Illinois faces a $15 billion backlog in unpaid bills

gerri.songer's picture

Post BY: The News-Gazette
http://www.news-gazette.com/opinion/editorials/2017-09-10/neither-borrow...

Gov. Bruce Rauner announced that he's decided to "exercise borrowing authority to issue $6 billion in bonds to pay down a portion of the state's bill backlog." Yes, that's right. After abandoning the idea of spending their way out of debt, the state's leaders have embraced a new plan — borrowing their way out of debt.

No one should kid themselves about the level of irresponsibility required to put such an disgusting option under review. Rauner's move, one that follows repeated bipartisan admonitions to do so, is the culmination of years of irresponsible spending decisions.

Here's how the plan will work, at least theoretically.

Illinois faces a $15 billion backlog in unpaid bills, a substantial portion of which include a late-payment fee of 12 percent per year (1 percent per month). One news account estimated that more than $5 billion of the total debt carries a 12 percent annual interest rate.

Under a provision of the 2017-18 state budget, Rauner is authorized to borrow up to $6 billion at interest rates expected to be substantially lower than 12 percent, perhaps 6 percent.

The savings would come from refinancing the debt in the bond market at the reduced interest rates.

The bonds must be paid off within 12 years and that they require "12 annual principal payments of $500 million, plus interest payments depending on the interest rate."

The budget includes $350 million to help pay for the borrowing. But in a statement issued by the governor's office, Rauner said that the Legislature "did not account for the increase in debt service costs to cover the bill backlog bond issuance."

Rauner said the budget is "more than $1 billion out of balance and is still growing the unpaid backlog."

There have been claims and counter-claims about whether the Legislature actually passed a balanced budget over Rauner's veto. The dispute centers around how accounting rules surrounding $2 billion in spending are interpreted.

The spending dispute raises another question that, depending on how it's answered, will determine whether borrowing to get out of debt is the savings measure its proponents claim.

If the state budget really is a deficit budget, all the borrowing program will do is lower interest rates on one aspect of the debt while continuing to increase the overall debt. That's a non-starter in terms of addressing the state's status of effective bankruptcy.

Democrats are talking about raising taxes, this time by passing a constitutional amendment that replaces the current flat 4.95 percent state income tax rate with a progressive income tax. But assuming the issue is put to a vote, it won't be until 2020 at the earliest.