CHICAGO — With his proposal to borrow $8.75 billion to pay down bills floundering, Illinois Gov. Pat Quinn is pressing lawmakers to authorize $1.75 billion to $2 billion of short-term bonding to pay off Medicaid-related bills before federal reimbursement rates drop in July.
Quinn said the state could capture millions of extra federal dollars by issuing bonds to pay off its Medicaid bills before July 1. That’s when a special federal reimbursement rate of 57% will return to 50%. A special rate of 59% expires at the end of the month. A 62% rate expired last year. The enhanced reimbursements were included in the federal stimulus package.
“We will lose that money,” Quinn said of the extra federal funding and his shift in pushing for passage from the larger borrowing plan to a scaled-down version. “Why would we give that away?”
It’s unclear whether Quinn can muster the support needed to pass the latest borrowing plan.
While Republicans and Democrats voice sympathy for those waiting on payments from the state, neither side has expressed much willingness to embrace more borrowing. Illinois issued $10 billion of debt last year to finance capital projects, restructure debt, and make its pension payments.
Quinn is a Democrat and the General Assembly is controlled by Democrats, but some Republican votes are needed to reach the three-fifths majority for new bonding to pass.
Quinn wants lawmakers to authorize a new form of short-term borrowing, as current short-term financing statutes sharply limit the length of repayment time. Illinois’ traditional general obligation certificate issues for cash-flow purposes must be repaid in the same fiscal year.
The state doesn’t need legislative approval to approve cash-flow borrowing as long as it is repaid in the same fiscal year. It last issued certificates in July in a $1.3 billion sale. They mature in June.
The state can buy some extra time if a failure of revenue is declared, but only through the calendar year.
In either case, Comptroller Judy Baar Topinka and Treasurer Dan Rutherford, both Republicans, would have to approve the issue.
But Quinn wants more time to pay off the $2 billion of debt as new revenue from a recently approved income-tax hike flow into state coffers, so new legislative authority would be needed, said budget spokeswoman Kelly Kraft.
Quinn said the larger plan — which he portrays as a “restructuring” — remains on the table but his focus now is on winning approval for the $2 billion borrowing. If approved, the $8.75 billion would be scaled back. The governor believes making good on the state’s overdue bills would bolster the economy.
Illinois owes a backlog of $6 billion in bills, another $750 million related to Medicaid, and $1 billion in group insurance payments that also qualify for federal reimbursement and would be paid down with the proposed short-term borrowing. Another $900 million in corporate tax refunds are owed, along with $1.6 billion in other debts.
The state’s chronically late payments have strained the finances of school districts, public universities, and public transit agencies.
The comptroller’s office has begun accelerating repayment of Medicaid payments, giving those bills priority to capitalize on the 59% reimbursement rate that expires at the end of the month, according to Topinka spokesman Bradley Hahn.
Illinois paid $350 million last week and will pay another $350 million this week, up from the $100 million it had been paying.
Kraft said the accelerated payments are tied to bills that must be paid within 30 days under federal rules. The proposed borrowing would allow the state to also pay down other bills that qualify for the match, such as pharmacist payments.
Sen. Jeffrey Schoenberg, D-Evanston, has proposed instead dipping into surpluses in non-general fund accounts to leverage the extra federal Medicaid dollars. “An interfund borrowing on a short-term basis is a plausible alternative,” he said.
Quinn’s proposed $52 billion budget for fiscal 2012 relies on the $8.75 billion of bonding to help erase a $15 billion deficit. The bonding plan has stalled amid Democratic and GOP opposition.
Republicans want the governor to cut spending levels. Democrats dislike the structure of the $8.75 billion borrowing proposal because it grants Quinn what amounts to a revolving line of credit to tap when needed.
“There’s no appetite for that in the Legislature,” one lawmaker said. All of the authorization would have to be tapped by July 1, 2012, and must be repaid within 15 years of its issuance.
Illinois has won praise from investors for raising its income tax. That is expected to generate $6.8 billion in new revenue annually, but they have also said the state needs to cut more if it hopes to ease their concerns and bring down borrowing rates.
The state has paid a premium over the last year on its bond sales due to a series of downgrades and headlines over its growing pension liabilities and $15 billion deficit.
Illinois’ GOs are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.