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Illinois Issues
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End and Means: It's Time for Illinois to Borrow Money From Willing Lenders

Charles N. Wheeler III
WUIS/Illinois Issues

Since the outgoing General Assembly increased personal and corporate income tax rates in January, lawmakers have been at great pains to show how business-friendly they really are.

In the spring session, for example, the legislature approved a compromise workers’ compensation measure that sponsors said would save business up to $700 million, mostly by reducing payments to doctors and hospitals that treat injured workers.

Lawmakers also passed legislation authorizing ComEd and Ameren, the state’s two main electricity suppliers, to increase their rates — and not coincidentally realize handsome profits — in return for promised “smart grid” investments to modernize the state’s distribution system.

After Gov. Pat Quinn vetoed the plan as unfair to consumers — a charge echoed by Attorney General Lisa Madigan and Illinois Commerce Commission head Doug Scott — the legislature quickly overrode the veto in its fall session, a multibillion-dollar bottom-line boost for the utilities.

And the fall session went into overtime in hopes lawmakers could craft corporate tax breaks designed to keep CME Group, a national securities and commodities exchanges operator, and Sears Holdings, which controls some 4,000 retail outlets around the world, headquartered in the Chicago area.

So why hasn’t the legislature done anything to ease the undeniable fiscal pain being felt by the thousands of Illinois small businesses, health care providers, community groups and charitable organizations to whom the state collectively owes hundreds of millions of dollars for past services rendered? Not to mention hundreds of cities, counties, public universities, school districts and other government units collectively owed billions more?

The problem is no secret. In an award-worthy, nine-day-long series titled “Deadbeat Illinois” that appeared the week before the fall session began, The Associated Press and its member newspapers examined more than 166,000 bills totaling some $5 billion piled up in state Comptroller Judy Baar Topinka’s office awaiting payment in early September. Example by example, the series provided excruciating details of the backlog’s impact on everyday folks — small businesses, human-service providers, not-for-profit charities across the state.

Nor is what should be done a mystery. The obvious response is for the state to borrow money from willing lenders — bond buyers, for example — to pay off the money it owes to its unwilling lenders, the vendors caught in the backlog.

A portion of the income tax increase already is earmarked to cover borrowing costs, and Quinn proposed such debt restructuring in his February budget message. But the governor unwisely included some current expenses. Sen. John M. Sullivan, a Democrat from Rushville, sponsored more tightly drawn legislation to sell bonds to pay private vendors, Medicaid bills, corporate tax refunds and government units. But the first bill in the package — $1.5 billion to cover money owed businesses, not-for-profits and other non-government creditors — garnered only 19 votes in May, all Democrats. Twenty-one Republicans and two Democrats voted no, and 14 other Democrats and three Republicans took no stance. After the losing roll call, the other three bills were never called.

The opposition from Republicans, who like to portray themselves as champions of small business, might seem surprising, but party leaders have been adamant that they won’t support borrowing to pay the past-due bills.

The main reason, they say, is that Illinois can’t afford more debt. Moreover, they argue, the state should just tighten its belt further, and somewhere down the road —say in a couple of years or so — the fiscal discipline would produce enough extra cash to finally pay the bills. Borrowing now would continue the state’s unrestrained tax-and-spend ways, the party line goes.

In addition, some editorial writers note, it’s cheaper for the state to continue to stiff all those it owes rather than to pay the interest that professional lenders would demand. In part, that’s because lawmakers this spring extended to 90 days from 60 days the delay before the 1-percent-per-month interest on past-due bills kicks in, a grace period unknown to the bond market. Moreover, government units such as cities and school districts can’t collect interest under the state’s Prompt Payment Act.

The first two arguments ring hollow, however, and one suspects that Republicans aren’t so ill-informed that they don’t realize why:

  • Selling bonds to pay what’s already owed is not taking on new debt. Rather, it’s shifting the existing debt load to people who are in the business of lending money away from people who aren’t, folks who in good faith have provided a wide variety of goods and services to the state.
  • The state’s spending has been brought into line with resources; in fact, the latest projections suggest revenues for the current fiscal year will outpace FY12 obligations. Indeed, Republicans implicitly admit the point when they predict the bills can be paid within a few years.

The third point — interest costs would be higher on bonds than on unpaid bills — could prove correct. True, the state could borrow in the markets at an annual interest rate well below the statutory 12 percent rate — a $3.7 billion general obligation bond sale went at 5.56 earlier this year, for example. But because so much of the current backlog is owed to other government units and another sizeable chunk likely will get paid within the 90-day window, the actual interest rate on the total backlog would be much less than 12 percent. Still, does that justify the hardships being inflicted on tens of thousands of vendors? What’s the state’s moral obligation here?
In the end, one suspects that partisan politics is at the root of the united GOP opposition to borrowing. Party loyalists want to use the backlog to flay Quinn and the legislature’s Democratic majorities — on whose watch the bills mounted — as they have done for months.

Now, however, it’s time for the GOP— and Democrats, too— to show the same concern— at least for the thousands of struggling small businesses, community organizations, and not-for-profit human services providers— that lawmakers of both parties offered the ComEds and CMEs. Borrow the money, and pay the private sector what it’s owed!

Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois Springfield.

Illinois Issues, December 2011

The former director of the Public Affairs Reporting (PAR) graduate program is Professor Charles N. Wheeler III, a veteran newsman who came to the University of Illinois at Springfield following a 24-year career at the Chicago Sun-Times.
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