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Unpaid bills

The state’s inability — or unwillingness ­— to meet its commitments is simply unfair, some say

by Jamey Dunn

Southern Illinois pharmacy owner Tom Miller had to refinance his store to avoid bankruptcy while he waited on the state of Illinois to pay the money it owed him. “The state darn near destroyed us — destroyed me and almost destroyed other pharmacies,” he says.

Miller, also a Methodist minister, says his faith helped him through the financial turmoil. “We stayed in business only through the grace of God.” At one point Miller was waiting up to 270 days to be reimbursed for the Medicaid prescriptions he filled.

He has cut back on advertising and services to customers, such as offering in-store credit and unlimited free home deliveries, at his Marion store, which has been in business 17 years. “I have probably lost 25 percent of my business due to the state’s business with me,” Miller says. He adds that the stress of not getting state payments when about 65 percent of his business is customers on Medicaid has put a strain on his pharmacy, his marriage and his health.

Many independent pharmacy owners are weighing whether they can keep accepting Medicaid patients if Illinois continues to pay its bills late. Miller and others say it is unfair that the state, through irresponsible budget decisions, has passed such a difficult moral choice on to its vendors. “It’s revolting,” he says. “My heart hurts, but you cannot give everything to everybody.”

Jay Koch’s business did go bankrupt last fall. His United Science Industries, which was located near Mount Vernon and had employed as many as 100 people, worked with the Illinois Environmental Protection Agency to clean up leaking underground storage tanks. To cover the delay in state payments to his customers — which sometimes stretched nearly two years — he extended them credit. But along with tight credit from banks, interest rate charges ate up nearly one-fifth of his revenue, and he was forced to call it quits.

“There aren’t any scruples about how the state deals with the business community,” Koch says.

A pile of overdue bills is nothing new for Illinois. The state has struggled to keep up with payments for years. But a backlog of more than $3.5 billion is making the situation dire. At press time, Carol Knowles, spokeswoman for Comptroller Dan Hynes, says the oldest unpaid bill was from September 1. A report released by Hynes says that if drastic action isn’t taken, Illinois will head into the next fiscal year with the largest amount of unpaid bills it has ever carried over from the previous fiscal year.

As with citizens who don’t pay their bills, Illinois’ credit rating is suffering. Moody’s Investor Services downgraded the state’s bond rating to the second lowest in the country, just above California. That means Illinois will have to pay higher interest rates on any loans it might take out to help catch up on late payments.

Those waiting for money from the state see the consequences daily. People working for those organizations, by and large, are trying to keep those in need safe, treat the sick, educate students and hang on to their jobs.

The recession has compounded the issue. Many nonprofit social service providers also are receiving less money in charitable donations.

The state of Illinois itself does very little of what people would consider social work. Most of it, ranging from care for the developmentally disabled and the elderly to foster care coordination to addiction counseling, is contracted to various organizations the state pays. Illinois is legally obligated to pay these providers. For some, the money from the state comprises the majority of their operating budgets.

Judith Gethner, Illinois Partners for Human Services coalition manager, says the directors of some social service organizations are using their personal credit cards to keep their operations afloat. Many others are taking out loans to pay their basic costs. Those lines of credit are not bottomless, and in some cases banks are not even willing to give loans. “When our collateral is the state money, they laugh at us,” Gethner says.

Organizations that provide care to certain populations, such as the developmentally disabled, are required to maintain certain staff-to-client ratios. So if layoffs occur, waiting lists grow. According to Don Moss, coordinator of the Illinois Human Services Coalition, treatment centers for the developmentally disabled have waiting lists as long as 17,000 people. “No one new is getting in unless someone dies,” he says.

Gethner says cuts in one area often shift costs elsewhere. “Our clients end up at the emergency room of the hospital. Please don’t tell me the state doesn’t pay one way or another because they do.”

Mark Rossi, chief operating officer at Hopedale Medical Complex, says people are turning to emergency rooms for care in greater numbers because they do not have access to primary care doctors. He says that while emergency rooms must accept Medicaid patients, individual doctors aren’t forced to. Many have opted out of the program to avoid the headache of extra paperwork and late payments. Rossi added that having to go to the emergency room for all of their health care “makes people feel like second-class citizens” and results in “higher cost, worse care.”

Rossi says that is why the nursing home that is part of his health care complex stopped accepting Medicaid patients in 2001. He added that if the state doesn’t start making payments more quickly for employee health care, doctors might soon turn away state workers as well. “At some point, some hospitals may say, ‘We are sorry; we don’t take [state insurance coverage].’”

Schools throughout Illinois are also feeling the pinch. A few are making sure their communities know the state is not paying them on time. The central Illinois districts of Tremont and LeRoy are displaying the amount the state owes them on signs outside their schools. Gary Tipsord, superintendent of LeRoy schools, says his district has a unique opportunity to inform the public. “By being a public school, we have the ear of our community,” he says. “My public has got to know.”

Like others awaiting their payments, school districts are taking out loans to cover operating expenses, making cuts and considering layoffs. Don Beard, superintendent of Tremont schools, says his district, which is owed more than $250,000, is considering laying off some aides and teachers. The district also might delay buying textbooks and computers. Tipsord says it is unfair for the state to shirk its financial obligations when local governments are keeping up their end of the deal. “They’ve paid their property tax. The community of LeRoy has done their part. They have done all that they can do.”

Colleges also are scrambling to find ways to pay their bills. University of Illinois Interim President Stanley Ikenberry announced at a board of trustees meeting in Chicago that the university is considering increasing tuition by 9 percent to 18 percent. As of early February, the state owed the U of I more than $400 million.

The U of I has already laid off some staff and instituted a hiring freeze and furlough days, which are unpaid days off, as part of a plan to cut $82 million from its budget. “Furloughs are the very painful and highly visible last resort,” university spokesman Thomas Hardy says.

Southern Illinois University has pledged not to make any layoffs before June. The state owes SIU $125 million. The school is seeking borrowing power from the legislature through Senate Bill 642. At present, public universities are not allowed to borrow to fund their operating budgets. “We think that we are at the end of our ability to raise tuition rates much, if any at all,” SIU spokesman David Gross says.

Smaller state schools are cutting expenses such as travel and deferring maintenance, hiring and any large spending. However, many will still be weighing tuition increases when considering their budgets for the next fiscal year.

When the economy goes down, the demand for services goes up. Illinois community colleges are at their highest enrollment levels in more than a decade. More students mean more tuition revenue, but larger numbers also mean a greater demand for resources.

Judy Erwin, executive director of the State Board of Higher Education, says residents are returning to school because they have lost their jobs or are trying to get a competitive edge in a weak job market.

Rising unemployment rates have also sent more people to Illinois libraries to use the Internet for job searches. Families who have had to cut their budgets are heading to libraries to get books and movies for their kids. Yet, library systems are only receiving about 35 percent of the money they usually get from the state, says Joe Harris, executive director of the Shawnee Library System in Carterville.

Social service organizations also are experiencing increased demand. “When unemployment goes up, so does addiction and so does abuse,” Gethner says.

Gov. Pat Quinn’s budget director, David Vaught, says the state’s mounting debt adds urgency to crafting the budget for the next fiscal year. “We’re a debtor, and that’s not a good thing.” To get the budget back on track, the state needs to make cuts, raise taxes, borrow and get help from the federal government, according to Vaught.

In his State of the Union address, President Barack Obama called for a jobs bill that could send some money to the states. A version of the bill has passed in the U.S. House of Representatives, but the concept has met Republican opposition.

A tax increase in Illinois has no bipartisan support. Illinois Republicans are calling for cuts and economies such as reducing the benefits new state employees get from the pension systems and switching Medicaid to a managed care plan before they will consider a tax increase. Quinn supports both pension and Medicaid reforms.

But such proposed reforms would not necessarily translate to immediate savings that could be used toward overdue bills. Tom Johnson, president of the Taxpayers’ Federation of Illinois, says Illinois politicians’ inability to take the long view has led to the financial mess the state is in today. Johnson was a member of the Taxpayer Action Board, an advisory group Quinn created to propose ways to address the state’s budget deficit. Many of the group’s recommendations involved systematic policy changes that could require years to implement.

November elections loom over budgeting negotiations and make possible outcomes unpredictable. The Illinois Senate passed a proposed tax increase last year, but the measure failed in the House. Political scientist Kent Redfield says he doubts the General Assembly will pass a tax increase before November because House Speaker Michael Madigan is protecting House Democrats and will not call such a difficult vote before an election. Madigan spokesman Steve Brown dismisses the idea that the power to increase taxes lies solely with his boss. “[Addressing the state’s unpaid bills] is going to need to be a cooperative effort with the legislature and the governor.”

“I don’t think we are going to have a big grand budget deal with bipartisan support,” says Redfield, an emeritus professor at the University of Illinois Springfield. “As long as they can keep kicking the can down the road, they will keep doing it.” He added that a major event, such as a state university closing its doors, could create enough public pressure to prompt a tax increase.

The cost-cutting measures that organizations are making to get by while they wait on their money from the state could have lasting effects. Vaught says that if Illinois can’t pay its bills more quickly, it “will ultimately cause some organizations to collapse. … If they do disappear, they might not come back at all. They may be gone forever.” He added that the less tangible costs to individuals might never be repaid. “If you have a low-quality education … how do you bring that back?”

Erwin says an educated workforce is key to making Illinois competitive, and jeopardizing public universities and community colleges also puts the state’s economic recovery at risk.

Eric Foster, chief operating officer for the Illinois Alcoholism and Drug Dependence Association, says turning away clients means they may never come back for help. “Likely they will go back out and use. And once they go back out and use, the chances of them coming back will decrease.”

Many who were laid off in social services were recent college graduates and may leave the field before money comes back to hire them, Foster says. So, the social work sector could be alienating the next generation of potential workers.

Says Moss of the Illinois Human Services Coalition, “It’s going to be a long haul before things return to sub-normalcy.”

Illinois Issues, March 2010

 

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