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* From the comptroller’s office…
It has been more than a month since the General Assembly authorized Gov. Rauner to offer up to $6 billion in General Obligation bonds, which would allow the state to lower the interest rate it pays on its debt.
That high interest rate – up to 12 percent a year – is costing Illinois taxpayers $2 million a day in late payment interest penalties for every day the Governor does not move on putting together the bond issue.
Minutes after the General Assembly voted to override the Governor’s budget veto July 6, Comptroller Mendoza sent a letter (see attached) to the Governor’s Office of Management and Budget, seeking a meeting to talk about getting started on the bond issue. Our staff met with the budget office July 14. No timetable for a bond offering was provided.
We sent a follow-up letter (see attached) to the Governor on Friday, July 28, but have heard nothing back. It will take several weeks to put the bond deal together and the longer the wait, the more taxpayers will pay in higher interest rates.
Comptroller Mendoza released a video Monday morning to help familiarize Illinois citizens with the importance of refinancing the state’s debt through a bond offering. “You should know that this debt is costing you, the taxpayer, $2 million dollars a day, at up to 12% interest in late payment interest penalties. 12%. That’s brutal,” Comptroller Mendoza says on the video. “But just like you at home, if you had the opportunity to refinance your debt at a lower interest rate, and save money, you would. People do it all the time with their home mortgages. That’s just common sense.”
The bonding will be used to start to tackle the state’s bill backlog, which reached a record peak of $15.4 billion in June. It will give some relief to providers and businesses awaiting payment from the state. Over the past two years without a budget, they have had to exhaust their lines of credit, lay off employees and, in some cases, turn away Illinois citizens in need of services.
“Approximately 90% of our mental health and addiction treatment providers’ bills have gone unpaid over the last 12 months,” Sarah Howe, CEO of the Illinois Association for Behavioral Health, said. “We strongly urge Governor Rauner to move forward on the authorized bonding to pay for services for which the state is obligated to pay under contracts that the governor’s Department of Human Services signed. This action would help bring stability to a system faced with potential closures.”
“Since the budget impasse has ended, many people believe human service providers’ financial woes are over,” Sherrie Crabb, Executive Director of Family Counseling Center in Vienna, said. “This couldn’t be further from the truth. The fact remains that human service providers, like Family Counseling Center, are still owed hundreds, and some even millions, of dollars. Agencies like ours have had to reduce programming, cut employee jobs and benefits, and some have even closed their doors.”
“While we are feeling some relief now that a budget is in place, we are still operating week to week,” Cathy McClanahan, Executive Director of the Women’s Center in Carbondale, said. “Releasing bonds would guarantee that our services to domestic violence and sexual assault survivors will continue.”
I’ve asked the governor’s office for a response. I’ll post it when I get it.
The July 6th letter is here. The July 28th letter is here.
* Mendoza has also posted a new video…
*** UPDATE 1 *** From Laurel Patrick in the governor’s office…
Rich,
Comptroller Mendoza isn’t telling the whole story. She has the authority to immediately use over $600 million from fund transfers and inter-fund borrowing to pay down bills. This $600 million can be used to reduce the backlog of bills by as much as $1.2 billion if she prioritizes Medicaid payments, which will allow the state to capture federal matching dollars.
The Comptroller should act now. Our office contacted hers last week identifying potential fund transfers and inter-fund borrowing options to begin paying down the backlog. This would reduce the backlog of bills, reduce interest costs, and provide clarity for bonding options.
The Governor’s final decision on bonding requires us to first know how much of the bill backlog can be addressed through means other than bonding. That is why we ask the Comptroller to begin reducing the backlog of bills immediately. We have worked cooperatively with the Comptroller to achieve this critical first step, and ask that she take action to help the state. This will not only reduce the backlog of bills, it will advance the analysis necessary to make a final decision on bonding.
We are additionally working to save taxpayer dollars by reducing spending and reforming government not only to pay down the backlog of bills but also to keep the state from building more debt in the future.
Thanks,
Laurel
Interesting points. I’ll be following up with Mendoza’s office.
*** UPDATE 2 *** From the comptroller’s office…
We’d like to thank the Governor’s Office for validating the work that we have already been doing, in paying down the $15 billion backlog of unpaid bills that has more than tripled since Governor Rauner took office. Now it’s time for the Governor to do his job.
The Office of the Comptroller has utilized funds from inter-fund transfers to access millions of dollars in federal funds. Ironically, the budgetary tools we are using now were vetoed by the Governor, who has come around and is now apparently encouraging their use.
What we need right now is movement by the Governor’s Office and a solid timetable for refinancing the debt so that our office can establish a comprehensive cash management plan for the remainder of Fiscal Year 2018.
Interfund utilization was never envisioned as a substitute for refinancing the debt. They are supposed to work in tandem. Our office has been working effectively on this with GOMB and our communications (see attached) show that.
The fact remains that $600 million is a drop in the bucket compared to the nearly $15 billion backlog of unpaid bills. Our office is appropriately managing our responsibilities, but until the Governor does his job, taxpayers will continue to be on the hook for $2 million a day in late payment interest penalties.
I’ll post the correspondence when I receive it.
…Adding… The paper trail referenced above is here and here.
*** UPDATE 3 *** A commenter wondered where the state treasurer was on this issue. Ask and ye shall receive…
As the state’s chief investment officer, Illinois State Treasurer Michael Frerichs today urged Gov. Bruce Rauner to act on the authority given to him and refinance the nearly $15 billion bill backlog.
The backlog, which has tripled since the Governor took office, represents loans from unwilling employers doing business with the state at the outrageous interest rate of 12 percent.
“There is not a financial advisor worth his salt who would urge a family to keep a 12 percent loan when better interest rates are available,” Frerichs said. “Taxpayers paying $2 million in interest each and every day defies common sense and borders upon malpractice.”
Despite going nearly two years without a budget, there still is appetite in the financial markets to refinance Illinois debt because the state guarantees repayment. Indeed, that repayment guarantee is another argument supporting refinancing.
“Refinancing isn’t enough, of course, and difficult decisions remain,” Frerichs said. “But why in the world would we not do this?”
Illinois has endured eight credit downgrades since Gov. Rauner took office in January 2015. The bill backlog was considered with each downgrade.
posted by Rich Miller
Monday, Aug 7, 17 @ 9:11 am
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just wondering…where in the fy 2017 budget is the line item for the debt service on the $6 billion bond deal
Comment by moneyman Monday, Aug 7, 17 @ 9:26 am
I’d be more interested in what the Treasurer thinks of this.
Comment by Not It Monday, Aug 7, 17 @ 9:35 am
Moneyman,
Where in the budget is the line item for the interest being accrued on the $14 billion in unpaid bills? It doesn’t exist. Yet, interest costs are being incurred.
Comment by Oh Boy Monday, Aug 7, 17 @ 9:43 am
Good messaging by Mendoza.
It’s not about the amount of money that’s owed, but rather the cost to taxpayers at these interest rates, and the opportunity to get a better rate. Anyone with a mortgage - republicans included - should understand why refinancing may make sense.
Comment by Robert the Bruce Monday, Aug 7, 17 @ 9:55 am
The only reason to not refinance existing debt at a lower interest rate is if you never plan on paying the debt.
Comment by wordslinger Monday, Aug 7, 17 @ 9:57 am
Why would this bond deal be delayed?
Who is currently profiting from the stop-gap loans to some State vendors and will lose their sweet 12% interest if the bond deal goes through?
First rule: follow the money.
Comment by RNUG Monday, Aug 7, 17 @ 9:57 am
Mendoza’s video is effective. Something this complicated will take over 3 minutes to explain, and serious people will hang in there and watch it.
She does herself well, looking very confident in her message. Well done work by her and the team that created this.
Comment by A guy Monday, Aug 7, 17 @ 10:07 am
Another solution although it probably could not made retroactive would be to amend the state prompt payment act (30 ILCS 540/0.01 to make interest on bills more in line with some other interest index.
Comment by justacitizen Monday, Aug 7, 17 @ 10:09 am
Doesn’t Mrs. Mendoza know the flags are out of order? American Flag should always go over the right shoulder and be on “its” right…The little things do matter.
Comment by Ambassador Abe Monday, Aug 7, 17 @ 10:15 am
Trying to apply conventional or even political logic to the governor’s actions is a fool’s errand. Everything he does must be viewed exclusively through the IPI prism. Only through their eyes do his actions make any sense.
Comment by Chicago Cynic Monday, Aug 7, 17 @ 10:38 am
If this is a case of putting ideology first, it’s completely irresponsible and there’s no just excuse. I get it, they didnt get their way with the budget - not sure what the alternative was but he apparently took his ball and went home after that L. Can’t wait to see how the Governor tries to spin this one. What a waste of money.
Comment by Sonny Monday, Aug 7, 17 @ 10:41 am
I notice how Gov’s staff very carefully said “bonding” rather than “borrowing”. Interfund borrowing isn’t that much better of an option. And last I checked $6 billion is more than $600 million. The superstars should have been able to get that bond deal done; it only takes a few weeks to do a bond deal and a GO deal isn’t hard.
Comment by Anon Monday, Aug 7, 17 @ 10:57 am
2 million a day! That is even more then what Rauner makes on his investments. Meanwhile the providers of state services are going out of business because Rauner won’t pay them. Madness!
Comment by DuPage Monday, Aug 7, 17 @ 11:04 am
The Governor’s explanation for the bond issuance delay due to the failure of the Comptroller to implement fund transfers and other cash management strategies is absurd. The current backlog of approximately $15 billion is more than twice the total amount of bonds that can be issued, $6 billion. The backlog is also more than 10 times the amount that the Governor thinks the Comptroller could pay down by taking his suggested actions. So, the obvious strategy is to issue the full authorized amount of bonds regardless of the Comptroller’s approach. Of course, the Comptroller should use the proceeds to pay the bills that receive matching dollars first, followed by bills with the highest interest rate. This approach is not complicated and the correct strategy does not depend on party or ideology.
Comment by PragmaticR Monday, Aug 7, 17 @ 11:20 am
Update X2: $6 billion > $600 million.
End of Update
Comment by JohnnyPyleDriver Monday, Aug 7, 17 @ 11:24 am
The dikes are overflowing.
Here’s a cork.
Comment by walker Monday, Aug 7, 17 @ 11:34 am
Ao new SPOX wants to use fund sweeps to pay down old bills? The idea is to get rid of the 12% INTEREST. We know GovJunk is afraidee to issue debt, but fund sweeps won’t get the total down.
He should ask his old GUMBY director because the numbers are his.
Comment by Annonin' Monday, Aug 7, 17 @ 11:44 am
OMG- how can we believe, or why should we believe any of these people. Come on Mendoza do the transfers. Come on Rauner, get those bonds going. And for God’s sake stop with the “finding waste and fraud” line. My field of Social Services has gone a decade without an increase in addition to delayed payments. Yet I have to serve more people. You really think you’re going to find money in my budget. Good Luck on that. And yet the are doing this. One of my budgets was questioned because of a dollar difference in a $2M budget. Mr. Rauner, that is a rounding error, not fraud. I have to stop here or I will go ballistic.
Comment by Never Politically Correct Monday, Aug 7, 17 @ 11:47 am
This is easy math. Pay 12% interest on backlog, or pay 5% interest on bonds. What’s the debate?
Credit rating agencies know the right financial move is to refinance with the bonds. That’s why S&P threatened to downgrade to junk if Illinois doesn’t use the authority to refinance.
Comment by Waterfall Monday, Aug 7, 17 @ 12:04 pm
Anyone know from what funds the sweeps will come from?
Comment by Leatherneck Monday, Aug 7, 17 @ 12:05 pm
Great response from the Comptroller. Snarky without sounding childish.
Comment by Cubs in '16 Monday, Aug 7, 17 @ 12:47 pm
===Great response from the Comptroller===
A bit long.
Comment by Rich Miller Monday, Aug 7, 17 @ 12:48 pm
===A bit long.===
Perhaps. The content is on the money and speaks to each point Rauner’s office brought up. If I’m comparing the two, Mendoza’s sounds more credible and knowledgeable.
Comment by Cubs in '16 Monday, Aug 7, 17 @ 12:54 pm
Long response without answering why she hasn’t acted on the $600 million fund transfers that were supposedly recommended last week by the governor’s office.
Comment by Robert the Bruce Monday, Aug 7, 17 @ 12:58 pm
Long response without answering why he hasn’t acted on the $6 billion in borrowing (not supposedly) approved a month ago by the General Assembly.
Comment by Anonymous Monday, Aug 7, 17 @ 1:13 pm
To the Mendoza update,
The first paragraph could be wholly removed and sprinkled in within the remaining paragraphs, forcing even more editing for a tighter, more biting, more pointed response instead of walking it around the barn to make points best made within the facts of numbers and responsibilities.
Not bad, they’ve done better.
Comment by Oswego Willy Monday, Aug 7, 17 @ 1:19 pm
=Long response without answering why she hasn’t acted on the $600 million fund transfers=
The Governor should issue $6 billion in bonds as soon as possible regardless of any action or inaction by the Comptroller. There is no reason why anyone with this option available would delay the implementation of a financing strategy that will save more than $500 million in interest per year.
Comment by PragmaticR Monday, Aug 7, 17 @ 1:51 pm
‘Chief investment officer’?…nice handle.
Comment by blue dog dem Monday, Aug 7, 17 @ 2:40 pm
So the governor’s office wants the comptroller to prioritize Medicaid payments? Now that they don’t have to worry about making those pesky K-12 state aid payments Thursday, that shouldn’t be hard at all.
Comment by Disgusted Downstate Monday, Aug 7, 17 @ 3:41 pm
I’m inclined to side with the Comptroller and Treasurer here, but if GOMB and the Governor’s staff are taking some time to examine how a large new issuance fits in with any other bonding that will need to happen this fiscal year, that’s not unreasonable. That clock has about run out by now, though.
Comment by Arthur Andersen Monday, Aug 7, 17 @ 4:08 pm
RNUG opined what I’ve said previously…why refinance to lower interest rates when all of Bruce’s friends are buying debt and making 12%. I’m sure there is some skim with his name on it.
Follow the money indeed.
Comment by Captain Illini Monday, Aug 7, 17 @ 8:51 pm
Businesses that can afford the cash flow love the 12% interest. Businesses used to overpay their corporate income taxes too when the interest the state paid was higher than their investment rate. The state tightened that abuse. Same should be done for Prompt Pay Interest - 12%? c’mon.
Comment by justacitizen Monday, Aug 7, 17 @ 9:10 pm
The fair & timely payment act- AKA LAW in IL,
Requires the state to pay 1% interest after an invoice reaches 90 days.
This equates to no more than 9%.
SO while Mendoza and you state 12% the fact is 9% at most.
Add to it, the governor’s offices has asked Mendoza since December of 2016 to release payments, and she is not.
SO I as a vendor, last week again, requested her office at my 91st day to allow me to sell an invoice now at 91 days.
Her office does not respond. So I do not get paid.
Comment by sharkette Tuesday, Aug 8, 17 @ 2:08 am
Add to that the next fact; Where that office sits on my payable- & other vendors payables,
in accounts with CASH approved to pay them.
That also receive funds in daily to pay these invoices
Comment by sharkette Tuesday, Aug 8, 17 @ 2:10 am
Fact, last week once again the Gov’s office went over with her office how to address making some payables.
Fact, is she is not. Instead she is filling media up with total blatant lies, and you all take it as true, when it simply is NOT correct, nor accurate data.
Comment by sharkette Tuesday, Aug 8, 17 @ 2:11 am
The Comptrollers failure to release funded payables Not the Gov, but the Comptroller has
cost us 10M in interest. UNNECESSARY interest.
Comment by sharkette Tuesday, Aug 8, 17 @ 2:19 am
The legislators tried to reduce this to .3.
Yes POINT 3 % interest. It did not pass.
They payable goes by the vouching agency date which is 1 to 60 days. AFTER the Vendors real date.
This is how the Comptrollers office does everything possible to NOT pay vendors.
At very very best case scenario it is no more than up to 8%. At which point the cost of aging has put most vendors who won deals on minuscule margin in negative due to aging and no receivable coming in under normal terms of the rest of the word Net30
Comment by sharkette Tuesday, Aug 8, 17 @ 2:25 am
Interest payments are due by law 8/30 of the year for the prior year.
SO 8/30 of 2017 all interest due is required to be paid.
SO it gets posted, but not released until December of the year.
This reduces that interest due by 5 more months.
So now we are at 3%.
Not 12.
Check your facts please,
Comment by sharkette Tuesday, Aug 8, 17 @ 2:27 am
This year that date has been moved to Sept 30th as of right now, and more likely will go to December 30 as the legislators did not define a means in the pretend budget to actually pay bills.
Comment by sharkette Tuesday, Aug 8, 17 @ 2:34 am
SO, I as a vendor, beg Comptroller to allow me to sell my invoice at 90 days.
I as a taxpayer & you as taxpayers, all pay interest to a 3rd party of somewhere between 1 and 3% eventually, not 12 at all.
While the Comptroller has cash funded to pay the invoice.
This is what your Comptroller is doing.
Not the Gov as you report
Are the facts folks.
Comment by sharkette Tuesday, Aug 8, 17 @ 2:42 am