Illinois Comptroller Sees Debt Transparency Act As Important Tool For Paying Down State Bills
The Illinois General Assembly recently overrode Gov. Bruce Rauner’s veto on the Debt Transparency Act.
Comptroller Susana Mendoza was a major sponsor of the measure and has been hard at work paying down state debts. She said the biggest change the act makes is requiring state agencies to report their debts to her once a month, rather than once a year.
“It will be an aggregate number. It will also tell me what the late-payment interest payments are, what are associated with that aggregate number on a monthly basis," she said. "And I’ll also know whether those bills have been appropriated for – in other words, are they authorized spending by the legislature or is this, in fact, deficit spending."
She said she also will know whether or not department and agency bills can be paid from a dedicated fund or whether they have to be paid out of the General Revenue Fund, which she uses to "triage" expenditures on any given day.
"If there are certain bills that eventually could be paid out of dedicated funds, that would allow me to have more cash liquidity for day-to-day expenditures on the general revenue side," Mendoza explained. "That’s the kind of information that the state’s chief fiscal officer – in other words, I – would like to know. And it will help us be able to have a better handle on what the bills are that will eventually be coming my way, and what’s the best way that I could go about paying them down.”
Mendoza said cash flow was a significant problem before the Transparency Act because of the year-long lag between debt reports. She said this led to “surprises” that greatly upset spending plans. While the Transparency Act doesn’t completely remedy the situation, Mendoza said it's an improvement.
“Even with the Debt Transparency in place, say I know that the true bill backlog is not $16 billion; it might be much worse – it might be 17 or 18 (billion dollars)," she said. "It’s OK because, at least if I know those bills exist, I can then manage the debt and also have a better idea of how I’m going to manage my day-to-day cash flow."
The cash flow is important, Mendoza explained, because bills keep coming in even while she is paying down the bill backlog. She says she anticipates that the state's bill total probably will hover around the $8 billion mark once the old bills have been paid down.
"Even if it’s $8 billion and you have limited revenues coming in, you don’t have a lot of cash flow," she said. "This frames the new reality for the Comptroller’s office for now.”
Rauner originally vetoed the Debt Transparency Act because he believed it was a “make-work” bill that wouldn’t help the state in the long run. Mendoza characterized his view of the Act as “nonsense.”
"There were 164 legislators of both parties – Democrats and Republicans -- as a matter of fact, in the House of Representatives, every single Republican including the leaders voted to override Governor Rauner because they understood that," she said. "This isn’t about making more work; it’s about creating more transparency on how the state is spending taxpayers’ dollars."
She said that only requiring yearly updates of bills status costs the state hundreds of millions of dollars more. "We’re already on the hook for over $900 million in late-payment interest penalties," Mendoza said, "and most of that is because we have no idea how the state’s spending taxpayer dollars."
"So the sooner we can figure that out, the sooner we can put a rein on deficit spending," she added. "That’s not just like a few dollars in savings for taxpayers, you’re talking up to hundreds of millions – if not even billions – of wasted dollars because of the lack of transparency in the state of Illinois.”
Mendoza said her office will continue to work down the debt, which she calculated is down to $9 billion because the state recently sold about $6 billion worth of bonds, which came with an unexpected benefit.
“You know, we were paying 12 percent on the majority of our late bills," she said. "We were able to refinance $6 billion of that with a 3.5 percent interest rate. And then the market gave us a bonus of $480 million.”
She characterizes the bond sale as a significant win for the people of Illinois because it doesn’t require additional borrowing.
"It’s more so refinancing of the existing borrowing or debt that the state has incurred by asking so many vendors across the state of Illinois to unwillingly lend the state of Illinois money because they entered into a contract, and the state has waited up to one year or two years – even more than two years, in certain categories -- to pay them back," Medoza said. "I would much rather we borrow that money from Wall Street at 3.5 percent than ask some mom-and-pop business to lend that money.”
Mendoza said the bond sale also is a good step in addressing late payments to state agencies.
“We get charged as a state 12 percent interest for paying our bills late, so we take 12 percent, bring it down to 3.5 percent, get an extra bonus for having done that, and then we’re going to be able to spend some of that money towards Medicaid dollars," she said, "which will allow us to get federal matching funds – and so we’ll pick up $6.5 billion matching with federal dollars where we can, and it turns into closer to $9 billion which is just a gigantic help and relief for people who have been waiting for far too long.
"It still, unfortunately, doesn’t solve the entirety of the problem. We’re still going to have about $7.5 billion to $8 billion dollars worth of the backlog," she said, "and then that backlog is going to continue to go up incrementally until we’re able to make some major payments and to pay it down.”
Despite the large debt Mendoza’s office must address, she believes the Debt Transparency Act is a step in the right direction. Its provisions will go into full effect starting in January.
Comptroller Mendoza spoke with WNIJ briefly over cell phone, and you can her full interview below.