CHICAGO — With Illinois more than $700 million in arrears on aid it owes its public universities, the Senate approved a measure yesterday that would allow the universities to issue short-term debt to manage through the ongoing payment delays.

Under the bill that now heads to the House, 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. 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 schools must use the debt proceeds to cover salaries and other expenses authorized in the university’s state ­appropriation.

The Democratic majority in the Senate passed the bill with some Republican support in a 43-to-14 vote yesterday.

Steve Brown, spokesman for House Speaker Michael Madigan, D-Chicago, said it was not clear yet whether the chamber would expedite consideration of the bill ahead of other legislation.

“The speaker has not stated an opinion and we would have to look at and review the bill, but the speaker certainly understands the dire straits the universities and others that rely on state payments are facing,” he said.

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.

Gov. Pat Quinn hopes soon to issue short-term cash-flow certificates but other officials have warned the state can’t afford any additional debt. The state 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.

The payment delays drove the recent downgrades of five universities by Moody’s Investors Service.

University officials testified during committee hearings on Tuesday and Wednesday of the dire impact both the payment delays and possible cuts in future state aid would have on their schools.

The likely Republican candidate for governor in the November election, Sen. Bill Brady of Bloomington, has called for a 10% across-the-board cut in spending to avoid a tax increase being pushed by Quinn.

Though the Brady proposal was not directly mentioned at the hearing yesterday, university presidents said they could not absorb such a blow without dramatic cuts and steep tuition hikes.

Moody’s last month attributed its downgrades to the record long payment delays that totaled $735 million at the time.

Analysts downgraded to A3 from A2 Illinois State University’s $130 million of debt. Moody’s also downgraded Western Illinois University’s $50 million of debt one notch to A3 and downgraded 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 downgraded one notch 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 facilities revenue bonds and certificates of participation and A1 for its south campus bonds and A2 health system bonds.

A total of $1.6 billion of debt was affected.

University spokesman Tom Hardy said the school does not have plans to tap the borrowing capacity if the House signs off on it, but supported the legislation to “preserve the option if we need it.”

Moody’s affirmed Governor’s State University’s A3 rating and affirmed Northeastern Illinois University’s A3 rating.

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