Impact of the State of Illinois’ Fiscal Crisis

February 17, 2010

The State’s fiscal crisis is causing substantial difficulties for residents, state workers, state service providers and other governments. Budget cuts in early FY2010, which began July 1, led to reductions in state-funded services for some of Illinois’ lowest income citizens. Now, with the economy still mired in recession, the State is increasingly hard-pressed to pay its bills. Illinois’ backlog of unpaid bills has risen to unprecedented levels and the lag time in paying bills has nearly doubled from a year earlier. Some social service agencies that rely on state funding are facing severe financial stress. Record payment delays are also affecting grants to local school districts and payments to universities, local governments and transit districts.[1] Because the State is taking so long to pay health insurance claims for state employees, some doctors are reportedly requiring patients who work for the State to pay for their treatment in advance.

The chart below shows the trend in unpaid bills from the end of FY2002 through FY2010. The latest projection of $5.9 billion in unpaid bills at the end of the current fiscal year represents 20.4% of total estimated General Funds expenditures of $29.2 billion.[2]

At the end of December of 2009, the backlog of unpaid bills at the Illinois Office of the Comptroller stood at $5.1 billion, up from$1.8 billion at the same time a year earlier.[3] The delay in paying bills was as long as 92 business days at the end of December, compared with at most 48 days a year earlier. Transfers to Other State Funds from General Funds were delayed as much as 122 days at the end of December. According to the Comptroller’s Office, both the bills backlog and the payment delays were at record levels for this point in the fiscal year.[4] In addition to the $5.1 billion in unpaid bills at the Comptroller’s Office, the Department of Healthcare and Family Services was holding an estimated $1.4 billion in Medicaid and group health insurance claims that could not be paid because funds were not available. The State has been taking nearly eight months to pay some group health insurance claims, leading to the need for employees to front the entire cost of treatment to doctors and wait on the State for reimbursement.

Some social service agencies have said they will be forced to lay off workers and shut their doors if they do not get paid. In December, AARP Illinois and the Illinois Association of Community Care Program Home Care Providers announced that the State owed $200 million to 175 social-service agencies for the elderly. If overdue bills were not paid, dozens of agencies would have to curtail home and community-based services, causing seniors to be placed in more expensive nursing homes, the two organizations said in a news release. Private agencies that serve children and young adults are also facing severe financial stress, according to the Illinois Human Services Coalition. As of mid-December, the agencies represented by the Child Care Association of Illinois were owed roughly $23.5 million, the coalition said in a news release. Because the State has not paid its bills, child-service agencies have turned to bank loans to meet their expenses and are incurring borrowing costs that will not be recouped.[5] A survey of youth-service agencies conducted over the holidays by the Illinois Collaboration on Youth found that 22 programs are at risk of closing within the next one to three months because they have not been paid.[6]

Local school districts have also faced problems because of delayed payments. Delays in paying out categorical grants to school districts and other educational grant recipients, including pre-school programs, accounted for more than $1 billion of the $5.1 billion backlog at the Comptroller’s Office at the end of December.[7] Categorical grants are grants given to districts for a specific purpose and must be used in a specific way. Chicago Public Schools could be owed as much as $200 million, a spokeswoman said.[8] The Oswego School District 308 said in a news release on January 6, 2010 that it had received only about $39,000 of its promised $14.3 million in categorical grants.[9] The amounts paid by the State to District 308 were $700 for the free and reduced food programs and $38,500 for drivers’ education.  Grants still unpaid included money for transportation, special education and reading improvement.The district said it would need to obtain  bank loans to meet its cash flow needs, incurring interest costs on the borrowing. The district also expects to limit programs funded by categorical grants.

State universities and community colleges were owed more than $775 million at the end of December of 2009.[10] The State is $431 million behind in payments to the University of Illinois, or about six months worth of the university’s total appropriated state support of more than $760 million. In response, the University of Illinois has cut employees’ pay, frozen hiring and required that furlough days be taken. University officials have said that a tuition hike of at least 9% is likely for next year. On February 9, 2010, officials of the University of Illinois and other public universities in the State wrote a letter to Governor Pat Quinn and Comptroller Dan Hynes, urging that the financial crisis be resolved and that they be given a reliable schedule for the payment of the State’s appropriation.

Payments owed to local government and transit districts totaled over $478 million at the end of December of 2009.[11] The State owes Chicago area transit agencies $250 million, according to the Regional Transportation Authority.[12] The RTA is borrowing as much as $260 million to help the CTA, Metra and Pace meet their expenses, at a cost of more than $5 million in interest. RTA officials said service cuts might be necessary if payment problems continue into the summer.

State officials have said that the backlog of bills would  be reduced somewhat by the sale of $3.5 billion in pension bonds on December 15, 2009. Approximately $843 million of the proceeds are expected to go into the State’s General Funds.[13] The $843 million will be used to reimburse the General Funds for payments made to the retirement systems, but it is not clear exactly how the money will be spent. Governor Pat Quinn has tried unsuccessfully to win support for a series of short-term borrowing plans to ease the cash squeeze, including plans to borrow $900 million and $500 million.[14] A bill that was approved on January 12, 2010 by the Illinois House of Representatives would allow the State to borrow $250 million to bring in federal Medicaid matching funds and pay off some of its overdue bills to medical providers.[15]