The Problem Illinois’s inability to pay vendors on time is destabilizing many businesses with state contracts while at the same time hurting Illinois’s most vulnerable.
According to the Illinois Comptroller’s Office, the state had $4.7 billion in payables at the end of the 2010 fiscal year in June and an additional $1.7 billion in additional payables added during the lapse period. As a result, the state will have to use over $6.4 billion in general fund revenue from fiscal year 2011 in order to pay down those bills next year. This amount represents 23 percent of total operating general fund revenues from 2010. Looking forward, the unmet obligations at the end of fiscal year 2011 could total as much as $8 billion, leading to a projected $15 billion budget shortfall for fiscal year 2012.
If it’s not there already, Illinois is close to achieving “deadbeat” status when it comes to paying its liabilities in a timely manner. There’s a cost associated with late payments. In 2010, Illinois saw over $30.3 million in interest charges for late payments.
In contrast to Illinois, neighboring states do a better job of paying vendors on time with no backlog carried into the next fiscal year. Missouri and Wisconsin pay nearly all invoices from vendors on time. For example, Wisconsin made only seven late payments to vendors in 2010, with interest charges amounting to less than $200. Missouri paid less than $2,000 in penalty fees to vendors in 2010. Indiana had a tougher time paying vendors on time and was hit with over $1 million in interest charges, but still fared far better than Illinois.
Failing to pay vendors on time decreases a company’s desire to do business with Illinois; it could cause them to look elsewhere and end providing services to Illinois altogether. Indeed, late or unpaid bills have caused Illinois vendors to cancel deliveries and end business with the state. For example, Industrial Soap Company has refused to deliver foam food trays to Menard Correctional Center because it hadn’t been paid, and a company that produces ammunition stopped delivering bullets because the Department of Corrections owed them money.
Our Solution The best route to avoid racking up late bills is to not overspend in the first place. Moving forward, the state must adjust existing spending obligations downward so it doesn’t make the problem worse and can begin paying down past-due debt.
Further, no new programs should be enacted and no existing programs should be expanded before the state’s bill payment cycle is within 30 days, as suggested by State Representative Jim Watson in his Taxpayer’s Fiscal Charter.
Why It Works Late payments hurt the ability of government to provide core services. On top of this, it places a burden on vendors who may need to lay off workers while waiting for payment. If Illinois doesn’t reverse its deadbeat status, more and more vendors will stop serving Illinois and go to neighboring states instead.
By not overspending and entering in to unaffordable new obligations, Illinois would help restore confidence among vendors that paying for services on time is a top priority. A more fiscally-stable Illinois would encourage businesses to stay here and invest in creating jobs.