— Newsradio WJPF | The Morning Newswatch —
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NEWSRADIO WJPF INTERVIEW WITH SUSANA MENDOZA [AUDIO]
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Comptroller says proposed budget could lead state to another credit upgrade
— Capitol News Illinois | Kinnicutt, G. —
Mendoza praises efforts to pay down debt, bill backlog
Comptroller Susana Mendoza said she expects the state’s credit rating to improve and the remaining bill backlog reduced under Gov. JB Pritzker’s $45.4 billion proposed budget.
Another credit rating upgrade would be noteworthy, as the state had gone 23 years without receiving such a vote of confidence from a ratings agency at the time it was upgraded by Moody’s Investors Service in June 2021.
The state’s unpaid bill backlog, which climbed to $16.7 billion during the budget impasse between former Republican Gov. Bruce Rauner and Democratic leaders of the General Assembly, now sits at about $2.9 billion.
That equates to the state paying its bills on a cycle of about 15 days, whereas the oldest voucher at the height of the impasse was 500 days old. That’s a fact Pritzker noted in his speech in which he specifically credited Mendoza by name.
“Painstaking work has been done in coordination with the General Assembly and Comptroller Susana Mendoza over the last three years to diligently and meticulously reverse the irresponsible decisions of the past and ensure that responsible budgeting would become the rule, not the exception,” Pritzker said.
Mendoza credited the governor for his attention to the backlog, including allocating $898 million to pay down overdue health insurance bills.
“Since (Pritzker) took office, he’s been a wonderful partner in helping rewrite the state’s fiscal ship and having the ability to really hone in on paying down our debt as quickly as possible,” Mendoza said. “The bill backlog will become just the normal cost of running a business.”
Mendoza said paying down the backlog avoids late payment interest that totaled hundreds of millions of dollars annually at the height of the impasse.
Mendoza succeeded Leslie Munger, a Republican appointed by Rauner, by winning a special election in 2016.
The Democrat and former Chicago city clerk was a frequent critic of Rauner, publicizing her lack of autonomy over state finances due to consent decrees and court orders which mandated her to pay certain bills with the state’s dwindling finances during the height of the impasse.
She won reelection in 2018 and has continued to prioritize the timely payment of bills.
“I don’t think anyone would have thought this was possible five years ago,” Mendoza said of the proposed budget in a phone call with Capitol News Illinois Wednesday. “We’ve made incredible strides, incredible progress.”
She also praised the governor and state legislative leaders for paying down $3.2 billion in pandemic-related borrowing early. In 2020, Illinois borrowed the money from the Federal Reserve’s Municipal Liquidity Facility due to revenue shortfalls associated with the pandemic.
By the end of January, Illinois was able to pay back the $3.2 billion two years early, saving taxpayers about $82 million.
Sen. Cristina Castro, D-Elgin, released a statement stating that reducing the bill backlog will improve the state’s fiscal standing.
“Making sure we save money on unnecessary interest costs by paying our bills on time means saving Illinois taxpayers money,” Castro said.
If the budget is passed and signed into law, Mendoza said, “there is no doubt in my mind” that Illinois’ credit score will once again improve.
The June upgrade from Moody’s put Illinois two notches above “junk” bond status, which is still one of the worst credit ratings in the U.S. But Mendoza said anytime credit is improved, it helps taxpayers save money when the state has to borrow funds.
“Anytime our credit improves, that means that the cost of borrowing or access to cash will be cheaper for taxpayers,” Mendoza said. “That’s a wonderful place to be.”
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Illinois Comptroller Urges Credit Upgrades in Letter to Rating Firms
— Bloomberg | Singh, S. —
State’s moves ‘favor upgrading’ bond rating, Mendoza writes
Touts unpaid bill backlog reduced, emergency loans paid back
Illinois Comptroller Susana Mendoza is urging the top three credit rating firms to again bump up her state because of its mounting fiscal improvements that already led to its first upgrades in two decades last year.
“I believe Illinois is due to be recognized for our current achievements and plans to further strengthen our financial situation, and I believe these are strong indicators that favor upgrading Illinois’s credit rating,” Mendoza wrote in a letter dated Feb. 4, viewed by Bloomberg News.
Mendoza, a Democrat who took office in late 2016, wrote similar letters advocating for the firms to take the state’s progress into account in April and then pushing for higher ratings in July. Illinois received an upgrade from Moody’s Investors Service in June to Baa2 from Baa3. S&P Global Ratings lifted its score to BBB from BBB- in July amid rebounding revenue and billions in federal aid. And Fitch Ratings raised its outlook on the debt to positive from negative in June but maintained its BBB- rating.
The gains lifted Illinois from the brink of junk, though it still has the lowest rating of any U.S. state. Moody’s and S&P consider Illinois two steps above junk, while Fitch has it one level above junk.
Mendoza’s letter last week touts the recent progress. Illinois has reduced its unpaid bill backlog to below $3 billion; paid back early the full $3.2 billion in emergency loans taken in 2020 from the Federal Reserve’s Municipal Liquidity Facility; and it intends to repay the remaining $719 million in state interfund borrowing by the end of the fiscal year on June 30, Mendoza wrote.
“If this information is not sufficient to lead to a favorable review, Governor Pritzker’s recently announced budget proposal will surely check off any remaining doubts that Illinois is on the right track to fiscal stability,” Mendoza said. “I am hopeful this will be welcome news to you and that your ratings agencies will reward Illinois with yet another credit upgrade.”
Governor J.B. Pritzker, the first-term Democrat who is up for re-election in November, put forward a $45.4 billion budget for the year starting in July last week, proposing to cut spending 3.4% from this fiscal year with a projected general-fund surplus of $458 million.
The budget includes a $279 million contribution to the Budget Stabilization Fund, also known as the rainy day fund, after a $600 million contribution in fiscal 2022. The fund currently holds $22 million, according to the comptroller’s website.
Additionally, the governor has proposed extra pension contributions of $500 million total above the annual payment in fiscal 2022 and 2023 to go toward the unfunded retirement liability standing at about $130 billion.
Next year’s budget won’t erase burdens the state has created for itself over decades, but investors and credit rating firms have said measures such as increasing its rainy day fund and pension payments will improve its credit prospects.
Pritzker has also proposed nearly $1 billion in tax relief with a one-year suspension of the state’s grocery tax and freeze of a gasoline tax increase as well as higher property tax rebates.
Read more: Illinois Governor Proposes Tax Cuts in Election-Year Budget
“The governor’s proposals are likely to meet with approval by credit rating agencies, leaving Illinois poised for positive rating news this calendar year as its credit slowly normalizes,” CreditSights Inc. wrote in a report on Feb. 2.
The rating firms did not comment specifically on the prospects for upgrades in the days after the governor’s budget address but are taking note of the use of rebounding revenue to rebuild its finances.
“Those are positive steps forward,” Matthew Butler, vice president-senior credit officer for Moody’s, said in an interview last week.
S&P analyst Geoffrey Buswick said a budget proposal by itself wouldn’t trigger a credit action and there are still months of budget negotiations ahead of the state. Lawmakers have to approve Pritzker’s spending plan.
Meanwhile, Fitch’s positive rating outlook means the state could see an upgrade in one to two years if current trends continued.
“Fitch always appreciates opportunities to hear directly from policymakers to help us understand their thought processes and the factors they are considering as they make fiscal choices,” Fitch analyst Eric Kim said in an emailed statement Monday.
A budget impasse 2015 through 2017 between former Governor Bruce Rauner, a Republican, and the Democrat-controlled state legislator led to unpaid bills topping $16 billion in 2017. But Illinois has since benefited from an economic recovery with the budget proposal reflecting revenues above past projections, according to Fitch.
“We are continuously evaluating fiscal and economic developments for the state, including information discussed with the Comptroller’s office and with the administration, and our rating perspective remains the same as outlined when we revised the outlook to positive,” Kim said.
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Comptroller asks for upgrade to Illinois’ worst-in-nation credit
— The Center Square | Bishop, G. —
Illinois Comptroller Susana Mendoza is asking the credit ratings agencies to upgrade Illinois’ worst-in-the-nation status.
S&P Global has Illinois at BBB. Moody’s has the state at Baa2. That’s after upgrades from the agencies last year. Fitch has Illinois at BBB-.
“My office is doing everything possible to manage the current backlog of bills and address Illinois’ finances head-on,” Mendoza said in a letter to the agencies that her office announced Monday. “The Illinois Office of Comptroller urges you to consider these positive factors and progress made in strengthening Illinois’ financial position when evaluating Illinois’ creditworthiness.”
Mendoza said in the letter she has paid back recent borrowing from a federal program. Illinois was the only state to borrow from the Federal Reserve’s Municipal Liquidity Fund for a total of $2.6 billion.
“We did not wait until the end of the fiscal year to pay it off and instead finished the repayment last month, nearly two years early, and saved taxpayers an estimated $82 million in interest,” she wrote. “It is important to note that these payments to the Federal Reserve were drawn from state revenues without using direct federal relief funds.”
She went on to say her office plans to pay back more borrowing and if that “is not sufficient to lead to a favorable review, [Gov. J.B. Pritzker’s] recently announced budget proposal will surely check off any remaining doubts that Illinois is on the right track to fiscal stability.”
The governor in his budget address last week proposed spending nearly $4 billion more than the current fiscal year. He did not address the $4.5 billion in unemployment trust fund debt.
After the governor’s address Wednesday, Mendoza heralded the work she’s done to pay down the state’s bills that peaked at nearly $17 billion by borrowing $6 billion.
“By leveraging these federal matches, I was able to turn that $6 billion into $9 billion and then shave that off the $16.7 billion backlog,” Mendoza told The Center Square.
Her office has partnered with Pritzker to do more, she said, sounding optimistic for the future of the state’s finances.
“We’ve now received two credit upgrades instead of the eight credit downgrades that the state had received before I became comptroller [in 2016],” Mendoza said.
McHenry County Auditor Shannon Teresi is seeking the Republican nomination for comptroller. She questioned the rosy picture Mendoza paints.
“If you see a map of all the states, all the states are green. Illinois is sitting in the center red,” Teresi told WMAY. “No other states have a credit rating like Illinois does.”
She criticized borrowing to pay bills.
“She has taken on even more debt,” Teresi said. “The deficit has grown under Susana Mendoza and J.B. Pritzker.”
Teresi said one-party rule in Illinois has to be broken up so there’s more accountability for taxpayers.
The primary is June 28. The midterm general election is Nov. 8.
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The comptroller calls to discuss activities in her office and the state’s improved fiscal condition
— AM Springfield Interviews on www.sportsradio1450.com | Madonia, S. —
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BGA David Greising: Illinois needs to rely on the right voices to get its financial house in order
— Chicago Tribune | Greising, D. – the president and CEO of the Better Government Association —
In her first days on the job in December 2016, Illinois Comptroller Susana Mendoza grabbed the purse strings of a state in the midst of a fiscal unraveling.
The “rainy day” fund in Illinois stood at $60,000, enough to run the state for just a matter of minutes. In the middle of a 17-month budget impasse between Gov. Bruce Rauner and the Democrat-controlled legislature, the state’s backlog of unpaid bills was on a steep climb toward $16.7 billion in overdue IOUs.
The state’s unfunded pension liabilities were rising toward $145 billion, and credit rating agencies were on a run of eight straight rating downgrades that ultimately would leave Illinois one notch above “junk” status.
Fast forward five years. Mendoza has whittled down the bill backlog to $3.8 billion and is paying bills within 15 days. Illinois was the only U.S. state to borrow from the federal government’s Municipal Liquidity Facility at the peak of the COVID-19 pandemic in 2020, but Mendoza repaid a $2 billion debt two years early, avoiding $82 million in interest payments.
Getting to this point took some creative cash management. At one point, Mendoza borrowed $1 billion from the state treasury in order to pay down Medicaid bills. Here’s why: For every $1 Illinois pays to Medicaid beneficiaries, it receives 57 cents back from the federal government. The move saved millions.
Satisfied as Mendoza is about the progress so far, she certainly doesn’t want to go through that again.
It’s no wonder Mendoza is renewing her push for a law that would require the state to make large contributions — $200 million a year — toward pensions and its rainy-day fund, whenever the bill backlog stands at $3 billion or less at the end of a fiscal year.
Mendoza introduced the concept before the pandemic hit in 2020. She’s bringing it back because the economy is recovering and the strong outlook for state revenues makes the idea of mandatory payments toward pensions and the rainy-day fund more politically palatable.
Pritzker’s budget proposal, delivered earlier this month, could set the stage for what Mendoza is trying to accomplish. He has earmarked $500 million between now and the end of the next fiscal year toward one-time pension payments and roughly $900 million toward rebuilding the rainy-day fund, formally known as the budget stabilization fund.
“You can see where it’s not traditionally in the wheelhouse to put $800 million or $500 million or $200 million into the rainy-day fund because there are so many interests that want that money right now,” Mendoza said. “But saying we’re going to put that money to protect ourselves from a fiscal downturn is a very disciplined approach.”
Such a law would mark a sharp change for one of the most profligate states in the union. Gov. J.B. Pritzker has celebrated the state’s credit upgrade last year, its first in two decades, with reduced taxes on gas and groceries and a property tax rebate: $1 billion in all. He calls the package the Family Relief Plan, which has a nice election-year ring to it.
Mendoza supports Pritzker’s plan to forgo $1 billion in state revenue. She is encouraged by his proposal to meet the state’s obligation to contribute $350 million toward the evidence-based education-funding formula. She even calls on lawmakers to consider spending more than the governor is proposing to help support programming for people with disabilities.
“We as a government, if we do nothing else, we should be focusing on the most vulnerable people in our state,” she said.
But Mendoza also is the one who needs to pay the bills and woo the credit-rating agencies. This helps explain why she combines her support of tax cuts and social spending with a push for discipline on debt repayment, pension funding and the rainy-day fund — measures of fiscal discipline that the credit analysts carefully track.
The tension between spending and discipline is coming to a head as leaders in the legislature and the Pritzker administration focus on how to make the most of $8.3 billion in federal American Rescue Plan Act funds.
The General Assembly has earmarked $2.8 billion for COVID-19 relief and related economic development projects. Pritzker has pared back an earlier plan to set aside $2 billion this fiscal year to pay down state debt, and instead will pay back $1.5 billion, Mendoza said. Pritzker also has allocated just over $500 million toward a supplemental appropriation request for this fiscal year.
That leaves about $3.5 billion of ARPA funds not yet allocated.
Mendoza expects all manner of suggestions for how to spend that money. But true to her fiscal form, she is urging policymakers to reinforce the state’s unemployment insurance trust fund. Illinois owes about $4.5 billion on money it borrowed from the federal government to make unemployment payments during the pandemic. That obligation is costing about $2 million a week in interest payments, she said. And payments could total $100 million by October if not addressed.
“This is something we need to address,” Mendoza said. “To me, that’s a legitimate use of ARPA money to pay down that debt.”
Illinois policymakers historically have no trouble finding ways to spend taxpayer money. We need more influential voices finding ways to use federal largesse in ways that help get Illinois’ fiscal house in order.
David Greising is president and CEO of the Better Government Association.
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Mendoza wants to drop state’s late bill payment fee
— Crain’s Chicago Business | Hinz, G. —
Taxpayers shouldn’t face a 12% interest charge now that Illinois has caught up with its IOUs, comptroller says.
Illinois Comptroller Susana Mendoza is throwing her political weight behind a proposal in Springfield to eliminate the hefty 12% interest that vendors get when their bills are paid more than 90 days after submission.
In testimony before a state Senate committee yesterday, Mendoza argued now that the bill backlog has been slashed and the state is current on its obligations, “the days of connected private lenders profiting off the state’s financial problems can and should be over.”
But the Republican running for Mendoza’s job, Shannon Teresi, says the 1%-a-month charge should stay as a deterrent to keep ruling Democrats from spending too much.
Mendoza’s comments came at a hearing in which she spoke about a 1993 law known as the Prompt Payment Act that requires the high interest rates for late payment, at least in part to discourage the practice. Pending legislation by state Sen. Laura Murphy, D-Des Plaines, would reduce the charge to the greater of 0.25% a month—3% a year—or twice the annual increase in the consumer price index.
With the state’s bill backlog having been cut from $16.7 billion a few years ago to $3.6 billion now, bills are being paid within 17 days of receipt on average, Mendoza said. And that means the high charge no longer is needed.
“I understand that the intent of the act is supposed to have a deterrent effect on budget-makers that forces them to keep a budget living within its means,” Mendoza said. “But, I would argue that this interest expense is not penalizing state government, but rather penalizes taxpayers.”
“It still bothers me that Illinois spent over $1 billion in late-payment interest payments during the budget impasse that is now gone. Poof,” Mendoza added. Vendors and their lenders should not be able to stick taxpayers with “exorbitant costs.”
A different take came from Teresi: Mendoza’s proposal is “nothing more than a cheap way to save a buck that will cost taxpayers in the long run,” she said in a statement. “If the state were paying its bills on time, why would Comptroller Mendoza be so afraid of penalties on late payments?”
Mendoza is sticking by her guns.
“The facts are that Comptroller Mendoza has cut the state’s bill backlog by over 80% without using federal stimulus funds, delivered the fastest vendor payment cycle in decades—down from 210 working days to 17 days today—and helped earn the state its first credit upgrades in over 20 years, a clear indicator of the state’s improved fiscal condition,” she responded.
For what it’s worth, watchdog Civic Federation is siding with Mendoza on this one.
The 12% fee “is an unnecessary guardrail,” federation President Laurence Msall said in a phone call. “It was supposed to be a deterrent, not a way for people to profit from the state’s overdue bills.”
Murphy’s bill has not picked up much momentum and currently is stuck in the assignments committee. We’ll see if Mendoza’s backing gives it a push.
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Illinois comptroller calls for ending penalties on late payments
— Capital News Illinois via Belleville News-Democrat | Hancock, P. —
Illinois Comptroller Susana Mendoza is calling for repealing a law that imposes a 12% interest whenever the state is late paying its bills, along with a program that allows private investors to purchase the debt owed to vendors and collect that interest penalty.
Speaking to a Senate budget committee Tuesday, Mendoza said the state is nearly caught up on its bill backlog and that those two programs are no longer needed.
“This program has allowed private lenders to loan money to state vendors, then rake in the 12% interest that state taxpayers were on the hook for with these late bills,” Mendoza said. “Now happily the days of connected private lenders profiting off the state’s financial problems can and should be over.”
Mendoza was referring to a 1993 law known as the Prompt Payment Act, which says that whenever the state fails to pay a bill within 60 days, the state must pay an interest penalty of 1% per month, or 12% per year.
During the height of the two-year budget impasse that stretched from 2015 to 2017, the backlog of past due bills climbed to as high as $16.7 billion, with interest penalties accruing on those bills.
So in 2016, lawmakers authorized the Vendor Payment Program, which authorized “qualified purchasers” — typically, wealthy investors — to purchase the bills by paying off the principal owed to those vendors, then collecting that money back from the state with 12% interest.
In 2020, however, some of the investors taking part in the payment program criticized Mendoza for paying off the principal owed to the vendors, but not paying off the interest owed to the investors.
Mendoza’s spokesperson, Abdon Pallasch, said Tuesday more than $665 million in interest penalties have now been paid to those investors and that about only $41 million is still owed to them.
Meanwhile, the state’s bill backlog is now down to about $3.6 billion as of Tuesday.
That includes about $900 million in late health care bills from the state’s group health insurance plan, which Gov. J.B. Pritzker has proposed paying off in next year’s budget. Bills paid out of the state’s General Revenue Fund, Mendoza said, are now paid, on average, within 17 days of being received by her office.
With the state’s cash flow problems now largely ironed out, Mendoza said, she believes it is time to phase out the Vendor Payment Program, and she said she believes the Prompt Payment Act has failed to achieve its purpose.
“I understand that the intent of the act is supposed to have a deterrent effect on budget makers that forces them to keep a budget living within its means,” she said. “However, I would argue that this interest expense is not penalizing state government, it penalizes taxpayers.”
She said that during the budget impasse, the state paid out more than $1 billion in interest penalties, something she said was proof that the penalties did not force lawmakers or other state officials to be more disciplined with their budgets.
“The days of taxpayers being on the hook for billions of dollars in late payment interest penalties should be over at a time when we finally have our heads above water,” she said. “It is now when we need to take a hard look at what happened and to reform our policies so that taxpayers are not having to pay for these exorbitant costs.”
Capitol News Illinois is a nonprofit, nonpartisan news service covering state government and distributed to more than 400 newspapers statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.
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NEWSRADIO WJPF INTERVIEW WITH SUSANA MENDOZA [AUDIO]
— Newsradio WJPF | The Morning Newswatch —
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Op-Ed: Points in favor of state bill payments reform
— Crain’s Chicago Business – Letter to the Editor | Mendoza, S. —
Illinois Comptroller Susana Mendoza says the state needs to stop giving politically connected wealthy private lenders the chance to make 12% profits on the backs of taxpayers.
I’d have liked the chance to explain to columnist Joe Cahill before his column ran (“Don’t let the state backslide on bill payments,” Feb. 28) why I think we need to reform the state program that offers politically connected wealthy private lenders the chance to make 12% profits on the backs of state taxpayers.
Here are some of the points I would have made:
- It is Illinois taxpayers, not the government, who ultimately pay the 12% interest pocketed, in most cases, by the politically connected private lenders who benefit from the current flawed system.
- The fact that taxpayers had to shell out more than $1 billion in late payment interest penalties under the program proves it does not work as a deterrent to keep the state from paying its bills late.
- Cahill asserts that the Vendor Payment Program and the Prompt Payment Act offer future protections if the state budget goes off the rails. I argue Illinois’ history proves these programs had the opposite effect. They provided an expensive crutch for state government to continue hobbling down the path of fiscal malpractice, harming taxpayers without having to make corrective decisions on the budget.
- The same arguments that financial analysts and pundits use about the state needing to watch costs and live within its means—when the subject is worthwhile programs proven to help state residents—should also apply when it’s a government program that benefits the politically connected wealthy elite.
- I do not suggest abolishing interest on late bills. I suggest lowering the rate from 12% a year down to something more reasonable, like 3%, or a formula tied to the rate of inflation.
- The nonprofits and small businesses that care for the state’s most vulnerable have had no greater advocate in state government than me. When I took office in 2016, nursing homes and hospice centers were waiting six months or more to be paid, while the administration speed paid connected consultants, and yes, the connected private lenders mentioned in Cahill’s column. I reversed that and moved the state’s struggling small businesses and nonprofit social service and human service providers to the front of the line. The “slow-walking” of payments to vendors is what I encountered when I took office and I ended that indefensible practice.
- Yes, the state will inevitably have economic downturns that will challenge its ability to pay bills on time. But forcing taxpayers to pay politically connected private lenders 12% interest to float loans to those providers is hardly the best or only tool the state has to protect the interests of the service providers.
- Illinois is finally positioned to replenish the Rainy Day Fund that the previous administration emptied. State Rep. Mike Halpin has introduced a bill, HB 4118, that would automatically put money into the Rainy Day Fund and the Pension Stabilization Fund when the state’s backlog of bills is less than $3 billion. I am a strong proponent of this measure. Gov. J.B. Pritzker proposes putting nearly $900 million into the Rainy Day Fund. Having the Rainy Day Fund as a backstop that can help during emergencies—as other states do—is a better path forward than the private-lender-enrichment option.
- We have other safety-net tools that were either not used or did not exist during the self-inflicted budget impasse of 2015-2017, nor during the last economic downturn prior to the pandemic, including interfund borrowing or borrowing internally from the treasurer at low interest and paying the Illinois Treasury back instead of paying Wall Street. Under these tools, the state can access billions of dollars to pay bills without having to owe 12% interest per year to private lenders. In fact, under these tools, the state invests in itself, providing a win for taxpayers. These tools make it less likely that vendors will see the kinds of delays they faced when I first took office.
- Most small businesses and social and human service providers never saw a penny of that 12% interest. Shouldn’t they have been the ones to see the benefit, instead of the politically connected private lenders getting richer? This is no longer a dichotomy between enriching politically connected private lenders and service providers closing their doors. The state has moved beyond that.
- These issues are less complicated when you put taxpayers first, as I have. It all comes down to profit and loss. In this case, the wealthy elite profited. Taxpayers lost. I’m trying to change that moving forward.
SUSANA MENDOZA
Illinois comptroller
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