Illinois taxpayers had to fund more than $318 million in interest payments in fiscal year 2013 to vendors who weren't paid as a result of the state's ongoing cash flow woes.

The interest payments were more than double the $136 million reportedly paid in fiscal year 2012. The figure was $91 million in 2011; $97 million in 2010; and $39.6 million in 2009. The spike in interest occurred as the state pushed to pay down its' soaring Medicaid bills at a time when federal government stimulus money had dried up.

Illinois Auditor General Bill Holland reported that the state, along with Massachusetts, were the only two in the nation to end fiscal year 2013 in the red. The more than $300 million could have covered the annual budget for the Illinois State Police or bailed out beleaguered schools and universities, according to Holland's annual overview of state finances.

Tax revenues in Illinois have been up and down, along with the economic cycle. The tax base was hurt as Medicaid-related costs moved higher and manufacturers left for cheap-labor sites in Asia. Yet the biggest reason for the state’s financial distress is an underfunded state-employee pension fund. Until a recent agreement, the fund was $100 billion short of what it would need to honor its obligations to retired employees. To pay for revenue troubles, the state in recent years has had to borrow money through bond sales.

The pension fund’s large shortfall not only saddled the state with debt but also caused bond-rating firms to lower their ratings on that debt. After a series of such downgrades, the nation’s three biggest bond rating concerns currently rate the state’s general-obligation bonds the lowest for any state.

Lawmakers in Illinois have finally begun to address the pension issue. In January 2011, they approved a steep rise in the state’s personal income tax, and in the corporate tax as well. Those tax increases are due to expire, unless legislators move to extend them. The tax increase, if extended, will help bolster state revenues.

Late last year, lawmakers passed a pension reform measure designed to reduce the fund’s debt over time. But state workers, angered by cutbacks called for in that plan, have filed lawsuits seeking to have the measure overturned. For now, there is plenty of uncertainty.

Meanwhile, even though the numbers - specifically the $318 million figure for interest payments - remain troublesome, Illinois Comptroller Judy Baar Topinka hailed the release of the annual overview of the state's finances because it came out three months earlier than the previous year's audit. It's critical, she said, to get these reports in a timely manner to give lawmakers and the governor time to understand the state's finances and help everyone involved make better decisions for improving them.

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