By: Mark Glennon*

Pity the average citizen trying to understand any of this based on what politicians say.

From national news sources like Reuters to local media like the the Rock River Times, a big story last week was that $1 billion in late payment fees paid by Illinois were due to the budget impasse. “STUNNING the state’s lack of a budget for two years has meant $1 billion in interest penalties,” wrote Politico, and that bold type was theirs. You can find many other headlines and stories to the same effect.

Trouble is, there’s little if any truth to it, unless you conflate the budget with a special bond issue that merely swapped one debt for another. During the impasse, bills got paid late simply because we were spending more than we were bring in, just as we did before the impasse and just as we are now.

Didn’t the bill backlog drop a lot after the budget passed in July? Yes, but that’s attributable to borrowing to pay off the bills, not the budget. Neither that borrowing nor the $5 billion per year tax increase have been enough, which I’ll come back to.

The stories were prompted by a report released Monday by Illinois Comptroller Susanna Mendoza. She actually only said the late penalties were “primarily caused” by the budget impasse. She’s been regularly blaming the budget impasse on Governor Rauner. That’s a theme among Illinois Democrats — the impasse was his fault and the impasse is what broke the state.

I asked Mendoza’s office for comment and to elaborate on her claim but I got no response. They just sent a copy of her press release. Aside from being energetic and charismatic, Mendoza is clever. She was smart enough to know many stenographers working as reporters would repeat her claim with no thought or investigation — and exaggerate it.

I suppose you could say the bond sale was part of the budget because it was in the same legislative package, so Mendoza is sort of correct in a sense. But it’s just not right to claim that want of special authority to issue a very unusual bond, that just traded debt for debt, was part of the budget impasse.

The sad part, that’s not going away and should have been the story, is that the problem of unpaid bills and late payment fees wasn’t fixed by either the bond sale to pay them off, the budget or the recent tax increase.

As of Friday, the backlog stood at about $8.5 billion. That’s a reduction of $8.2 billion from its record high last year, but that reduction is less than the bond issue yielded for the back bills, because new bills are still being added. The bond sale, a one-credit-card-to-another trick, got $8.7 billion (including resulting matched payments by the federal government) applied against the bill backlog and put $6 billion onto the backs of our kids to pay.

So, that means there’s nothing to show for the $5 billion per year tax increase, right?

Um, well, uh….

Right, as to the bill backlog. Borrowing accounts for the entire reduction in the backlog. The additional tax money went elsewhere.

It’s really pretty simple. We continue to spend more than we have. Neither borrowing nor the tax increase fixed much so we’re going deeper into the abyss. At current rates the budget for the year starting July will be unbalanced by $3 billion. By the way, it’s far worse than indicated by the budget or the bill backlog for reasons we explained here.

-*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.

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2 years ago

Mark- This archaic law of the state paying 1% per month after the first 90 days dates back to the early 80’s when the prime rate was 18% so paying 12% per year seemed reasonable at that time. This law was never adjusted to any measure of inflation-same as the 3% compounding on pensions (3% no matter what) The prime rate today is 4.5% and if you take 2/3rds of that the late fees should be 3% per year which is at least 3-4 times the rate you get in a money market account. If someone could check to see… Read more »

2 years ago
Reply to  Fred

Exactly. Vendors aren’t getting 12% on their money from any other investment, so they happily supply the State, while grumbling in public about it.