* Capitol News Illinois…

Illinois Comptroller Susana Mendoza is calling for repealing a law that imposes a 12 percent interest whenever the state is late paying its bills, along with a program that allows private investors to purchase the debt owed to vendors and collect that interest penalty.

Speaking to a Senate budget committee Tuesday, Mendoza said the state is nearly caught up on its bill backlog and that those two programs are no longer needed.

“This program has allowed private lenders to loan money to state vendors, then rake in the 12 percent interest that state taxpayers were on the hook for with these late bills,” Mendoza said. “Now happily the days of connected private lenders profiting off the state’s financial problems can and should be over.”

Mendoza was referring to a 1993 law known as the Prompt Payment Act, which says that whenever the state fails to pay a bill within 60 days, the state must pay an interest penalty of 1 percent per month, or 12 percent per year.

Just a nitpick here, but the word “backlog” really needs to be retired until we actually have one again. The state is paying its bills within a couple/three weeks, so we have no actual backlog today.

* From Mendoza’s testimony…

(W)ith the Governor’s $900 million for the Group Insurance backlog and the fact we are paying our general fund vouchers on time, it’s time to phase out the state’s Vendor Payment Program.

This program has allowed private lenders to loan money to state vendors, then rake in the 12 percent interest that state taxpayers were on the hook for — with these late bills.

Happily, the days of connected private lenders profiting off the state’s financial problems can and should be over.

This is also an opportune time to revisit the State Prompt Payment Act that affords this generous 12 % interest for late payments beyond 90 days.

Now, I understand that the intent of the Act is supposed have a deterrent effect on budget-makers that forces them to keep a budget living within its’ means….. But, I would argue that this interest expense is not penalizing state government, but rather penalizes taxpayers.

It still bothers me that Illinois spent over $1 billion in late payment interest penalties during the budget impasse that is forever gone. Poof.

Was that $1 billion dollar penalty enough to force a correction on Illinois’ budget?

No.

The days of taxpayers being on the hook for billions of dollars in late payment interest penalties should be over.

At a time when we finally have our heads above water, it is now when we need to take a hard look at what happened and to reform our policies so that taxpayers are not having to pay for these exorbitant costs.

While I fully agree that those interest payments had no real impact on budget-makers and that the private investor stuff made some people big bucks, the law helped convince some vendors to do business with the state at a time of crisis and also helped some smaller vendors keep their heads above water. I am not all that confident in Illinois’ ability to continue down this current path of fiscal sanity.

Your thoughts?

*** UPDATE 1 *** Griffin Slate comptroller candidate Shannon Teresi…

The proposal from Comptroller Mendoza on Tuesday to end penalties on late payments is nothing more than a cheap way to save a buck that will cost taxpayers more in the long run. If the state were paying it’s bills on time, why would Comptroller Mendoza be so afraid of penalties on late payments?

This is the latest example of the Pritzker administration’s rules for thee but not for me. While every Illinois family has to pay interest on our mortgage, rent, and household bills, the state government is trying to create a loophole for themselves. What Comptroller Mendoza isn’t telling you is that under JB Pritzker and her financial “stewardship,” the state has taken on more debt, worsened its financial position, and tries to pass this off as responsible leadership.

In reality, Comptroller Mendoza and Governor Pritzker are trying to use sleight of hand on the people of Illinois.

*** UPDATE 1 *** Greg Hinz has Mendoza’s campaign response to Teresi’s comments…

“The facts are that Comptroller Mendoza has cut the state’s bill backlog by over 80% without using federal stimulus funds, delivered the fastest vendor payment cycle in decades—down from 210 working days to 17 days today—and helped earn the state its first credit upgrades in over 20 years, a clear indicator of the state’s improved fiscal condition,” she responded.

For what it’s worth, the watchdog Civic Federation is siding with Mendoza on this one.

The 12% fee “is an unnecessary guardrail,” said federation President Laurence Msall in a phone call. “It was supposed to be a deterrent, not a way for people to profit from the states overdue bills.”