State to pay FY2010 bills; $5 billion in current bills remains

[December 08, 2010]  CHICAGO -- Three weeks ago, one of the state's largest social services providers almost ran out of money. It was saved by a multimillion-dollar government infusion, but this was no bailout -- the state was merely paying off part of the money it owes Lutheran Social Services of Illinois.

"We were facing not being able to make payroll for almost 2,000 people," said the Rev. Denver Bitner, the group's president. "It's an up-and-down kind of affair, and it's resulted in our needing to borrow substantially from credit lines and reserves and cuts in programs."

The group, which runs dozens of programs serving vulnerable Illinoisans -- children, the elderly, those recovering from addiction -- has been left with IOUs from the state ranging from $5 million to $13 million over the past two years. The debt hangs over the head of Bitner, as vendors that supply LSSI's foster homes, recovery centers and old-age assistance programs demand payment.

Just a week before Thanksgiving, the group exhausted $9 million from its reserves and standing credit line. It was only able to pull back from the brink after the state borrowed money to begin paying down its unpaid bills.

Bitner is grateful for the infusion, but he'd prefer timely payment from the state.

Illinois owes billions in outstanding debt from fiscal 2010, which ended on June 30. It will be able to make good on those unpaid bills two weeks before the Dec. 31 deadline. But an elephant remains in the room for fiscal 2011, and it's worth $5.3 billion.

"The lapse period for fiscal year 2010, we expect that they'll all be paid off by the middle of December," said Alan Henry with the state comptroller's office.

The state owes billions for services rendered before June 1, which Henry says will be paid in full within the next 10 days. The state's steep financial climb, however, is far from over. Illinois has racked up $5.3 billion in unpaid bills since the start of the 2011 fiscal year on July 1.

The state owes the Chicago Public Schools nearly $164 million for fiscal 2010. Schools have had to pay out of pocket for supplies and other services, like state-mandated bilingual education requirements, and then wait for a check from the state. The state's payment comes as a welcome relief to the Chicago Board of Education, which is projecting a $700 million deficit in 2011.

But the school system continues to amass unpaid bills from the state -- more than $200 million since July. Late payments have led to program cuts and tightened budget monitoring for the system.

"It will have a significant impact, particularly as we're trying to restore programs, hire teachers and to ensure that the district functions without impacting schools or children," said Monique Bond, spokeswoman for the Chicago school system.

State tax revenue has fallen dramatically since the 2008 economic crisis, leaving a $15 billion gap between expected revenue and expenditures, according to Comptroller Dan Hynes. The deficit, however, does not necessarily take into account the state's delayed payments for services already rendered to schools, vendors and other groups doing business with the state.

Lawmakers set a Dec. 31 deadline for paying off the fiscal 2010 bills. Henry expects the state to beat that deadline by two weeks, following an influx in revenue.

The state so far has received a net gain of nearly $332 million under a tax amnesty program, which allowed late filers to avoid fees and penalties if they ponied up before Nov. 15. Illinois also issued a $1.5 billion "tobacco bond," which borrows against future revenues from a settlement between tobacco companies and state governments, on Dec. 1. All of the bond proceeds will be used to pay off the unpaid bills.

The state's backlog for fiscal 2011 represents only a portion of government expenditures. The state, for example, has managed to continue paying employees and sending general state aid to school districts, even as bills from the previous fiscal year went unpaid.

It has also kept up with debt obligations for past bonds. Among the debt is a $1 billion bond Gov. Pat Quinn issued in May 2009 to help pay off nearly $4 billion in unpaid bills at that time.

Bitner is hoping the state can someday develop a system free of delay and borrowing.

"We're very, very grateful that because of this most recent borrowing that the state was able to do, that they were able to significantly catch us up for this week," he said. "But we don't know about next week because they continue to not have enough money in the system to continually fund programs."

[Illinois Statehouse News; By BILL McMORRIS]