Illinois owes local vendors millions. Now it’s borrowing money to start paying the bills.

When Granite City Community School District 9 went to attendance centers for its elementary schools, rather than neighborhood schools last school year, it was a proactive move to help deal with a delay in state payments, not as a response to not having enough student population to justify some of the buildings.

The moves helped the district avoid major cuts, even though the state owes Granite City schools $2.7 million.

“As far as money that is owed, when I look at the big picture of state funding, it’s a word I don’t really like to even bank on, because we fully understand the word proration,” Granite City Superintendent Jim Greenwald said. “I don’t want to get negative about it; I’m pleased we have a budget as we move forward. Fortunately we’ve been very frugal, and we were not going to be one of those school districts that was going to have to close down anytime soon if the new budget wasn’t established.”

The $2.7 million is among the state’s backlog of bills reaching $15.9 billion, according to the Illinois comptroller’s office. There are about 740 vendors, hospitals, social service agencies and insurance companies, and school districts, among others, that are still owed at least $500,000.

Some of the biggest bills are health-related, especially for insurance companies that provide coverage for state employees, said Abdon Pallasch, spokesman for the comptroller’s office.

Some of the bills are two years old, he said.

“There are doctors and nurses and pharmacists waiting that long to get paid,” Pallasch said.

Those bills will be among the first that will be paid when a bond issue is finalized, Pallasch said.

Local service providers owed large sums of money by the state are: Southwestern Illinois College, which is owed $5.7 million; St. Louis Children’s Hospital, $10.1 million; Memorial Hospital, $4.7 million; Edwardsville Community Unit School District, $2.3 million; and Belleville Township High School, $2.2 million. The Southern Illinois University system is owed $68 million.

In a statement from Southern Illinois University, the university system said the delay in adopting a budget did lead to an uncertainty that some prospective students decided to leave the state in 2016 and 2017.

“With more certain funding, our enrollment projections for fall 2018 based on early application data are very positive,” the university said in a statement.

SIUE spokesman Doug McIlhagga said the Edwardsville campus is in good financial shape despite the state budget problems, and even though it is owed $23.8 million as of Sept. 30.

“The state has a plan to reimburse SIUE throughout the fiscal year, with plans to give SIUE all the fiscal year 2018 appropriation by the end of the fiscal year,” McIlhagga wrote in an email.

State issuing bonds to pay bills

The state is set to refinance $6 billion in debt, which will allow the comptroller’s office to pay off a chunk of the bill backlog. Gov. Bruce Rauner’s office announced the state issued $1.5 billion in bonds this week; an additional $4.5 billion bond issue is planned for next week.

Selling the bonds would change who the state owes money to. Instead of vendors such as social service agencies, it would be banks and lending institutions.

The state has been accruing late payment interest of 9 percent to 12 percent on a portion of its backlog obligations. Tuesday’s bond issue had a borrowing cost of 3.5 percent, cutting interest costs by more than half.

“The state received strong bids (Tuesday) for its bonds and is pleased with the market’s favorable reception of the sale,” said Scott Harry, director of the Governor’s Office of Management and Budget. “This bodes well for the state’s financing coming next week.”

Pallasch said the $6 billion in bond issues will infuse money into the state’s economy by “paying vendors who haven’t been paid in a long time.”

“It won’t be too many agencies that will get everything, but most will get a chunk of what is owed,” Pallasch said.

Pallasch did add, social service agencies such as domestic violence shelters, who went a year without getting paid are being paid now. He said he expects the state’s bill backlog to be reduced to $7.5 billion by the early next year.

“It will take years to undo the damage of deficit spending of the last two years,” Pallasch said.

The comptroller’s office also said paying off some of the Medicaid-related bills will come with a federal match.

“Once the negotiated sale is complete, my office will leverage federal matching funds to get taxpayers a good return on their investment and we will move swiftly to pay down the highest-interest-accruing parts of the state’s debt,” Comptroller Susana Mendoza said.

Pallasch said the recent 34 percent income tax increase only stops the financial bleeding in the state government. The state had been deficit spending since the income tax was rolled back in 2015, Pallasch said.

He added, however, the new revenue only started to help the state’s finances in September as it took a while for employers to adjust their payrolls deductions.

In addition to going to attendance centers, and closing some buildings, the Granite City school district also was able to cut positions through attrition to save money.

“We had streamlined things as much as possible,” Greenwald said. “So in a measure to prepare for what might be coming we were not in any type of major cut back mode. We were certainly in a frugality mode, but we were not in a cut back mode.”

“We were not going to keep buildings open in which we had open classrooms,” he added. “That’s not doing a service to your taxpayers.”

However, if a chunk of the late payments comes in, it probably won’t lead to additional programming or services in the school district, Greenwald said.

“With the challenges we’ve dealt with finances, concerning finances, that money would be applied to maintaining and sustaining the school district operations,” he said.

This story was originally published October 18, 2017 at 1:54 PM with the headline "Illinois owes local vendors millions. Now it’s borrowing money to start paying the bills.."