CHICAGO — Legislation that would allow Illinois’ eight public universities to issue short-term debt to manage through the state’s chronic payment delays advanced this week towards a House floor vote.
A House committee on Monday approved the plan that has already been approved in the Senate, but some amendments are expected before a floor vote is taken, officials said yesterday.
Universities are pressing for approval swiftly as they were owed $840 million in state aid payment at the end of February and are unsure when any funds will be received.
The payment delays drove the recent downgrades of five universities by Moody’s Investors Service.
Analysts downgraded Illinois State University’s $130 million of debt to A3 from A2. Moody’s also dropped Western Illinois University’s $50 million of debt one notch to A3 and lowered Southern Illinois University’s $327 million of debt by two notches to A3.
Moody’s downgraded Eastern Illinois University one notch to A3, affecting $142.2 million of debt, along with Northern Illinois University in DeKalb, which was dropped one tick to A3, affecting $105 million of debt.
The flagship University of Illinois is weathering the payment delays better. Moody’s affirmed the school’s Aa3 rating on its auxiliary facility revenue bonds and certificates of participation, the A1 on its south campus bonds, and the A2 on its health system bonds. Moody’s also affirmed Governor’s State University’s A3 rating and affirmed Northeastern Illinois University’s A3 rating. A total of $1.6 billion of debt was affected.
Under the pending bill, the board of trustees of each of the state’s eight public universities could issue bonds or use some other form of debt like a bank loan in anticipation of its payments from the state. The bill limits the issuance to 75% of the total amount of payroll and other expense vouchers submitted to the comptroller’s office but unpaid.
The schools must repay the debt within 12 months and the new borrowing authorization would end Aug. 31. The universities must use the debt proceeds to cover salaries and other expenses authorized in their state appropriation.
Illinois faces a backlog of $5 billion in bills, and the universities, human services providers, and other schools and organizations that rely on state funding have warned of severe cutbacks because of the delays.
The ability to borrow against the funds until payments are received would help offset the need for cuts, university presidents said in testimony this week.
Gov. Pat Quinn hopes soon to issue short-term cash-flow certificates to raise money to pay the backlog of bills, but other officials have warned the state can’t afford any additional debt. Illinois is facing a $12 billion deficit in the current budget and in fiscal 2011. It also must repay $2.25 billion of notes in May and June.
Quinn has proposed a fiscal 2011 budget that cuts $1.3 billion in funding for public education — including elementary, high school, and higher education — if lawmakers don’t approve an increase to 4% from 3% in the individual income tax rate and a hike to 5.8% from 4.8% in the corporate income tax rate.
