You may know that the State of Illinois has the lowest credit-rating of any state and is in a financial death-spiral from colossal state employee pension liabilities and over spending. For at least 8 years, Illinois has been very slow in paying suppliers of all kinds. From nursing-home patients, to prison guards trying to get bullets, to lottery winners, and even state income tax refunds – nobody gets paid within a reasonable period of time. According to an Illinois vendor survey, 40% wait 5 months for payment and 36% wait 6-12 months for payment. I know a Michigan dentist, who has two patients that work for the State of Illinois, and she says she won’t accept any more of them because she’d go bankrupt – it takes at least 8 months to get paid.
Have there been any consequences for this structural habit of slow payment?
- To pay unpaid bills, the state ratcheted property taxes so high it resulted in the emigration of residents to other states.
- Legislators have received eviction notices for their district offices and had their phone lines cut off. Banks won’t lend to entities relying upon payments from the state.
- The state is slow to pay townships and cities, resulting in a “deadbeat” reputation across the entire state. Many suppliers insist upon payment upfront in advance of sending goods.
- Lending companies started cropping up 7 years ago, offering quick payments to Illinois vendors, but those payments are discounted, you receive less than what you are owed. Many more lenders are needed, but Illinois also has usury laws disallowing rates commensurate with high risk: loans to a government entity cannot exceed 6%.
- Non-profits and foundations have closed or are floundering, according to the CEO of the Illinois Donor’s Forum. Funds are generally raised from 3 entities (businesses, individuals, and the state), but corporations are leaving the state, individuals are struggling, the only one left is the state and they are not following through with their commitments.
- A lawsuit forced the State of Illinois to speed up Medicaid payments. Medicaid patients have doubled in the last 15 years, causing yet another financial strain on the state’s finances.
- Availability of social services is diminishing: mental health services, food for homebound seniors, domestic violence centers, libraries, and state colleges are laying off staff and deferring maintenance.
On top of all of this, small businesses have been closing and medium/large companies have been moving out of the state. The only way to turn around Illinois’ gigantic deficits and unpaid bills is to:
1. Cut spending (which they’ve been unwilling to do in 20 years)
2. Cut state pension obligations (but that is illegal in Illinois)
3. Possibly increase taxes (but they are already so high that individuals and businesses have been fleeing the state).