PEORIA – When Illinois can’t pay its bills in a timely fashion, the interest penalties it’s required to add on by law deliver another blow to the cash-strapped state, but they do little to ease the pain of waiting vendors.
Last year, delays on bills paid months or even a year late meant $27.1 million was paid out of state coffers in interest under the Prompt Payment Act. In 2010, at the height of the state’s budget woes, interest payments totaled more than $62.3 million after sharply increasing over the previous five years.
As of Sept. 8, just two months into the current fiscal year, $493,004 already had been spent on interest for late bills, but the state comptroller’s office had nearly $17.3 million in outstanding payments still to make.
“It’s certainly another way that taxpayers are having to pay for years of financial mismanagement,” said state Comptroller Judy Baar Topinka, whose office pays the state’s bills.
Illinois is even late paying the penalty for late payments. A database of state bills provided by Topinka’s office shows that as of early September, $16 million in prompt-payment penalties were more than a month overdue.
The cash only goes to private businesses and nonprofit entities. Government bodies, such as schools, cities and counties also owed by the state, are not eligible to receive any interest.
Spending all that money on interest penalties isn’t good for anyone, Topinka said. Not for the state, which could face an $8.3 billion budget deficit by June, and certainly not for businesses, some of which have made cuts or borrowed money to cover their costs but end up paying more in interest than what the state delivers to them in late payments.
Last spring, state lawmakers even made a change in the state budget to extend the amount of time the state can hold onto bills before they begin to rack up interest charges. Instead of the process taking 60 days after a bill is determined to be valid, as of July 1, the clock doesn’t start running for 90 days.
“It continues the whole way of running the state on the back of the private sector,” Topinka said. “We do not make it easy and we do not make it pleasant, and then we wonder why people go to Indiana or Wisconsin.”
Farmington-based Spoon River Home Health Services isn’t in a position to move out of Illinois. It provides home care to residents in the central part of the state and employs about 150 people. The state owes it nearly $100,000, including $12,111 in interest on late payments.
Administrator Brian Platt pointed out that Spoon River is better off than others because it also takes patients with private insurance or who pay independently.
But he said the continuing payment delays have contributed to delays in company plans to expand.
Spoon River bought the old grade school in town several years ago with an intent to move there, expand a CNA training program and open an outpatient therapy clinic. Because of the continuing delays in state payments and a line of credit it tapped to cover operations, Spoon River has not moved forward on the expansion, and the grade school still sits vacant.
“The way things are with the state ... we don’t have the confidence to invest the money in a large project like that,” Platt said.
A bigger concern for Freeport’s Malcolm Eaton Enterprises – which provides daily services for more than 200 people with developmental disabilities in Stephenson and Winnebago counties – is that even when an interest payment does get made, it “doesn’t even come close to meeting what we pay in interest” on the debt the group carries because of late bills, communications director Julie Hilliger said.
The line of credit the company taps when the state is late costs Malcolm Eaton more than $77,000 in the past year, she said. It received only $47,530 from the state in interest penalties.
Interest payments themselves often wait to be paid until after vendors receive their initial bill payments. In some cases, including for Malcolm Eaton, interest payments awaiting payment date back nearly 12 months.
Late interest payments do not themselves accrue interest.
Gov. Pat Quinn’s office sought the budget change extending the amount of time before late bills begin racking up interest. Spokeswoman Kelly Kraft said vendors contacted as part of budget discussions showed more support for extending the interest deadline than in an alternative proposal to cut Medicaid reimbursement rates.
Lawmakers “didn’t really get much pushback” from vendors, said state Sen. Heather Steans, D-Chicago, who heads a Senate appropriations committee.
Not all providers are content, though. Extending the time before interest accrues is “almost like a slap in the face for all the not-for-profits in the state,” Hilliger said. “It’s (already) a loan, almost, from all the not-for-profits. ... Now you’re just continuing to use what is money owed to us.”
In fact, extending the time before interest begins to accrue will make it more difficult in the short term, said Bob Thieman, executive director of the Illinois Association of Community Home Care Providers.
“It just extends things out for the provider, which is just a loss to them,” he said. “You can take a reserve just so far” to cover payment delays, with many such groups maintaining little more than a three- to six-month cash reserve, if that.
Community Home Environmental Learning Project in Decatur, which provides in-home services to seniors and the disabled, may have to tap its reserves more frequently or look into a line of credit, said executive director Diane Drew.
But, Thieman said, the latter may be harder if the state is taking longer to pay bills and interest.
“In the past, when a bank looked at ... this being a state contract, they knew the money was going to be there, but they’re a little hesitant now,” he said. “They know the money is going to be there, but they don’t know when.”