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David Ormsby

David Ormsby

Posted: December 17, 2010 04:34 PM

Governor Pat Quinn is looking to fill the Christmas stockings of Illinois vendors.

Quinn's administration is planning to move forward next week with an expanded program to sell a big chunk of the state's $5.3 billion of vendor-owed debt to Wall Street banks and hedge funds, according to a Quinn Administration spokesperson.

According to Kelly Kraft, the spokesperson for Governor's Office of Management and Budget, the sale of vendor-owed bills to Wall Street investors will be limited to those debts which are overdue 61 days or more in which the state-mandated 1% monthly penalty is applied, which translates into an annual return of 12%.

"We are looking to expand the program as early as next week," said Kraft.

Quinn's planned move drew praise from key Illinois House Democrats, though with a word of caution from one.

"I applaud Governor Quinn's clever initiative to pay overdue bills owed to human service providers and other state vendors without adding to the state's debt," said State Rep. Sara Feigenholtz (D-Chicago), the Chair of the House Human Services Appropriations Committee. "This program will rescue many social service providers operating on the edge of financial extinction."

"Governor Quinn deserves credit for seeking creative ways to pay the state's overdue bills, " said House Deputy Majority Leader Lou Lang (D-Chicago). "However, I would strongly urge him to get the best possible deal for the state and seek an interest rate much lower than 12%."

Quinn's initiative to pay the state's bills without adding to the state's debt liability won the support even from one of the governor's harshest critics, the Chicago Tribune.

This plan, it appears, does not increase the state's debt load because the state already accrues the late fees, which are owed to the agencies. So we support this as a way to get cash to social service providers who are in trouble.

According to Kraft, the Quinn Administration can execute the debt sale, unlike the sale of state bonds which requires a 3/5 vote by the Illinois General Assembly, without action by the state legislature.

"It does not require General Assembly approval," said Kraft.

However, there was a rule change -- an amendment to joint rules between Office of the Comptroller and the Department of Central Management Services on the implementation of the state's Prompt Payment Act -- which allows for the amount due to to vendor to be now due to the investor who could receive the prompt payment of interest.

"The vendor gives this interest up to get the money immediately," said Kraft.

The governor's debt sale program comes as the problem of unpaid bills has mounted on social service providers, such substance abuse prevention and treatment agencies.

According to an Illinois Alcoholism and Drug Dependency Association November survey, the Illinois Department of Human Services owed community-based substance abuse prevention and treatment agencies $46 million in overdue payment, up from $34 million at the beginning of October, a 35% increase.

"Payments to providers are drying up," said Illinois Alcoholism and Drug Dependence Association CEO Sara Howe. "In October, the state owed $34 million to our prevention and treatment providers. Now it owes $46 million for some bills that stretch back seven months."

If Quinn pulls off the debt-sale initiative, which would comport with his broader budget strategy that includes "strategic borrowing," the newly-elected governor will strengthen his hand vis-a-vis the legislature by solving the immediate problem of financial insolvency threatening of hundreds of human service providers and earn the gratitude of the state's most vulnerable citizens.

It would be a swell Christmas gift, Governor.

 

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