Illinois treasurer plan would recycle late bill fees back to state

[March 07, 2018]  By Karen Pierog

CHICAGO (Reuters) - Among the scores of new bills introduced in the Illinois legislature this year is a plan by the state's Democratic treasurer to redirect some of the millions of dollars in late-payment fees on overdue vendor bills back to the state.

Treasurer Michael Frerichs is pushing legislation to allow his office, which invests the state's money, to purchase up to $1 billion in overdue bills and collect the late-payment penalties, sometimes as much as 12 percent annually, therefore keeping the money in Illinois' coffers.

Under a program re-authorized by Governor Bruce Rauner, vendors and service providers have the option to gain immediate cash by selling their overdue state receivables to qualified private lenders who pocket the late-payment fees in return.

Last year, Illinois incurred $1.03 billion in late-payment fees largely as a result of the state's unprecedented budget impasse in fiscal years 2016 and 2017 that ballooned its unpaid bill backlog to a record high $16.67 billion.

"That money could have been spent on schools, roads and bridges," Frerichs told Reuters on Tuesday. He added that his plan would allow some of those late-payment fees to flow back to the state.

The legislation, which passed an Illinois Senate committee last week, would give the treasurer's office priority to purchase receivables before the four currently active private lenders in the program.

While bills more than 90 days past due accumulate interest penalties of 1 percent per month, the fine would be reduced to 0.3 percent per month for receivables held by the treasurer, under the legislation.

Frerichs said he would be able to devote $500 million to $1 billion in investable state funds to the vendor payment program. It was designed to avert a shutdown of essential services such as state employee health insurance, prison food supplies and fuel for state trooper cars, due to the late payment of bills.

The biggest private lender, Vendor Assistance Program (VAP), has acquired $3.5 billion in Illinois receivables and has been repaid $2.5 billion by the state, according to the firm's website.

Following the passage of a fiscal 2018 budget and $5 billion income tax hike in July, Illinois sold $6 billion of bonds in October to shrink the bill pile, which currently totals $8.9 billion.

The governor's office has estimated the backlog of bills will by the end of fiscal 2023 grow to just under $14 billion.

(Reporting by Karen Pierog; Editing by Daniel Bases and Matthew Lewis)

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