Question of the day
Wednesday, Jan 24, 2018 - Posted by Rich Miller
* We already talked about the comptroller’s first Debt Transparency Report. But let’s go back and highlight this one aspect…
The comptroller’s report also confirmed that as of the end of December the state had accumulated $1 billion in late payment penalties. State law requires interest payments of up to 12 percent a year be paid on overdue bills. The number of those overdue bills soared during the two-year budget impasse.
* SJ-R editorial…
Just imagine what the state of Illinois could have done with an extra $1 billion.
That could have started to alleviate the inadequate funding provided for K-12 education. It could have constructed new buildings on our higher education campuses, or provided a pathway for students in need of some help with their tuition bills to attain a higher education so they could share their talents and improve the state’s economy. Think of the roads and railways that could have been improved. This list could be endless once you get going.
Instead, Illinois during the past few years blew $1 billion on late fees accumulated by not paying the state’s bills on time. A huge chunk of money and the only thing we have to show for it is the state’s dysfunction was laid bare for the entire country to see.
It’s not exactly surprising news. We watched the stack of unpaid bills climb to a record high of more than $16 billion, all thanks to years of spending more than the state received in revenue, and then a two-year budget impasse where vendors and agencies were made to wait months for reimbursement. And there is a state law that requires interest payments of up to 12 percent a year be paid on overdue bills.
* Sun-Times editorial…
Now that the state has an actual budget and some $5 billion more in revenues, the pile of unpaid bills has dropped from $16.7 billion to about $8.8 billion. Proceeds from a $6 billion bond sale have lowered the interest on remaining bills to 3.5 percent.
But the lower interest rate won’t bring back the $1 billion the state has already spent. It won’t revive the many small businesses in Illinois that closed because they weren’t getting paid for services they provided to the state. It won’t help people who worked at those businesses who lost their jobs.
Next month, the annual budget process will start up again when Gov. Bruce Rauner
is scheduled to present his spending plan for the next fiscal year. Rauner has said it will include unspecified spending cuts.
Whatever emerges after his plan goes to the Legislature, it should include a plan for avoiding paying huge amounts of unnecessary interest in the future.
* The Question: Should Illinois repeal its 12 percent interest penalty for overdue state bills? Take the poll and then explain your answer in comments, please.
bike trails
- Cheryl44 - Wednesday, Jan 24, 18 @ 1:10 pm:
Don’t repeal but make Rauner pick up the tab.
- Montrose - Wednesday, Jan 24, 18 @ 1:11 pm:
Nope. If they are going to treat their vendors like a bank loaning them money, the state should pay interest on it. The last thing the state needs are fewer reasons to pay bills on time.
- Anon One - Wednesday, Jan 24, 18 @ 1:12 pm:
Absolutely not. The prompt payment act was passed due to the State incurring obligations faster than revenue could meet the needs.
The State should have to pass a real budget or be shut down. And it should not be allowed to sign contracts unless the agency can identify the line of the appropriation to pay for it.
And inserting “subject to appropriation” is a fraud that is no moral excuse for this practice. It too should be made illegal in most cases.
The interest is needed to deter the agencies from ignoring the budget process. It should remain and be enforced.
- Anonymous - Wednesday, Jan 24, 18 @ 1:14 pm:
I voted no.
The state as a significant problem with paying timely for contracted services. The penalties imposed on the state by state law are intended to incentivize our state (us) to pay our bills timely, and if we don’t it’s intended to continue to encourage vendors to do business with us.
That 12% makes it possible to finance debt that is caused by our inability to pay.
Removing it will basically mean only vendors with deep pockets and significant capital can risk doing business with the State of Illinois or continue doing business with the State of Illinois and make it harder for smaller firms to compete.
The problem isn’t the interest rate the state is paying, the problem is the State of Illinois failing to adequately tax to pay for all of the services the State of Illinois has decided to provide for decades.
Is the goal to create a situation where no one wants to do business with the state and the employees are only people without better options?
- A Jack - Wednesday, Jan 24, 18 @ 1:14 pm:
No, repeal the governor in November instead.
- NoGifts - Wednesday, Jan 24, 18 @ 1:16 pm:
No, because it looks like the state needs a reason to pay its bills on time.
- Thoughts Matter - Wednesday, Jan 24, 18 @ 1:17 pm:
No. The rate sounds high- until you compare it to unsecured credit cards. Based upon Moody’s opinion of us, it’s probably lower than it should be based upon risk.
- Anonymous - Wednesday, Jan 24, 18 @ 1:18 pm:
I voted “no,” but really the interest rate needs to be higher! How high, I don’t know, but high enough for the General Assembly and the Governor to come to their senses and bond out the entire debt; plus enough to establish a 60 day reserve for the State Employees’ Group Insurance Program. And to also raise enough revenue over the term of the bonds to pay them off, so the borrowing does not trigger unwise budget cuts. Because MATH….
- Whatever - Wednesday, Jan 24, 18 @ 1:19 pm:
No. It is unfair and immoral to not pay interest if you choose not to pay on time. The interest should be enough to compensate the creditors for their costs of borrowing incurred because the state is late. For big businesses, 12 percent is too high in the current market, but for individuals who have to put medical bills on their credit cards until the state decides to pay, 12 percent is not enough.
- Jocko - Wednesday, Jan 24, 18 @ 1:25 pm:
No. This isn’t money we owe ourselves, this is payment (or lack of payment) for services rendered.
- Perrid - Wednesday, Jan 24, 18 @ 1:26 pm:
Voted yes, just because 12 percent is too high. Halving it to 6 percent would still be much higher that what many insurers pay out. I get the 12% is supposed to be punitive, the GA was trying to force the agencies to pay their bills, but the agencies/Comptroller CAN’T pay the bills, so it’s just a vicious cycle.
- wordslinger - Wednesday, Jan 24, 18 @ 1:29 pm:
No, it’s the only leverage vendors have to get paid by unscrupulous chief executives. The state has already stacked the deck with the Court of Claims.
- Wow said I - Wednesday, Jan 24, 18 @ 1:30 pm:
Yes, if s vender knows that there is no appropriate 1. Law shouldn’t allow an agency to commit to that contract, that should be part of the procurement process and if a vender chooses to do business then the interest rate should be eliminated.
Cod should allow be held accountable along with the director.
- Texas Red - Wednesday, Jan 24, 18 @ 1:32 pm:
Voted No. Illinois leaders need this disincentive to be put their financial house in order. They will never do it on their own.
- cannon649 - Wednesday, Jan 24, 18 @ 1:32 pm:
No but we should repeal all the politicians who continue to over spend and “kick the can”
- Commonsense in Illinois - Wednesday, Jan 24, 18 @ 1:32 pm:
I voted, No, for a couple of reasons:
1. The state has to stabilize itself so that people and businesses can have reasonable expectations that the state is spending tax funds responsibly. That isn’t happening, and from that viewpoint, it arguable the interest rate should be even higher than the current 12 percent…not that either the General Assembly nor the Administration would change their spending habits.
2. I think there is an argument to be made that many vendors continued selling to a debtor state knowing full well they’d be on the hook for carrying charges, but would eventually make up for those additional costs by collecting the interest. While I don’t think anyone foresaw the years this is taking, the payday will still likely be significant.
- Wow said I - Wednesday, Jan 24, 18 @ 1:32 pm:
CFO should be held accountable
- Earnest - Wednesday, Jan 24, 18 @ 1:36 pm:
I voted ‘no.’ If the state doesn’t want to borrow money from its vendors at that interest rate, it should borrow money elsewhere.
>Rauner has said it will include unspecified spending cuts.
Somehow I picture him doing this literally. I’m not saying the line with the cuts will say “unspecified spending cuts.” It might say something more like “working together to make spending cuts.”
- Flynn's Mom - Wednesday, Jan 24, 18 @ 1:37 pm:
Without it there is no reason for Illinois to pay bills on time and no reason for unpaid vendors, with capital, to continue to float goods and services to our deadbeat state.
- PJ - Wednesday, Jan 24, 18 @ 1:43 pm:
===Yes, if s vender knows that there is no appropriate 1. Law shouldn’t allow an agency to commit to that contract===
You want the GA to appropriate money for contracts that haven’t been signed yet?
- Give Me A Break - Wednesday, Jan 24, 18 @ 1:47 pm:
Have mixed feelings on this one. The idea of interest on the debt was to encourage faster payment.
Problem is, those payments are late because a lack of funds to pay them so adding to he the amount that must be paid serves what purpose?
I know there are people who think state agency staff simply choose to hold bills and not pay them because they take joy in people not being paid. However, if you have even inside at a state agency you would know staff would prefer to pay their vendors on time.
From Edgar on, state agencies have been dealing cash flow issues. Lawmakers saw a way to score points with providers and vendors when they passed this law and those lawmakers have, and continue to, cost Illinois millions.
If you don’t have the cash to pay your bills adding to the amount owed has what benefit?
- thechampaignlife - Wednesday, Jan 24, 18 @ 1:48 pm:
===You want the GA to appropriate money for contracts that haven’t been signed yet?===
That’s how it works in business. You get the budget approval, then you sign the contract committing you to spending money.
Let’s reverse this: You want vendors to sign contracts with no guarantee they will ever get paid?
- Anon221 - Wednesday, Jan 24, 18 @ 1:50 pm:
Comparison of prompt payment procedures in other states from a 2014 document-
http://www.keglerbrown.com/content/uploads/2014/09/ASA-Prompt-Payment-in-the-50-States-2014-Edition.pdf
- Hieronymus - Wednesday, Jan 24, 18 @ 1:51 pm:
No, because like the pension plans, the persons/businesses/entities to whom these funds are owed are mostly unwilling lenders.
- Anon - Wednesday, Jan 24, 18 @ 1:52 pm:
What people don’t understand is that the interest doesn’t even start accruing until the invoice has been outstanding for 91 days. That is a whole quarter that a small business has to endure with no payment. Every single other state and the Feds, starts the penalty clock at day 30-45.
When some interest actually builds up and the state pays the invoice. They send the interest payment to the back of the line and a vendor doesn’t receive it for a year(s). So the state isn’t paying anything close to 12%.
Eliminating interest only adds to likelihood of more full years without budgets.
- Anonymous - Wednesday, Jan 24, 18 @ 1:54 pm:
I voted yes, with the caveat that the interest rate should be reduced, but not repealed entirely. Possibly base the rate on the current discount rate plus additional penalty points, as they do in other states.
- Anonymous - Wednesday, Jan 24, 18 @ 1:55 pm:
I voted yes. My position is that the state should pay interest to vendors, but to make the interest rate fairer to taxpayers it should be tied to the CPI-U inflation index. So repeal the 12% interest rate and tie it to inflation instead.
- NeverPoliticallyCorrect - Wednesday, Jan 24, 18 @ 1:56 pm:
No because the state, by it’s late payments to community organizations are turning these groups into the state lender. They are forced to borrow money until the state comes through and in the meantime the community group has to pay for the money. Both sides of the aisle should be ashamed of the leadership they have demonstrated and should be voted out of office.
- Louis G Atsaves - Wednesday, Jan 24, 18 @ 1:56 pm:
Voted yes. Give our elected officials an excuse to defer payments and they will pounce on the opportunity. I know a landlord who is owed nine months rent on a legislative office. Small landlord there Ms. Mendoza.
- Truthteller - Wednesday, Jan 24, 18 @ 1:57 pm:
The law is in place for the same reason the constitution protects pension benefits- the unwillingness of politicians to meet their contractual obligations.
In addition to the $1 billion of interest on late payments to vendors you can add another$5.5 billion, which constitutes the approximate amount extra the state paid to the pension funds to make up for shortchanging the funds in the past.
Imagine $6.5 billion wasted for not meeting your obligations.
And Rauner wants to cut taxes. Pay your bills instead. That would be the biggest favor to taxpayers
- DuPage Saint - Wednesday, Jan 24, 18 @ 2:04 pm:
I voted no. Since the state acts like a deadbeat should be treated like a dead beat. I wish there was some way to put the onus on the governor and legislature rather than vendors. I also realize some vendors sell their debt but that seems sleepy to me as debt buyers are usually politically connected
- City Zen - Wednesday, Jan 24, 18 @ 2:15 pm:
“Now that the state has an actual budget…”
Notice they didn’t say “balanced”.
- Anon - Wednesday, Jan 24, 18 @ 2:16 pm:
no, the state shouldn’t spend money it doesn’t have and float its debt on the backs of its vendors.
- Norseman - Wednesday, Jan 24, 18 @ 2:19 pm:
No. Vendors shouldn’t pay for governmental and political negligence. I do think there should be some consideration to linking the interest rate to a reasonable standard.
- wordslinger - Wednesday, Jan 24, 18 @ 2:31 pm:
–Voted yes. Give our elected officials an excuse to defer payments and they will pounce on the opportunity. –
Um, without an interest penalty, why wouldn’t they “pounce” more?
Read the question, again, Louis.
- hisgirlfriday - Wednesday, Jan 24, 18 @ 2:36 pm:
The 12% interest statute was written in a world where no one could imagine the Federal Reserve keepung interest rates between 0 and 1.5% for a decade!
It’s too high for the modern world. It should either be indexed somehow to the Federal Reserve rate or just simply lowered to either the 6% interest local govt pays on money judgments or the 9% interest everyone else pays on money judgments.
Those numbers are still well above what you will get parking your money in a savings account or CD at a bank, but will allow the state to pay vendors quicker and reduces the likelihood of vampire lenders setting up shop to buy vendors’ rights to overdue interest from the state.
- A guy - Wednesday, Jan 24, 18 @ 2:45 pm:
Repeal it and lower it to 8%.
- phocion - Wednesday, Jan 24, 18 @ 2:52 pm:
Yes. Vendors factor in the risk of slow pay when they bid on work. Giving them a higher interest rate is providing unjust enrichment at the further expense to taxpayers.
- SSL - Wednesday, Jan 24, 18 @ 2:56 pm:
Voted no under the consistency principle. Once the state enacts something it should never be able to change it. You know, like the pension system, which is the reason we’re in the mess.
- Sir Reel - Wednesday, Jan 24, 18 @ 3:10 pm:
Yes
Taxpayers pay this above market rate.
Vendors should know by now that doing business with the State is a mistake.
Perhaps if the State can find vendors and programs, projects and facilities stop or close, the Governor and General Assembly will get their act together.
- Sir Reel - Wednesday, Jan 24, 18 @ 3:11 pm:
Can’t find
- Steve Rogers - Wednesday, Jan 24, 18 @ 3:16 pm:
Voted yes, but it should be reduced to match the federal reserve rate. Perhaps something like on July 1, the rate is x percent (same as federal reserve rate), then that’s the rate used for the entire fiscal year. Next July 1, it changes to whatever the federal reserve rate is at that point. Also, interest should start to accrue after 30 days, which is standard for most businesses.
- downstate commissioer - Wednesday, Jan 24, 18 @ 3:19 pm:
Read the comments before voting-then voted no. 12% sounds high, but probably isn’t high enough. I wouldn’t do business with the state; too many small businesses failing because of money owed them.
- Joe Bidenopolous - Wednesday, Jan 24, 18 @ 4:38 pm:
===What people don’t understand is that the interest doesn’t even start accruing until the invoice has been outstanding for 91 days…===
True, which means it’s effectively only 9% interest and wouldn’t be 12% until a vendor goes an entire second year without being paid.
Voted no. Small businesses can’t survive in an environment like that and aside from that, nobody should be expecting businesses in general to be subsidizing the state
- I Miss Bentohs - Wednesday, Jan 24, 18 @ 4:39 pm:
Keep in mind the rule is that we cannot pay less interest than we charge. As long as Revenue is charging 12% (which is actual higher since it is 1% compounded monthly), then we pay 12% (of course everyone assumed we would do more collecting than paying but meh).
I also voted no for the reason I do not buy a car for myself ever month … if you cannot afford it, do not buy it. The State needs to learn this lesson.
- Blue dog dem - Wednesday, Jan 24, 18 @ 5:38 pm:
Vote yes. Reduced.
- downstate hack - Wednesday, Jan 24, 18 @ 6:55 pm:
Voted yes, but only to cut the rate to 6%
- Mama - Wednesday, Jan 24, 18 @ 7:00 pm:
Yes, the State should pay interest on late payments but not at 12%. Reducing the interest rate to around 8 or 9% would save the state money.
- Jerry - Wednesday, Jan 24, 18 @ 10:35 pm:
Voted NO because IL should stop using the not-for-profit social services system to fund its own bad budget choices. Soc. Svcs. should not be bankrolling IL.
- Jerry - Wednesday, Jan 24, 18 @ 10:39 pm:
REALLY, “Wow said I”. So now we are blaming the victim? State should pay its bills on time. Period. Honor the contract you signed (AND dictated the terms of, BTW).
- AndyIllini - Thursday, Jan 25, 18 @ 8:14 am:
To those wanting a lower rate, or a market rate, remember how painful this was for small businesses, who went many months without receiving payments from what was in some cases their biggest customer.
In a best case scenario, these businesses were only making payroll because of lines of credits they had to take out. In my opinion, the least the state can do, is make damn sure that they’re paying their victims a higher interest rate than what it costs the businessees to borrow the money in the meantime. So no, keep it at 12%.