Do Illinois’ payment priorities match yours?
Hank Sroka, a retiree from Burbank, sent me a note the other day with a simple question.
“I keep reading that the state isn’t paying its bills,” Hank wrote. “My question to you is if they’re still collecting taxes what happens to the money they’re collecting?”
I thought the answer to that was pretty clear by now: The state is using the taxes it collects to pay its bills, but it has more bills than tax money.
That’s a long- running problem driven by increased spending and exacerbated by more recent decisions to unwisely allow the temporary income tax increase to expire and to wisely face up to the state’s pension obligations.
But Hank’s question deserves a more thorough explanation. How exactly does the state prioritize which bills get paid on time and which wind up in the unpaid backlog of $ 14.9 billion and growing?
The answer is set forth in an illuminating affidavit from Illinois assistant comptroller Kevin Schoeben filed recently in connection with a federal court case. That case involves whether managed care organizations that provide health care to Medicaid recipients should be given high- priority status for payment.
Late Wednesday, U. S. District Judge Joan Lefkow ordered that the managed care organizations must be paid, without specifying how it’s done.
As Schoeben explained, managed care organizations, currently owed more than $ 2 billion, are not among the debts the comptroller currently categorizes as critical functions eligible for its highest- priority status.
The comptroller refers to this first- in- line category as its “core priority” payments.
Core priority payments total about $ 1.85 billion each month, representing about 90 percent of the state’s average monthly revenues, Schoeben explained.
The largest chunk of that — $ 593 million — is the state’s monthly contribution to its five public retirement systems that pay the pensions of state workers, teachers, university employees, judges and legislators.
Next largest is the state payroll, at $ 370 million a month, which pays the salaries of 63,000 state employees.
The state sets aside an additional $ 270 million each month for distribution to elementary and high school districts through the school aid formula. Another $ 1.7 billion owed annually to these same school districts for specific purposes such as special ed and buses is treated as a lower priority for payment.
Illinois owes about $ 226 million a month in debt service, Schoeben wrote. This is the principal and interest owed to bondholders on state borrowings for a variety of purposes, including infrastructure projects.
The state gives core priority status to about $ 160 million in Medicaid payments and other state benefits covered by federal court consent decrees for specific programs, including care for persons with physical and mental disabilities.
Local governments receive anywhere from $ 60 million to $ 175 million in priority payments each month from the state. This is their share of the state’s income tax revenue.
Everyone else who provides some service or product to the state has to get in line for payment from the 10 percent of state revenue remaining. The comptroller’s office generally pays these on a first- in- firstout basis, while trying to place a priority on “payments for essential services to the state’s most vulnerable citizens,” Schoeben stated.
These include long- term nursing care, early childhood block grants and the aforementioned managed care organizations.
As of May 16, when the affidavit was given, the state had yet to pay vouchers for some commercial vendors dating back to Sept. 1, undoubtedly for services performed even longer ago.
In deciding who gets paid, Schoeben noted, the comptroller has to take into account that the revenue deposited into the state treasury can vary by month, requiring the comptroller to keep a larger balance one month to pay a big bill coming due the next.
The comptroller also tries to keep a minimum of $ 20 million in the general revenue fund at all times in case tax monies fall short of estimates in a given month.
The managed care organizations provide a vital function and deserve to be paid. But for them to get their money, somebody else must lose.