Treasurer Michael Frerichs said the state could save up to $100 million a year under legislation he proposed that was signed by Gov. Bruce Rauner.
The bill, which garnered only one “no” vote in the General Assembly, allows the treasurer’s office to pay off some backlogged bills currently waiting payment in Comptroller Susana Mendoza’s office. Senate Bill 2858 authorizes the treasurer to use up to $2 billion in funds that aren’t immediately needed for other purposes.
The treasurer’s office invests state tax collections until the money is needed to pay expenses.
“We already invest money that’s sitting in those accounts until it is needed,” he said. “We’re going to invest it in a different place and at a higher rate than it earns normally.”
The program can be viewed as a variation on the vendor assistance program. Under that program, vendors can get assistance from private companies on certain bills if the state is more than 90 days late in making payments. The private company pays the vendor 90 percent of the amount owed and the remainder when the state makes good on the bill to the private company. The company keeps any late payment penalties the state owes on the bill.
“This is not going to do away with the entire need for the vendor assistance program, but this will save the state about $100 million a year,” Frerichs said.
There is still interest paid on the money that will be used for the program. However, under the law, that interest rate is tied to the Federal Funds Rate or an equivalent market rate that is currently at 3.5 percent. The state is now required to pay up to 12 percent in late payment fees.
Money to make the payments will come from some of the hundreds of separate funds maintained by the state, with certain exceptions. The general revenue fund, which is usually described as the state’s checkbook account, is not part of the program. Nor are things like the Health Insurance Reserve Fund and the Attorney General Whistleblower Reward and Protection Fund.
Money from other funds can be used with the stipulation that enough cash remains in the fund so that it can carry out its purpose.
“A lot of these funds are building up balances for a specific purpose,” Frerichs said. “We know we are not spending a lot of money on road projects in February in Illinois. The Open Space Land Acquisition Fund, you don’t buy land by the square foot. You need to build up a sufficient reserve before you can go out and purchase. While it is building up, we can take some of that money that’s in there, invest it and help make more money for that fund.”
Frerichs said the interest that will be paid under this bill is higher than traditional investment returns earned by the office.
Although there is money sitting in various state accounts, it cannot be applied to state bills without approval of the legislature. Lawmakers had to approve this bill because the investments the treasurer’s office is authorized to make did not include essentially buying unpaid state vouchers.
“You can’t take Road Fund money and use it to pay Medicaid bills,” Frerichs said.
Mendoza’s office praised the bill as another tool for dealing with the state’s ongoing financial problems. It could not say, though, just what effect it will have on the bill backlog that stood at $7.5 billion on Friday.
“This does not solve all problems,” Frerichs said. “But we can reduce interest expenses on $2 billion, going from 12 percent to 3.5 percent, we can save tens of millions of dollars. And those dollars stay in state funds instead, as opposed to going to some Wall Street bank.”
Contact Doug Finke: firstname.lastname@example.org, 788-1527, twitter.com/dougfinkesjr.
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September 1, 2018 at 06:25PM