As taxpayers rush to send in their 1040s Monday, folks sending a check to the Illinois Department of Revenue may be wondering what happens to all that cash. The answer for at least $86.3 million last year is that it gets “flushed away,” according to state Comptroller Judy Baar Topinka.
Editor's Note: This is the latest installment in the Deadbeat Illinois series, where reporters from GateHouse Illinois newsrooms examine the real-world effects of the state's failure to pay its bills. Each Monday, we'll share the stories of those affected. See more on the Deadbeat Illinois Facebook page.
As taxpayers rush to send in their 1040s Monday, folks sending a check to the Illinois Department of Revenue may be wondering what happens to all that cash.
The answer for at least $86.3 million last year is that it gets “flushed away,” according to state Comptroller Judy Baar Topinka.
The line of unpaid vendors is much longer and the bill is much higher than that comparatively small amount — the total for outstanding bills stood at nearly $5.9 billion as of Friday afternoon — but those tens of millions of dollars last year went to cover interest owed on those late payments.
If the state can’t pay its bills on time — after 90 days — private vendors become eligible for interest on the overdue amount. That accrues month after month until the bill gets paid.
It’s just “another way that taxpayers are paying for years of financial mismanagement,” Topinka said. “Those dollars are being flushed away and taxpayers receive nothing in return. It is the equivalent of a consumer maxing out his or her credit cards and then paying hundreds or thousands of dollars each month in interest payments alone.”
Over the last decade, that has cost Illinois taxpayers more than $300 million according to figures from the comptroller’s office.
Not only is that a “terrible way to do business,” but Topinka said it also discourages Illinois businesses from expanding — or even remaining here.
“Business owners understandably like certainty, and there is a lot of uncertainty in Illinois,” despite the many other appeals the state has, Topinka said. “It makes sense: Who would invest their time, money and future in a state that can’t pay its bills?”
Not quite two years ago, Gov. Pat Quinn’s office sought some changes to slow the rate that the interest was accruing, and lawmakers went along with the proposal. Instead of the clock starting to run on the interest penalties after 60 days, it now starts after a bill is 90 days late in being paid.
At the time, Quinn’s office said vendors preferred that over a separate proposal to cut Medicaid reimbursement rates, and lawmakers “didn’t really get much pushback” from vendors on the proposal, state Sen. Heather Steans, D-Chicago, said.
The number of overdue bills has remained high, however, and actually climbed in the first year after the changes. In the first nine months of fiscal 2013 — which ends June 30 — the state has already paid out $47 million.
In the past, Democratic lawmakers have proposed refinancing and consolidating that debt, arguing that paying 1 percent interest a month to vendors — up to 12 percent a year — on overdue bills made less sense than borrowing the funds on the open market at a lower interest rate, essentially owing interest to bankers rather than Illinois businesses.
Such measures didn’t get anywhere last year, but may be part of a discussion this year once legislators settle down into crafting a budget by May, state Sen. Dave Koehler, D-Peoria, said last week.
Topinka, however, isn’t keen on the notion.
“When a family is drowning in debt and interest payments, the worst thing it can do is apply for new credit cards,” she said. “The additional spending power may bring short-term relief and a false sense of security, but it will ultimately lead to financial collapse.”
Doing so “may make the state’s bill backlog look better for a few months, but it will dig us even deeper in the long haul,” Topinka said, especially when Illinois is already stuck with one of the lowest credit ratings of any state in the union.
Chris Kaergard can be reached at (309) 686-3135 or firstname.lastname@example.org. Follow him on Twitter @ChrisKaergard