CHICAGO, March 7 (Reuters) - The hole in Illinois' general funds budget deepened to $9.6 billion in fiscal 2016, an increase of $2.7 billion from the previous year and the biggest deficit in at least 10 years, according to the state's annual audit released on Tuesday.
As a 20-month impasse over the budget continues between Illinois' Republican governor and Democrats who control the legislature, the state's finances are in a freefall.
While the fiscal year that ended on June 30 marked the 15th straight year the state budget ended in the red, the deficit has grown 43 percent just since fiscal 2014. The fiscal 2016 gap surpassed a $9.1 billion deficit reached in fiscal 2012.
Illinois, the only state to lack a complete budget for two consecutive fiscal years, is operating on court-ordered spending for healthcare, social services and payroll, as well as ongoing appropriations covering pensions and debt service on bonds. A massive bill package to end the stalemate is on hold in the state Senate.
State Comptroller Susana Mendoza, a Democrat, called Illinois' finances "abysmal."
"During Governor (Bruce) Rauner’s first two years in office, our state moved from a budget impasse to a budget crisis," she said in a statement on Tuesday. "This third year of his administration has the makings of a complete financial meltdown."
The nation's fifth-largest state is unable to generate enough cash from its current revenue structure to pay operating expenses on time, Mendoza's audit letter said. Illinois is also struggling with a $130 billion unfunded pension liability, a $33 billion unfunded liability for state retiree healthcare and an unpaid bill pile currently at $12 billion.
As a result, Illinois' credit ratings have been downgraded to the low investment-grade level of triple-B and are the weakest among the 50 states.
Illinois already pays a big penalty in the U.S. municipal bond market, where its so-called credit spread over the market's benchmark yield scale for AAA-rated 10-year bonds stood at 213 basis points on Tuesday, the widest spread of any state.
According to Illinois' auditor general, the state's net position, which takes into account total liabilities like pensions and total assets such as buildings, infrastructure and equipment, deteriorated to a negative $131.6 billion in fiscal 2016 from a negative $125.3 in fiscal 2015.
Illinois had the worst net position of the 38 other states that filed their annual audits by the end of February, the auditor's office reported. (Editing by Matthew Lewis)