of Medicaid appropriations to cover costs for a given fiscal year, since the bills can be paid from the next year’s appropriations. Employee health insurance was not adequately funded in FY2011, resulting in an estimated $1.2 billion backlog of bills at the end of the fiscal year. Although group health insurance is expected to be fully funded in FY2012, Medicaid is projected to be underfunded by nearly $2 billion. The Medicaid reform legislation enacted in January 2011 phases out the Section 25 loophole over the next decade.