Anyone following the Illinois budget impasse knows that our pile of unpaid bills is growing; up to $12.9 Billion and counting. This creates added pressure on the state because those bills will eventually have to be paid.
In the meantime, we are paying 12% interest on many of those bills. That’s a big amount. We are literally incurring hundreds of millions of dollars of late payment penalties. That is money that doesn’t help balance the budget, fund social services, higher ed, or any of the other things state government does. There is a way to pay off most of our debt, eliminate late fees, and significantly increase state revenue all without raising taxes. Here’s how: First let me be clear – I don’t like debt.
I don’t support unnecessarily increasing it. Yet all debt is not the same. If you have it, it needs to be managed the best way feasible. Right now Illinois has a lot of it. Some of it needs to be consolidated. That consolidation can free up a lot of money.
Our unpaid bills are essentially debt. We also have other debt taken out during the Blagojevich regime and during the last capitol bill. Some of that debt is about to be paid off. Our bond payments drop from $2.418 Billion in FY 2018 to $2.091 Billion in FY19 then $1.536 Billion in FY 2020.
If the difference of those debt payments (roughly $1.5 Billion) was essentially consolidated on a 10-year note with the bulk of the unpaid bills we can essentially use the same line item to make the new consolidated loan payment. Because the debt can’t be called early, the logistics would be slightly different, but the effect would be the same. Use the line item for the old debt in 2018 to make the new consolidated loan payment.
Paying off our unpaid bills helps close the budget shortfall in many ways. First, we will stop paying hundreds of millions in late fees. Second, injecting nearly $10B into the economy paying money we owe to vendors and medical providers in the state will have a massive effect on revenues. All of the people and companies will now see gains that have been deferred. Income tax revenue should also increase by hundreds of millions.
Third, much of the money we owe is for Medicaid payments. Those Medicaid payments come with a federal match. Our federal source of revenue could increase by as much as $1.5 Billion! Now there are a couple of things that should be done before bonding out our back bills. First, we need to balance the rest of the budget.
Freeing up $2B helps significantly, but there is still more work to be done. Plus, having a true balanced budget plan also should help us get a better rate on any bonds we do get. Second, we need to place a constitutional amendment referendum on the 2018 General Election ballot strengthening the balanced budget clause. Illinois voters should be given the opportunity to hold legislators accountable to follow the state constitution and pass a balanced budget every year so this never happens again.
It’s far beyond time to act.