Borrowing plan more of the same

Borrowing plan more of the same

The question many of our state elected officials are unfortunately wrestling with is this: How much money do we have to borrow to get out of debt?

It should be a nonstarter. But bad ideas in Springfield never go away.

High-profile legislative Democrats have resurrected a plan to borrow billions of dollars to pay down Illinois' roughly $9 billion backlog in unpaid bills.

State Sen. John Sullivan of Rushville is among those leading the charge. He says it's "not morally right" to have a backlog of unpaid bills. State Rep. Frank Mautino of Spring Valley contends that borrowing would result in "tremendous savings."

Republicans dispute that claim, contending that borrowing $9 billion to pay off a debt of $9 billion is a circular approach that doesn't solve the problem.

"You certainly don't borrow to pay off a debt," said state Comptroller Judy Baar Topinka.

If it wasn't clear earlier — and it should have been — it's beyond dispute now: Our elected officials have no idea how they're going to get the state's finances out of the deep hole they've dug. They're searching for easy answers to a horrible problem that has been years in the making. With no easy answers in sight, they find themselves facing the same problem as a drunk staggering down the street looking for a light pole to grasp.

Considered in that context, it's not surprising they consider borrowing as just another option in dealing with state debt.

The gist of the argument is this: the state can borrow money, particularly in the current near-zero-interest-rate climate, pay unpaid bills and save money in the process.

Why? The state pays an interest rate of 1 percent a month on unpaid bills. The interest rate clock starts to run 90 days after the comptroller's office determines a bill valid.

Proponents say savings would come with reduced interest payments, 12 percent a year compared with whatever low rate it would pay on the borrowed money.

That's a valid argument, from a theoretical standpoint. There's no disputing the interest-rate play.

But the savings would not be as great as some suggest because the state doesn't pay interest to governmental institutions, like the University of Illinois, to which it owes vast sums.

But what would legislators do if extra money is freed up by reduced interest costs?

If past is prologue, the obvious answer is that they would spend it — wiping out the anticipated savings. Borrowing proponents promise they would do no such thing — but their promises are not worthy of belief. Desperate people, particularly those confident their past words will not be held against them, will say anything.

This is, of course, not the first time that state officials have proposed bold action to address the problem of unpaid bills. Two years ago, Gov. Pat Quinn and legislators dramatically increased state income taxes to pay bills. While the tax hike generated roughly $6 billion in new revenue, the state's backlog of unpaid bills remains.

Much of that new revenue has simply gone to shore up the state's five underfunded public pension systems. That's another problem legislators can't bring themselves to face.

There's no minimizing the depth of this state's financial problems. It has already raised taxes dramatically. But it still can't pay its bills in a timely fashion. It still can't fund core state programs because its obligations to its public pensions are so large. As of a couple weeks ago, its elected officials still couldn't bear the idea of tackling these problems in a meaningful way.

Judging from the current proposal to borrow money to pay off debts, not much will change when legislators return to Springfield next week.

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bmwest wrote on January 24, 2013 at 9:01 pm
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It's not just debt to pay off debt. It is refinancing to save interest, although perhaps only the interest-bearing debts should be refinanced. To not do so and to continue to waste taxpayer dollars paying too much interest is contrary to fiduciary responsibility. It's not unlike paying tens of thousands more in interest on your house because you refuse to refinance to take advantage of lower rates because it's just debt paying off debt. It is more than that.

In addition, it is transforming a burden of hospitals, utilities, and social service agencies from being an unwanted lender to the state to bond holders who willingly take on that role. I seem to recall delayed payments under self-insured plans like the state employee dental plan paying 18% interest on old bills but perhaps I have that wrong.

Finally, it is somewhat confusing to say on one hand that the State can't fund core services because of a lack of money but then fault a plan that is a mathematical fact to save money because that money might get spent on something other than paying off debt - like core services. Don't get me wrong. We have a ton of problems and I'm eager to be a part of the solution. I just see this particular proposal as a baby step in the right direction, not part of the problem.

Sid Saltfork wrote on January 25, 2013 at 11:01 am

bmwest;  You make a good point.  The state should stop pork barrel spending at the same time.  Money should be spent on debts owed, and only essential services needed by the citizens.

SaintClarence27 wrote on January 25, 2013 at 12:01 pm

But what is the definition of an "essential service?"

Sid Saltfork wrote on January 25, 2013 at 1:01 pm

Well, it is not indoor volleyball courts, swimming pool water features, hiking trails, roofs for churches, ramps for religious institutions, dolphin pool liners, lights for baseball fields..... etc.  Those were included, and continue to be included in the state's pork barrel spending.  By essential; I mean public safety, repair of infrastructure, services to the citizens in need, and public environmental protection.  Moody's, and Fitch's reports indicted that the state has a spending problem, and a mismanagement problem.  They politely touched on the corruption in state government also.  Borrowing to pay down debts at a lower interest rate maybe a money saving effort; but the spending must be controlled at the same time.  Right now, we have another governor running around giving out money for socially approved causes while neglecting to pay debts owed.  He wants to get re-elected which is a fantasy.  It makes no difference whether the new governor is of one party, or the other.  The same spending for votes, and campaign donations will happen.  Illinois needs to go on a no spending budget except for the most necessary expenditures, and pay the debts owed.

SaintClarence27 wrote on January 25, 2013 at 2:01 pm

While I agree with you, a lot of citizens would not include services to citizens in need in that group, nor public environmental protection.

Sid Saltfork wrote on January 25, 2013 at 3:01 pm

Yes.  If the spending pattern continues; services to citizens in need, and public environmental protection will be dropped also.  People will have their priorities; but the legislators, and governor will place their priorities before those of the people.  It is Illinois political history.  Pork barrel spending for votes, and campaign donations mixed with corruption.  The two previous governors of both parties were convicted of corruption; but they could not have done it all by themselves.  They had help from the legislature.