Dealing with budget uncertainty

From feeding the hungry to caring for the sick, state government relies on nonprofits to provide many of the essential human services that its residents need.

Once the state of Illinois signs a contract with an agency, the agency must provide the service, but the state sometimes doesn’t pay for it until four, five, even six months later, nonprofit leaders say. State budget cuts only add to that pain.

The budget uncertainty sometimes pushes agencies to within an inch of closing their doors before — finally — an influx of cash will come pouring in, as it did last year after the state borrowed $1.4 billion in December to clear out its payment backlog. But by February, the backlog was again climbing toward its original $3 billion level.

“One of the unfortunate consequences of bad budgeting and a bad economy is that our providers who citizens rely on to attain state services are feeling the pinch and are shouldering much of the burden of an imbalanced budget and a backlog of bills,” says Illinois Comptroller Dan Hynes, who has been vocal about the need to fix the state’s chronic budgeting problems.

His office receives daily calls from vendors facing financial hardship because of the limbo they’ve been forced into while awaiting state payments.

“We understand [nonprofits] are frustrated with what’s going on. They’re put in a very difficult position where they’re just trying to run their own business and provide critical services. Their job is made much more difficult because the state is not meeting its responsibilities,” Hynes says.

In many cases, the agencies take on extra costs to provide services for the state. Take the case of Streator Unlimited, a nonprofit that helps people with developmental disabilities work and live independently. In 2008, the organization had to take out a line of credit, paying $900 a month interest on money it borrowed to make its payroll while waiting for state payments that were six months late, says executive director John Mallaney.

At one point, the state owed Streator Unlimited 20 percent of its annual $2.5 million budget. “Even though you’re owed the money, it’s not in the bank,” Mallaney says. The interest the organization paid is money that is not going to help train the disabled or to pay staff. It’s money the agency won’t ever be repaid, he says.

He credited a dedicated staff with helping Streator Unlimited get by while the agency left vacant positions open, made do with old equipment and cut back on outings for the people it serves. The outings “are a really important part of what we do, but it’s also expensive. When you don’t fill positions, you have to have staff cover more people,” Mallaney says.

In December, Streator Unlimited finally received a check from the state. But that good news was packaged at the same time with some not-so-good news. The state cut a grant the agency had been counting on by $10,000, Mallaney says.

Nonprofits across Illinois complain about the way the state’s unpredictable budget affects their own bottom lines in a trying economy. With companies laying off workers left and right, more and more of the unemployed find themselves needing the services nonprofits provide.

“Hospitals find themselves caught in a situation where the numbers of uninsured they’re serving goes up, the number of Medicaid beneficiaries goes up, but the state is paying in an untimely way,” says Howard Peters, senior vice president of government affairs for the Illinois Hospital Association. Some hospitals are owed for services rendered seven months earlier, he says.

Peters says the problem has become progressively worse over time. “Once upon a time, the problem was they weren’t paying on average for 50 days, then 50 became 60, 60 became 75, 75 became 100, and then you have the situation we have today.”

Nonprofits also criticize provisions in state contracts that allow the state to pull out if money is not available. However, the agencies are not allowed similar leeway. They must staff up and prepare to provide services based on the contract, says Suzanne Strassberger, vice president of government affairs for Metropolitan Family Services in Chicago. The state “needs to honor the integrity of the contracts. Otherwise you’re going to see a whole infrastructure of services you didn’t even know was out there collapse.”

A coalition of human service organizations is working to impress that idea on legislators. “The state needs to look at the human services sector as public infrastructure. Just like bridges and roads. The state needs to be looking at maintenance and in some cases, repair of human services in the state,” says Jack Kaplan, director of public policy and advocacy of the United Way of Metropolitan Chicago and Illinois.

And even when state payments do arrive, agencies say that they haven’t seen any increases in several years to keep pace with rising costs and inflation. Kaplan says, “There’s a growing concern that there’s not proper payment.”

Crystal Yednak

Illinois Issues, April 2009