State puts itself at front of payment line

SPRINGFIELD — Illinois owes a lot of money to a lot of people, including itself, and thanks to legislation passed in 2010, the state is in the front of the line to get repaid.

By Andrew Thomason

SPRINGFIELD — Illinois owes a lot of money to a lot of people, including itself, and thanks to legislation passed in 2010, the state is in the front of the line to get repaid.

Under the emergency budget act, the state was able to borrow $500 million from hundreds of funds, including the Illinois Animal Abuse Fund and Illinois Affordable Housing Trust Fund, to balance its budget.

While the funds were being depleted, the state was putting off paying the money it owed to businesses, health-care providers and schools.

The inter-fund borrowing stopped June 30, 2011, and according to the same legislation that authorized the borrowing, that money must be paid back within 18 months, or by Jan. 1, 2013.

But there’s no similar deadline for tackling the ever-present $4.4 billion backlog of bills the state owes to the vendors and companies with whom it does business. Both sets of bills will be paid off with money from the general fund, the state’s main checking account that’s refilled by revenue from taxes, fees and other sources.

“Do the vendors get squeezed by this? Sure,” said Kent Redfield, a political science professor at the University of Illinois at Springfield.

Craig Mannschreck is a co-owner of Resource One, a furniture supply store here that sells furniture to the state. Mannschreck said the inter-funding borrowing situation is bad news for small- and medium-sized business owners like him that do business with the state.

“I don’t think they understand the urgency of the problem for small businesses. It’s not just going to go away,” Mannschreck said.

The longer businesses like Resource One go without payment from the state, the more they have to borrow money from creditors and the closer they come to shutting down, Mannschreck said.

Gov. Pat Quinn has proposed borrowing to pay off the old bills. He reasons that the state essentially has borrowed from the vendors without their permission, and the state could get a lower interest rate on bonds than what it pays vendors on overdue bills.

That plan has so far fallen flat in the General Assembly.

Right now businesses are paid on a first-come, first-served basis, said Comptroller Judy Baar Topinka spokesman Brad Hahn. He encouraged any business that might shutter its windows if the state doesn’t pay what it owes to contact the Comptroller’s Office.

But helping the really desperate comes at a price.

“It’s a balancing act, because any time you move someone to the front of the line, someone else is getting pushed further back,” Hahn said.

The lion’s share of the state’s inter-fund borrowing will be paid off by June, according to Quinn’s three year budget plan. The remaining debt would be paid by the start of 2013.

“This money is repaid with interest, the same interest it would collect if it was sitting in the (general) fund, so no loss of money,” said Kelly Kraft, Quinn’s budget spokeswoman.

Kraft said no more inter-fund borrowing is planned for in upcoming budgets.

When the backlog of bills in the Comptroller’s Office will get paid off isn’t known.

“There is no way to predict when the state might eliminate its backlog given the number of variables involved. Spending decisions made by the governor and General Assembly will have a major impact and an economic resurgence would bring in needed revenue,” Hahn said.

Inter-fund borrowing and delaying payments to vendors are ways to balance the budget without having to make deep cuts or the recent corporate and personal income taxes permanent when they expire in 2014, Redfield said.

“Part of this is to keep the lights on and part of it is to not have to make the tough decisions until after the 2012 elections” in November, Redfield said.

Mannschreck said the state should look to the businesses to which it owes money when it comes to paying bills.

“They need to pay their bills when they say they’re going to pay them. We have to pay our bills, when they’re due. We have to pay our sales tax on time. Why should they not have to pay us on time?” he said.

The inter-fund borrowing is in no way the same as the practice of Quinn’s predecessor, former Gov. Rod Blagojevich, said Kraft. Blagojevich would empty funds to pay for expenses without any intention of ever repaying the money.