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A state of delay: Illinois' habit of waiting to pay bills puts local organizations in tough spot

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There’s a deadbeat wreaking havoc on McHenry County’s businesses, governments and residents by not paying what it owes them.

Our schools, municipalities and small businesses are owed millions in back payments by this delinquent, who for years has balanced its budget on their backs. For the most part, they are powerless to do anything but wait and hope for the deadbeat to make good on its legal obligations to pay.

That’s because the deadbeat is the state of Illinois.

Drowning in deficits, the state has turned to a deliberate policy of not paying billions of dollars in bills for months at a time, creating a cycle of hardship and sacrifice for residents and businesses helping the state carry out some of the most important tasks of government.

As of early last month, Illinois owed on 166,000 unpaid bills worth a breathtaking $5 billion, with nearly half of that amount more than a month overdue, according to an Associated Press analysis of state records. Some bills date to 2010, and the actual amount owed is likely higher because some bills still are in the pipeline.

At least $30,393,794 of that is owed to McHenry County, including School District 300. That figure does not include Medicaid payments overdue to vendors, which adds millions more.

Once intended as a stopgap measure, the months-long delay in paying bills now is a regular part of the state’s budget management, forcing businesses and charity groups to borrow money, cut jobs and services, and take on personal debt.

Even death involves delays in Illinois. Funeral homes were waiting for $2.8 million in overdue reimbursement from the state for burying indigent people.

While other states with budget problems have delayed paying their bills, the backlog in Illinois is unmatched, according to experts. Year after year, Illinois builds its budget on the assumption that it will pay its bills months late – essentially borrowing money from businesses and nonprofits that have little choice but to suffer the financial hardship.

Or as Pioneer Center for Human Services Vice President of Finance Jeff Kurth put it, they’re “financing the state.”

The state owes the county’s largest nonprofit, which helps people with mental disabilities, about $720,750 in back bills, but once Medicaid is added in, the debt rises to more than $2.5 million.

“The state constitution says [the General Assembly] has to have a balanced budget, but they have their own little system – they balance their budget by just not paying their bills,” Kurth said. “Nobody runs their business like that.”

And it’s the less fortunate who suffer from the state’s creative accounting, Kurth said. Pioneer Center over the years has had to let go employees and clients, bringing them back if funding resurfaces.

“It’s devastating to them” Kurth said. “Some of them have been coming here for years, and it’s devastating for the families, as well.”

More than $17.9 million is owed to area school districts as of last month, from the $5.2 million to District 300, one of the largest school districts in the state, to the $59,575 owed to tiny one-school Riley District 18 in Marengo.

Some schools have gotten some of what is owed to them since last month. Huntley District 158, for example, has since received much of the $2.2 million it is owed, Superintendent John Burkey said.

But despite the fact that late payments are better than no payments, the state policy of getting around to paying when it can causes school districts headaches when it comes to developing their own budgets. School districts have to develop budgets not knowing when they will get their state aid or compensation for transportation, special education and other costs, or how much they will get.

“We build our budget having to guess what the state is going to pay us. I think most schools figure that times are tough, but we just want to know before the year starts,” Burkey said. “I would really just like the state to tell us what we’re going to get, even if the news is bad.”

The state presently owes District 300, one of Illinois’ largest school districts, more than $4.2 million, spokeswoman Allison Strupeck said. The district has had to borrow against its expected revenues for the past two springs to pay its bills because of the state lag. It borrowed $18 million earlier this year, and the $100,000 in interest it cost them would have paid the salaries of two teachers, Strupeck said.

Centegra Health System Chief Financial Officer Bob Rosenberger said the state is behind about four to five months in paying what it owes. Like Pioneer Center, the $519,003 in bills owed for Centegra goods and services is deceiving – with late payments for Medicaid and state employees on the state insurance program, Centegra is owed more than $9 million.

“Starting July 1, they pretty much stopped paying bills. We went getting from $1.5 million a month to getting $3,000 to $4,000 a month,” Rosenberger said.

All of these delays have prompted relatively little public outcry, perhaps because so much attention has been focused on other budget battles or there is no one politician or agency to blame. It also reflects resignation from some vendors who no longer expect the corruption-plagued Illinois government to function properly.

Illinois leaders join in bemoaning the crisis but haven’t been able to find a solution.

“God, how much more can our people take?” said Comptroller Judy Baar Topinka, a veteran politician responsible for trying to pay a seemingly infinite stack of bills with the finite amount of money approved be legislators and Gov. Pat Quinn.

“I really feel terrible every day that we can’t pay these bills and people are going to be hanging out there for six months, seven months,” Topinka said.

Delaying payments is nothing new for Illinois, though past delays were shorter and more limited. Under former Gov. Rod Blagojevich, big spending collided with a recession, Illinois no longer could afford to pay its bills, and the backlog exploded. Quinn, who succeeded Blagojevich after his impeachment, raised income taxes to help defray the cost, but that money was gobbled up by other needs, primarily rising pension costs.

As recently as June 2008, Illinois paid its bills seven days after state agencies finished the paperwork. The delay reached 99 days in 2009, and stood at 118 days in June of this year, according to the comptroller’s office.

Centegra has been talking regularly with legislators, as have other health care providers statewide, about the problem the state’s finances are putting on the health care system.

“We consider it very serious. I’ve probably already spent four to six hours this week dealing with the Illinois Hospital Association, figuring out how we tell the state just how serious this is,” Rosenberger said.

Illinois ranked first in the nation in the percentage of nonprofit groups facing payment delays, an Urban Institute survey found. Eighty-three percent said late payments from state and local government were a problem in Illinois, compared to a nationwide average of 53 percent. The institute conducted the survey in 2009, when the state’s bill backlog was still rising.

Quinn repeatedly has asked for permission to borrow even more money to pay down what the state owes, but state lawmakers have rejected the idea in an effort to curtail runaway spending. To Kurth, of Pioneer Center, the argument is moot.

“The politicians don’t want the governor to borrow to pay the back bills, but they’ve already borrowed. Either you owe us or you owe the bond companies. What’s the difference?” Kurth asked.

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