CHICAGO — Gov. Pat Quinn yesterday signed legislation that allows Illinois’ nine public universities to issue short-term debt in anticipation of state aid to help the schools manage through the state’s chronic payment delays.
Universities had pressed for swift approval of Senate Bill 642, allowing them to borrow against the dollar amount submitted in vouchers to the state but unpaid for fiscal 2010, during the spring legislative session that ended late last month.
They are collectively owed more than $600 million. The state has been more than $800 million behind at points this year.
Illinois expects to close out fiscal 2010 this month with more than $5.5 billion in bills owed to schools, human services providers, and other contractors.
“This legislation will give our public universities an important fiscal tool to manage through this unprecedented economic crisis,” Quinn said in a statement. “We are committed to doing everything we can in Illinois to make sure our students receive the highest-quality education possible.”
The legislation takes effect immediately.
Under the law, a university’s board of trustees must pass a resolution that outlines the need to borrow money, the maximum amount to be borrowed, and the maximum amount of interest to be paid.
The legislation caps interest at 9 % and requires that the borrowing take place within 90 days and be repaid within one year.
Illinois Comptroller Dan Hynes must also approve the financing.
The legislation affects the flagship University of Illinois, Chicago State University, Eastern Illinois University, Governors State University, Illinois State University, Northern Illinois University, Northeastern Illinois University, Southern Illinois University, and Western Illinois University.
The risk posed by the state’s liquidity problems contributed to the downgrades of five of the schools by Moody’s Investors Service in February.
Moody’s left a negative watch attached to seven of the schools. The rating agency recently affirmed the ratings but assigned negative outlooks.
“The negative outlook reflects our longer-term concerns regarding the extensive state appropriation payment delays currently experienced by Illinois public universities, which have placed significant pressure” on their liquidity position and “may continue for a significant period,” analysts wrote in the reports issued yesterday on the seven universities.
“The negative outlook also reflects our longer-term concerns for potential cuts in funding from the state.”
Illinois is required to keep university funding at a level equal to at least fiscal 2006 levels in order to continue receiving federal stimulus funding, but in fiscal 2012 that requirement ends.
If the state’s budget problems persist, university funding could face steep reductions.