President's Message 02.11.08

email Doug

February 2008

Vendors: Revolt for Fiscal Accountability

Our state government has not operated with a truly balanced 12-month budget for years. It is politically easier to ignore deficit spending by hiding the bills and stiffing the vendors than it is to cut spending or raise taxes to operate in a responsible and honest manner.

DEADLY TRACKS
On January 16, Sangamon County resident John Wright was killed when a train at an unprotected railroad crossing struck his vehicle near Illiopolis. The Blagojevich administration has swept nearly $22 million out of the railroad grade crossing protection fund and never bothered to replenish the taking.

The Governor’s office of management and budget routinely dismisses the theft of cash from special funds as merely using “surplus revenue” that accumulates in these funds. The administration has chosen to ignore the statutory construct that dedicated certain taxes and fees to fund special purposes. There are still two thousand unprotected grade crossings in Illinois that are yet to be serviced. I sincerely doubt that any family who lost a loved one at an unprotected grade crossing would agree with the Governor’s spokespersons that a balance in this fund is somehow “surplus” and unworthy of being spent exclusively to make grade crossings safer.

NURSING HOME CLOSES
On January 25, Modern Care Nursing Home in Jacksonville announced it was closing. Sixty-three people are losing their jobs. Fifty-three residents must find other arrangements for care. The owners made it clear the primary cause for this decision is because the state is four months behind in payments. An affiliated nursing facility in O’Fallon may be at risk of experiencing the same fate.

State reimbursement to nursing homes for Medicaid patients has slowed dramatically. St. Patrick’s Residence in Naperville got a payment in December for services rendered in September, but by January 31 had not received payment for October, November, December or January.

HUMAN SERVICE AGENCIES
The Chicago Tribune’s lead editorial on Sunday, January 13 was appropriately titled “Illinois, the Deadbeat State”. The editorial focused on the financial plight of the Knox County Council for Developmental Disabilities. The state owed KCCDD more than $1.4 million, an amount equivalent to one-fourth of the agency’s annual budget. KCCDD has been forced to borrow from its capital funds to finance operations, but those funds are depleted. Without state payment, KCCDD must borrow from commercial lenders and pay interest to meet payroll.

A LEAKY TRUST FUND
That’s what Illinois Chamber member United Service Industries of Jefferson County has been doing for some time. Last year, 15 percent of company revenues went towards debt service on state receivables. To add insult to injury, accrual accounting forced the company to borrow hundreds of thousands of dollars from the bank to pay state and federal taxes on the state’s outstanding obligations that are over two years old.

United Service Industries should be reimbursed from the Leaky Underground Storage Trust (LUST) Fund but, just as with the railroad crossing fund, the cash flow that comes to the fund with the purchase of every gallon of motor fuel sold in the state has been deemed “surplus” and applied to paying for something other than reimbursement to companies who have replaced underground storage tanks.

The Blagojevich administration has not reimbursed $55 million it swept from the LUST Fund. The backlog in approved, unpaid claims stands at approximately $45 million. The IEPA ignores state statute and no longer routinely reviews vendors’ submitted bills in a timely manner. Instead, they ask companies to agree to waive the statutory requirement for bill review within 120 days because everyone knows there is inadequate money in the fund to eliminate the backlog, let alone make current payments.

COUNTIES SHORTED TOO
Over twenty years ago, state law was changed to bring more professionalism to the criminal justice system by establishing employment standards for probation officers. The state committed to reimburse counties for 100 percent of the salaries of county probation officers. The state has not satisfied its obligation, forcing counties to absorb over $30 million a year. Every metropolitan county is owed $1 to $5 million. Cook County alone is owed $10 million.

SMALL BUSINESS VICTIMS
Oswald Pharmacy in Naperville is reminded weekly of the difference in payment practices when wholesalers get paid for merchandise while the pharmacy waits months for state reimbursement for the same outlay. On any given business day this family owned small business is effectively making a $15,000 interest free loan to the state. They see the irony every time they file a state tax, payroll, or business form knowing there is no way they can avoid state penalties or interest if they miss a deadline.

DAN HYNES’ LONE VOICE FOR SANITY
State Comptroller Dan Hynes is the only elected official who consistently speaks and writes about Illinois’ lack of fiscal integrity. His mid-year quarterly report reveals the state set a new record for the backlog of unpaid bills at calendar year end: $l.7 billion in unpaid obligations. A year earlier, the state’s unpaid obligations totaled $l.3 billion. The Comptroller’s report suggests the current fiscal year could end with a backlog of $1 billion due vendors and another $1.5 billion held in the Department of Healthcare and Family Services in accrued liabilities to Medicaid providers. Comptroller Hynes regularly criticizes this state-friendly loophole that lets Medicaid bills be carried from one fiscal year to another.

WHAT PROMPT PAYMENT ACT?
The state’s prompt payment statute is a joke. The administrative rules have been drawn to make it impractical for anyone to receive fair compensation for the state’s irresponsible practices. Besides the hoops a vendor must jump to prove eligibility, the bureaucracy has great latitude to delay the process and withhold payments. Vendors are wary of pursuing satisfaction and triggering retaliation. The one percent simple interest penalty the state would pay is not worth the effort for most vendors. This statute should be re-written to reflect what is fair for vendors instead of protecting a heavy-handed customer with a stacked deck.

RECESSION CLOUDS VS. THE FREE LUNCH
Corporate income tax, sales tax receipts and investment earnings are softening just halfway through this fiscal year. Illinois’ Commission on Government Forecasting and Accountability’s latest report suggests revenue for FY08 may be $600 million less than anticipated when the budget was crafted by the General Assembly last summer.

While concerns about a weakening national economy and the possibility of a recession are on the minds of most people, Governor Blagojevich has continued to press for expanded healthcare spending. Last year, legislators resisted spending money on healthcare programs they knew the state cannot afford. And, to their credit, legislators finally stopped being complicit enablers of one aspect of dishonest budgeting by withdrawing the Governor’s authority to continue to use fund sweeps and chargeback transfers.

Governor Blagojevich has challenged both the budgetary and taxing authority of the General Assembly. He ignored the legislature and proceeded to implement expanded healthcare programs without enabling law or budget authority. His lawyers are arguing in Caro vs. Blagojevich et al that executive agencies can impose fees without legislative authority.

Undoubtedly revenue shortfalls and fiscal disputes will influence the 2009 budget the Governor will present on February 20. He has not ceased pursuit of greatly expanded healthcare spending and substantially increased education spending. Yet his administration has no shame for its failure to pay bills on time, for stressing vendors, causing some businesses to close, forcing vendors to carry the state’s debt and assume inappropriate interest expenses. The state has used cash flow gimmicks and deferred payment cycles to avoid the ugly truth: in a given twelve month period, state government spending far exceeds cash receipts.

The state’s fiscal practices and bill payment methods are an anathema to private sector managers who wouldn’t get away with operating in such an offensive manner for long without experiencing the wrath of dissatisfied customers and suppliers. So, why should taxpayers and voters tolerate these practices?

TIME FOR ACTION
It is time for vendors and other exploited businesses to take action. I want to challenge every recipient of state funds, every vendor, and every business adversely affected by the state’s fiscal policies to make their experiences and dissatisfaction known.

Send me an email, letter or fax explaining how the state’s fiscal policies affect your operations, and copy your state legislators and the Governor’s office of management and budget. We need a vendors’ revolt. Legislators need to hear how our state’s payment practices are unacceptable. Only aggressive constituent opposition to continued bad budgeting will give them resolve to resist more fiscal shenanigans in the FY09 budget. Send copies of this email to every business owner you know who has suffered as a result of the state’s irresponsible fiscal policies. Help me encourage them to tell their stories.

We need to work together to demand honest budgeting and fiscal integrity on the part of our government. Every local chamber member and members of professional and trade associations should engage in a campaign for fiscal integrity. Legislators and bureaucrats who support and acquiesce to dishonest fiscal practices need to be challenged and exposed for abusing the citizens they are supposed to be serving. How can an honest businessperson not be infuriated by what state officials have been getting away with? We deserve better.