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Illinois Officials Prod Rauner to Sell Bonds to Cut Unpaid Bills

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Illinois officials are pushing Gov. Bruce Rauner to sell bonds to pay bills left from the state’s record budget impasse, saying it would reduce steep interest penalties of as much as $2 million a day.

The spending package that the legislature enacted two months ago over Rauner’s veto authorized the state to issue as much as $6 billion of securities to cover bills that accumulated during a unprecedented two-year standoff over the budget.

(Related: Illinois Rushes to Enact Budget as Threat of Junk Rating Looms)

On Tuesday, Sen. Donne Trotter, a Democrat, urged Rauner, a Republican, to sell the debt to pay health care providers and other state contractors that have had to lay off staff and borrow because they’re waiting to be paid. Comptroller Susana Mendoza has also called for the governor to sell the bonds.

“We remain in a political and fiscal crisis,” Trotter said during a press conference in Chicago on Tuesday.

Illinois could save money if it borrows to pay down the unpaid bills, some of which are accumulating as much as 12% interest, S&P Global Ratings said in a report last month. In the meantime, the state is paying about $2 million a day in interest on about $5.5 billion of unpaid bills that were more than 90 days old as of June 30, according to a memo from the Commission on Governor Forecasting and Accountability, which cited the state comptroller’s office.

Elizabeth Tomev, a spokeswoman for Rauner, didn’t immediately have a comment on Trotter’s call to issue the bonds. Trotter is a sponsor of the budget implementation bill that extended the state the borrowing authority.

The budget package for the year that started July 1 estimates an operating surplus of about $360 million, enough to cover debt service on about $3 billion of GO bonds with a 12-year maturity, according to S&P, which cited legislative sponsors of the bill. The bonds, which have a 12-year maturity, must be sold by Dec. 31, according to the parameters of the legislation.

The state’s bill backlog stood at $15.3 billion on Sept. 1, just shy of the record $15.4 billion reached in June, according the comptrollers’ office. Those unpaid bills include about $540 million of general state aid payments that will go out this week, and another $270 million that will go out over the weekend now that lawmakers approved a school funding bill, said Abdon Pallasch, a spokesman for the comptroller.

Marvin Lindsey, chief executive officer of Community Behavioral Healthcare Association of Illinois, and Leslie Rogers, vice president of South Shore Hospital, joined Trotter to urge Rauner to use the bonding authority.

“What it means to us is lost opportunity as you’re paying interest on loans that you did not anticipate having, that is sunk, lost cost that will not be reimbursed by anyone,” Rogers said during the press conference. “We ask and we need for the governor to utilize the tools in order to help move us forward.”

—Read 4 Trends to Keep an Eye on in the Muni Market on ThinkAdvisor.

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