Back in July, the state of Illinois narrowly avoided a junk bond rating with a last minute budget deal that included a 32% in hike in income taxes. Republican Governor Bruce Rauner vetoed the budget and called it a "disaster," but both houses of the state legislature voted to override his veto. Meanwhile, S&P and Moody's were apparently both convinced that the budget deal was sufficient for the state to remain an investment grade credit and all lived happily ever after, if just for a few months.
But, with the state's past due payables hovering around a record $16 billion...
...which is a 3-fold increase over the past two years...
...one has to wonder, as we have on many occasions, just how solid Illinois' credit rating really is.
But as staggering as Illinois' $16 billion in unpaid contractor bills is, per a report from the Associated Press today, it may not even fully reflect the true extent to which the state has stiffed its vendors.
Illinois is chasing a moving target as it tries to dig out of the nation's worst budget crisis, and a review obtained by The Associated Press shows $7.5 billion worth of unpaid bills — as much as half the total — hadn't been sent to the official who writes the checks by the end of June.
Although many of those IOUs have since been paid, a similar amount in unprocessed bills has replaced them in the last three months, Comptroller Susana Mendoza's office said Monday. That's in addition to $9 billion worth of checks that are at the office but being delayed because the state lacks the money to pay them.
The mound of past-due bills tripled over the two years Republican Gov. Bruce Rauner and Democrats who control the General Assembly were locked in a budget stalemate, which ended in July when lawmakers hiked income taxes over Rauner's vetoes.
Of course, in the end, it's Illinois taxpayers who end up getting hurt the most as the state is racking up penalties of 1% per month on unpaid bills that are outstanding for more than 90 days. As the AP points out, there is roughly $5.5 billion worth of trade claims that are past 90 days overdue meaning that taxpayers are paying just over $650 million a year to cover interest payments on unpaid contractor bills.
In some cases, agencies were waiting to send their receipts to Mendoza because lawmakers haven't approved the spending. For example, the Department of Corrections had $471 million in unpaid bills on hand as of June 30 largely for that reason.
"Ascertaining the precise nature of the state's past-due obligations and liabilities is an essential component of responsible cash and debt management," the Democratic comptroller wrote in a letter to Republican Rep. David McSweeney, a budget hawk from Barrington Hills who requested the review.
Mendoza and McSweeney plan to use the findings to urge lawmakers to override Rauner's veto of legislation that would require monthly reporting of bills not yet submitted for processing. The measure, authored by Mendoza's office, would include a breakdown of how old each bill is and which ones have received legislative approval to be paid.
The age of bills is important because many that are 90 days or older face a 1 percent-per-month late-payment fee; about $5.5 billion of the current $15.9 billion backlog is subject to the penalty. Mendoza estimates the state will ultimately pay $900 million in late-payment fees on the existing pile of debt.
The Department of Central Management Services, which handles personnel, procurement and employee health care, has most of the June 30 bundle, with $5.8 billion. That's mostly doctor's bills owed to employee medical providers under the state group health insurance plan.
Add that to the state's $130 billion pension underfunding...
...and you start to understand why Illinois bonds are trading well over par and near all-time highs...makes perfect sense really.