Unbelievable histrionics
Friday, Nov 16, 2012 - Posted by Rich Miller
* Either the Tribune editorial board is ignorant or it is lying. Heck, maybe both…
Quinn’s budget director, Jerry Stermer, told a legislative committee Thursday that Illinois entered this fiscal year with $8 billion in unpaid bills — and will exit this fiscal year with $8 billion in unpaid bills. That’s almost as troubling as Stermer’s implication that the state with the nation’s worst credit rating ought to pay those bills by borrowing more billions:
“The governor’s interested in working with the General Assembly on a structured refinancing of this huge amount of unpaid bills, payables, and we plan to come to the General Assembly with a proposal in the next number of weeks to consider a refinancing of some of that.”
Quinn’s office later stepped that back, saying the governor has no borrowing plan now, has always seen more borrowing as a possibility and is focused on pension reform. Too late: Several House members had nodded appreciatively when Stermer evoked the spirit of new borrowing — a spirit we hoped had died in 2011 when Quinn last floated the idea. Somewhere in his makeup, though, lies a diabolical gene that makes him see bonded debt as an acceptable way to pay for operating expenses, old bills included. As if it’s OK to take out a mortgage to cover groceries. […]
Never forget what Democratic leaders promised the night of 1/11/11, when they jammed that temporary, 2-percentage-point income tax increase through the General Assembly: The point, they assured, was to pay for pensions without borrowing, to pay down debt, to pay old bills.
A “diabolical gene.” Sheesh. These guys are the biggest drama queens in the entire state. Take a breath, already.
* But, let’s get to the lies/ignorance…
1) Borrowing to pay old bills is not akin to taking out a mortgage “to cover groceries.” Illinois is so far behind on its bills that it’ll take years to pay off vendors. Bonding will do three things: Pay off those much-needed vendors; Inject a ton of cash into the economy; Force legitimate state spending cuts of about a billion dollars a year to pay for the bonds.
2) The tax hike law includes language that sets aside a portion of the proceeds to help fund bonding for old bills. That’s what the legislative leaders were talking about. The Tribune should read its own archives, for crying out loud.
Bonding is not an ideal solution. No doubt about it. I don’t even expect the Tribune to support it. But they ought to at least be honest about their opposition.
We as a state are already borrowing from vendors. And those vendors - which are mainly small businesses and not-for-profits - shouldn’t be used as banks. Unless the Tribune can come up with $7-9 billion in real state budget cuts to free up the money to pay off all the vendors next fiscal year, it ought to shut the heck up.
* Other stuff…
* Fiscal cliff could cost Illinois more than $1 billion: But it’s possible the backlog could grow even larger if the fiscal cliff is reached, according to revenue officials, who say the state could lose $1 billion. That’s because federal tax increases that would automatically go into effect would send a ripple through the state’s economy, leaving less money for people to spend and resulting in less tax revenue for the state.
* Lawmakers consider state employee wage cap: Bayer said the average pay for a state worker in Illinois is $60,292, less than that in Iowa or Minnesota.
* Illinois takes another step toward health exchange: The exchange, which will be run by the federal government in 2014, is an electronic marketplace to buy insurance. Gelder describes one example of how he saw it work recently in Massachusetts. “An individual knowing her zip code, whether she was a smoker or not, and what sort of health insurance she was interested in could actually go through the options available to her and select the one she could afford and be enrolled with insurance in 20 minutes,” he said.
* Editorial: A last straw? Billboards to balance budget
* Charters not immune from closings, CPS says - Chicago Public Schools officials say they plan to get tough with privately run charter schools that are failing academically this year and could shut down those that aren’t making the grade.
- cermak_rd - Friday, Nov 16, 12 @ 10:53 am:
It’s about time they got around to pruning the charters with poor performance. We need more Nobles, not more Failure Academies. One of the indicators of a good charter program is having a charter authorizer with teeth, that can close the bad ones and reward the good ones.
- shore - Friday, Nov 16, 12 @ 10:57 am:
I have to point out they endorsed obama twice for president against both mccain and romney and have also endorsed a number of congresscritter democrats, most notably comrade jan schakowsky over joel pollack in 2010 among others so this isn’t some charles krauthammerification of their ed board.
I don’t know if you care about him anymore about the guy but NBC5 ran a rare interview of Richard M. Daley last night which was largely a puff piece but your outside the city readers might find it interesting to post in your mid day roundup. He looks incredibly old and worn out.
- Rich Miller - Friday, Nov 16, 12 @ 10:59 am:
shore, the editorial board can sometimes be downright liberal on national issues. But it’s extremely Foxish on state budget/revenue/pension issues. One does not excuse, nor explain, the other.
- Backwards - Friday, Nov 16, 12 @ 11:06 am:
Isn’t a portion of the money owed to “vendors” actually owed to other governmental and quasi-governmental agencies, like the Universities, who do not get to add interest to the amounts owed? So a bond would actually incur interest, while a liability to EIU, for example, incurs no interest.
- Trib Funk - Friday, Nov 16, 12 @ 11:16 am:
Touché, Rich. Not to mention that the State could actually save money with a borrowing plan because of the late payments it must pay to vendors.
There is clearly a “Trib-Pat Brady-GOP Combine” here that Kass needs to expose. They think Illinois voters are Chumbalones.
- wordslinger - Friday, Nov 16, 12 @ 11:43 am:
Unlike the Tribune, the state can’t hide in bankruptcy court for years and force its creditors to take haircuts.
If the numbers crunchers can show that a seven- or eight-year borrowing plan for a portion of outstanding bills would the save the state money in juice on what it’s already borrowed from vendors, it should be done.
- Jerome Horwitz - Friday, Nov 16, 12 @ 11:49 am:
I believe that House Bill 6240 was recently filed to address the issue of unpaid bills.
- walkinfool - Friday, Nov 16, 12 @ 11:55 am:
You’re right. The tax hike was presented on 1/11/11 as one part of a three-part package, including a hard spending limit, and short-term bonds to pay down accounts payable at a lower net cost. It was an integrated package, with financial integrity. The numbers did work.
The GOP caucus voted down the short-term borrowing piece entirely for political messaging reasons.
I sometimes wish all editorial boards would run their pieces quickly by their own reporters in Springfield for simple fact-checking, before making fools of themselves.
- Rich Miller - Friday, Nov 16, 12 @ 12:02 pm:
Jerome, you’re right. That was pointed out here yesterday.
- Arthur Andersen - Friday, Nov 16, 12 @ 12:02 pm:
PQ may have a goofy gene, but diabolical not so much. His diabolical gene is actually a diabolical Jack.
Sometimes wonder if the Tribbies let Kasso write some of that tripe in exchange for a smaller check.
- DuPage Moderate - Friday, Nov 16, 12 @ 12:08 pm:
Late fees to vendors? You mean late fees to bankruptcy trustees after the State’s late payments cause businesses to default on their debt…causing foreclosure and eventual liquidation? Not many of those are being paid.
- titan - Friday, Nov 16, 12 @ 12:28 pm:
If the state started the year $8bil behind and will end the same - then the state kept up for the year (it stopped losing ground). The state is paying late fee interest (12% ?) to those paid more than a set time late (60 days ?). Bonding the debt should be possible at a much lower interest rate, bring us current on unpaid bills and put us in better shape going forward, shouldn’t it?
- Cook County Commoner - Friday, Nov 16, 12 @ 12:56 pm:
Although some vendors are probably happy collecting the late fees, most need the full amount, not just the juice. If the municipal markets are still offering decent rates to the state, it should avail itself and pay off some of the debt. What I’m curious about are the structural changes the state needs to make. Income taxation, gov employee pensions, feeding public schools off of property taxes, all have to be addressed some time. There is nothing on the horizon which indicates a great economic rebirth is out there. And the longer the GA delays, the more onerous the fix will be. Or do we wait for serial municipal bankrupticies like California?
- Rich Miller - Friday, Nov 16, 12 @ 1:00 pm:
===Or do we wait for serial municipal bankrupticies like California? ===
The IMRF is in the best shape - by far - of any system in Illinois. Take a breath.
- Jerome Horwitz - Friday, Nov 16, 12 @ 1:05 pm:
According to an article in the SJR dated 10/15/12 by Valerie Lies, nonprfots were the third largest employer in the state. Nonprofits accounted for $24.3 billion in wages and represents 8.7 percent of the states total payroll. It would make sense to foster stability among nonprofits.
- Wensicia - Friday, Nov 16, 12 @ 1:08 pm:
“Drama queens” is putting it mildly.
- Fight Fair - Friday, Nov 16, 12 @ 1:08 pm:
To clear up a persistent point of confusion among some commenters: Bonding to pay old bills would be far more expensive than paying penalties. From the Tribune of 2/17/11 (you can look it up):
… Quinn says (borrowing to pay operating expenses) would lower the late-payment interest the state pays to some of its creditors.
Except, as Tuesday wore on, much of the air came out of that argument. His top aides acknowledged in a conference call with reporters that borrowing $8.75 billion would cost the state maybe $540 million a year in interest. How much do those late-payment charges cost taxpayers? Roughly $60 million a year. “That sounds like less than $540 million,” offered a droll Greg Hinz from Crain’s Chicago Business.
- S.Dolopoulos - Friday, Nov 16, 12 @ 1:15 pm:
@Fight Fair
Interesting. Thank you for pointing that out. That definitely lends some different perspective to my prior conclusions. Will have to explore this issue further.
- Rich Miller - Friday, Nov 16, 12 @ 1:18 pm:
===$540 million a year in interest===
That assumes a 6 percent interest rate on the full amount every year, without ever touching the principle. So, it may be the interest payment the first year, but not every year.
So, yes, it will cost more to borrow longterm via bonds than borrow longterm from vendors.
But, the hardship done to the economy is also a major factor here. And it’s just not right to treat vendors as lenders.
- Arthur Andersen - Friday, Nov 16, 12 @ 1:46 pm:
Rich-I may still be a little off from the cold medicine, but the $60 million in late payment charges sounds awfully low, even after netting out ineligible payees.
Doing the bond issue is still the right and fair way to go
IMHO.
- Robert the Bruce - Friday, Nov 16, 12 @ 1:50 pm:
Not paying non-profits and other in-state vendors money that is owed to them ultimately forces them to borrow or shut down or cut back services, hurting the state.
But re: the $60 million in late payment charges, I wonder how many of the state creditors actually are able to charge late payments via their contracts. I’d think every contractor at this point would want this in the contracts, but not sure that the state would agree to this.
- Dirty Red - Friday, Nov 16, 12 @ 1:52 pm:
= Illinois entered this fiscal year with $8 billion in unpaid bills — and will exit this fiscal year with $8 billion in unpaid bills. =
I’d like to see how Mr. Stermer arrived at this figure. The general funds backlog crossed $7B this week. It’s not the first time it has met that mark this fiscal year, and it’s likely to go down and back up several more times before June 30.
Unless HFS recently processed a significant amount of vouchers, the figure the director based his facts on is greatly flawed. If estimates on the unreported Medicaid backlog are correct, then another $2.5B needs to be tacked on. That’s quite a few more cuts the Mothership will have to make to meet Rich’s challenge.
Perhaps I am missing something. If so, please advise.
- Scottish - Friday, Nov 16, 12 @ 2:15 pm:
$60 million is too low - if you look up the interest paid for FY12 to date it is $126.3M.
- Fight Fair - Friday, Nov 16, 12 @ 2:24 pm:
A.A.: The $540 million versus $60 million came from then budget director David Vaught. R.M. is correct in saying it’s improper to stiff vendors. But that’s a separate point. When the conversation turns to the question of whether taxpayers are better off borrowing than paying penalties, the Quinn administration’s answer is clear: borrowing is much, much more expensive.
Plus, borrowing in effect converts payments owed for bills to hard, bonded debt that will dog taxpayers for years. That’s a peculiar way for a fiduciary to behave. His duty is to the people — that is, the ordinary citizens — whose government and financial interests he must protect.
- Arthur Andersen - Friday, Nov 16, 12 @ 2:26 pm:
Thanks, Scottish. You made the back of my envelope feel better.
- Ahoy! - Friday, Nov 16, 12 @ 2:36 pm:
It’s actually hard to determine how much it costs the State in interest to vendors. The State only lists how much it pays in late payments, not how much cost they have incurred. These are obviously two different numbers when dealing with the State (I realize how absurd that last statement is). Additionally, no one is talking about borrowing 8.75 billion, that was a number thrown out haphazardly by the Governor two years ago. The current legislation is for $4 billion, the interest will not be anything close to $540 million. Rich also pointed out the socio and economic hardship that these late payments are causing our State. Businesses are facing bankruptcy (if they have not already closed, notice there are a lot less independent pharmacies?), human services are cutting back on services and laying off front line service provides and schools are laying off teachers. This is costing our State a lot and it’s not just in money.
- Rich Miller - Friday, Nov 16, 12 @ 2:40 pm:
===His duty is to the people — that is, the ordinary citizens — whose government and financial interests he must protect.===
And it’s definitely in the state’s financial interest to have willing vendors.
Also, Vaught’s comments were either quoted out of context or he was just wrong.
- Jimbo - Friday, Nov 16, 12 @ 2:47 pm:
One number you cannot calculate is vendor’s building in the slow-pay into their bids. Illinois pays a much higher price for goods and services because vendor’s assume the state won’t pay promptly.
- gg - Friday, Nov 16, 12 @ 2:48 pm:
I am glad you get it Rich.
Man was I wrong on Saviono. Hammered.
- gg - Friday, Nov 16, 12 @ 3:10 pm:
Saviano
- Ahoy! - Friday, Nov 16, 12 @ 3:15 pm:
– One number you cannot calculate is vendor’s building in the slow-pay into their bids. Illinois pays a much higher price for goods and services because vendor’s assume the state won’t pay promptly.–
Excellent point and very true and it happens for two reasons:
1) Vendors have to factor it into the cost of doing business.
2) Vendors who can afford to provide goods and services to the State simply can. The State’s slow payment forces way to many vendors out of bidding. When you reduce the number of bids, your cost goes up. Only people who can afford to provide bids to the State.
- Ahoy! - Friday, Nov 16, 12 @ 3:17 pm:
Fight Fair,
You’re assuming that the backlog of unpaid bills (borrowing from vendors) aren’t going to dog taxpayers for years? What?
- Captain Illini - Friday, Nov 16, 12 @ 3:45 pm:
…The other aspect of “vendors” is those who are on state insurance, specifically dental and other insurance that some offices do not accept, thus many employee’s I’ve heard waiting up to ten months for reimbursements.
- Arthur Andersen - Friday, Nov 16, 12 @ 4:30 pm:
Good points, Ahoy.
For a good willing vendor example, ask any car dealer (the guy whose name is on the door, not the knucklehead with the cheap suit who accosts you on the lot) about any experience they have had with bidding for State vehicle contracts and getting paid once you deliver the goods. Suffice it to say it’s not like what we go through wherein “no
dough, no ride.”