April 10 Illinois would add $2.5 billion to its
credit card balance to pay old bills--including $2 billion owed
to Medicaid providers--under a bill pending before the House of
The bill, which has the support of powerful Democratic House
Speaker Michael Madigan, underscores the unorthodox measures
Illinois lawmakers are considering in the face of $9 billion in
unpaid bills and a pension underfunding approaching $100
A House committee on Wednesday passed the measure, which
authorizes the sale of $2.5 billion of general obligation bonds.
Because it has Madigan's backing, the measure could come to a
vote before the legislature concludes its spring session on May
Previous efforts to sell state bonds to pay vendors--
including doctors, hospitals and social service agencies--have
failed to gain traction. But the November election gave
Democrats a super-majority in both the House and Senate, meaning
the measure theoretically could win the super-majority of votes
required for bond issuance without any Republican support.
Supporters of the bill said the five-year bonds would cost
Illinois about $40 million in interest. The alternative is to
pay $60 million over the same period in the form of late-payment
penalties to health-care providers and other vendors, supporters
Up to $2 billion of the bond proceeds would go to Medicaid
providers, allowing the state to capture federal matching funds
that could help meet bond payments, supporters said.
House Majority Leader Barbara Flynn Currie, the Democratic
representative who introduced the measure, said it would help
speed money to human services providers and other companies that
have seen Illinois fall behind by as much a year on paying its
"We owe these providers real money," she said during the
committee meeting. "And we can do this in a way that saves the
But Republicans on the committee raised concern that
increasing Illinois' approximately $30 billion of outstanding
general obligation debt--without passing pension reform or
cutting spending--would hurt the state's already shaky credit
"My concern is that if we try to issue $2.5 billion of
bonds, we will be downgraded again without pension reform,"
State Representative David McSweeney, a Republican, said during
The proposal seems likely to add to Illinois' reputation as
a prolific yet sometimes troubled bond issuer. The state
successfully sold $800 billion in general obligation bonds in
early April. But that came only after Illinois in January
delayed a $500 billion issue just days after the Standard &
Poor's rating agency downgraded the Illinois debt rating.
Craig Brothers, a portfolio manager at Bel Air Investment
Advisors in Los Angeles, said the proposed bond issue would not
address concerns that bond investors have about Illinois' fiscal
"Unless they are doing things to sort of mitigate this
growing debt to vendors from recurring, I don't think this debt
would be well received," Brothers said.
Major Wall Street credit rating agencies, Moody's Investors
Service and Standard & Poor's Ratings Services, have pounded
Illinois' bond ratings to the lowest levels among states, and
the Pew Center on the States has found Illinois' state pension
systems to be the most under-funded in the nation.
Illinois' $9 billion in unpaid bills sets it apart as a
state that uses delayed bill payment as a budget-balancing tool.
David Merriman, associate director of the Illinois of
Government & Public Affairs at the University of Illinois, said
the plan could make sense because it changes the relationship
between the state and its creditors. Vendors become unwilling
creditors when Illinois falls behind on its bills, while
bondholders, on the other hand, would be willing to lend money
to the state.
"You've taken a reluctant creditor and you're exchanging
that for a willing creditor. In general, it's a responsible way
to act," Merriman said.
A spokesman for Illinois Governor Pat Quinn, a Democrat, had
no comment on the measure.
Illinois Comptroller Judy Baar Topinka, a Republican who
oversees the payment of state bills, opposes the borrowing plan.
"She believes borrowing provides a false sense of security
and takes pressure off the state to address spending, costing
taxpayers even more in the long run," said her spokesman Brad