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Illinois pays down bills but backlog could rise again in August

CHICAGO (Reuters) - Higher-than-expected revenue from state income tax enabled Illinois to reduce its unpaid bills to $5.8 billion from $8.5 billion at the beginning of April, the state comptroller said on Wednesday while cautioning the improvement could be short lived.

"Illinois is the only state in the nation where $5.8 billion in unpaid bills sounds like real progress and one-month payment delays are something to celebrate," State Comptroller Judy Barr Topinka said in a statement. The state still owes money to schools, hospitals, businesses and nonprofit groups, she said.

Like other states that collect income tax, Illinois saw a large increase in its revenue in April because taxpayers facing an April 15 tax filing deadline recorded capital gains and took other financial steps in 2012 to avoid potentially steeper federal income taxes for 2013.

Topinka reported that Illinois revenue was $1.3 billion higher than expected. A state legislative commission report found that Illinois collected $3.12 billion in personal income tax, a 33 percent increase from April 2012.

Topinka cautioned, however, that the backlog of unpaid bills could rise to $7.5 billion in August when state revenue tends to decline.

Illinois stands alone among states in the use and scope of delaying payment of bills and other obligations as a way of shoring up its budget. Bills topping $9 billion and the state's nearly $100 million unfunded public pension liability have led to credit rating downgrades, leaving Illinois with the lowest state ratings.

Before the April influx of tax revenue, vendors and others had been waiting as much as four months for state payments.

Topinka urged state lawmakers to reduce new spending as they take up a fiscal 2014 budget during the spring legislative session scheduled to end on May 31.

"This is not the time for new spending," Topinka said. "Just the opposite. We need to use these final days of session to pass the leanest budget possible and address the long-term challenges facing our state."

Lawmakers are also weighing measures to reform pensions, which are threatening spending for state services such as education, health care and public safety.

A fiscal 2013 third-quarter report released by Topinka's office on Wednesday said that even with pension reform, the state's backlog of unpaid bills would persist and may even grow in 2015 when an income tax rate hike enacted in 2011 is scheduled to be partially rolled back.

(Reporting by Karen Pierog; Editing by Toni Reinhold)

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