Customer comments | Illinois Invoice Backlog Reduction Has Nothing To Brag About | Guest comments
Illinois Comptroller Susana Mendoza touts a huge decrease in the state’s unpaid invoice backlog as a “remarkable” achievement, citing the “day-to-day diligent management” of her office’s cash flow. It would be like bragging about reducing my credit card debt after taking out loans to pay off my balances and receiving an unexpected bonus.
At the end of 2017, when then-Gov. Bruce Rauner and the Legislature failed to come to a budget deal, with the state’s backlog of unpaid bills reaching $ 16.7 billion. The bills included amounts owed to hospitals, schools, nonprofits, homeowners and other vendors, who had to wait months to be paid. Essentially, these vendors were lending money to the state to keep it afloat.
Most of this backlog can be attributed to one of the many loopholes in the state’s balanced budget requirements, which says its “available funds” must equal its “spending.” Note that it does not say that income must equal expenses. This wording allows the Legislature to include in budget calculations only checks that are written and not all money owed.
If the Crown receives an invoice from a supplier, it should not be counted in budget calculations until the check is written. Thus, the state can “balance” its budget by simply not paying its bills, resulting in a backlog.
Soon sellers, who get 12% interest a year on overdue bills, start complaining about not getting paid, so the state borrows money to reduce the backlog. When the government takes out loans, this money becomes âavailable fundsâ and can be used to balance the budget. In the fall of 2017, the government’s backlog of bills declined significantly when it issued bonds worth $ 6 billion.
When the pandemic hit, the state needed money as its backlog of bills had grown again due to lost revenue and additional expenses related to COVID-19. Most likely due to Illinois’ poor creditworthiness, the state did not want to issue debt in the municipal bond market, so it was the only state to use the Federal Reserve’s special loan program called the Liquidity Facility. municipal.
The state borrowed $ 1.2 billion from the Federal Reserve last spring and $ 2 billion in December. There has been a corresponding drop in his backlog of invoices. These loans are short term and must be repaid within three years. In April 2021, the Office of the Comptroller received more tax revenue than expected, which allowed more money to be spent on repaying the backlog.
Paying off the big backlog of bills and managing the cash flow becomes much easier when you borrow money and receive unexpected income.
To extend credit where credit is due, Mendoza is currently calling for budget cuts and asking the federal government to allow the state to use federal coronavirus relief funds to repay short-term loans, including loans. Federal Reserve loans.
If this is not allowed, the money will likely be spent, and to reimburse the Fed, the governor and the legislature will have to do something unheard of. Over the next three years, the state will not only have to truly balance the budget, but also spend $ 3 billion to $ 4 billion less than it receives in revenue.
Or politicians could choose to get rid of hundreds of billions of dollars in debt by borrowing more money to pay off Federal Reserve loans, or they could start delaying bill payments again.
Sheila A. Weinberg is the Founder and CEO of Truth in Accounting, whose mission is to compel governments to produce understandable, reliable, transparent and correct financial reports.