Springfield — Last summer the state finally passed a budget when members of the legislature voted to override Gov Rauner’s veto of the budget. That budget set spending caps at $36.5 Billion, raised the income tax from 3.75% to 4.95%, AND allowed the state to borrow $6 Billion via the bond market.
At the time the budget was passed, the state owed over $16 BILLION in unpaid bills. This week, Comptroller Susana Mendoza released her latest figure showing the unpaid bills now total just over $8 Billion.
When a person runs a household, where spending may total $4,000 a month, there’s going to be a certain amount of unpaid bills that are current, but unpaid. In an average household budget, they may always have $800 – $1200 float of unpaid bills.
So when we consider the state is now spending around $36.5 Billion, the unpaid bills amount that would float from one month to the next could easily be $5 Billion. In that context, $8 Billion, while higher than it should be, is nearing what might be considered a normal float of bills in the “to be paid” basket.
Mendoza used ALL the $6 billion the state borrowed to pay old Medicaid bills because once those were paid, the Federal government matches those funds by 50%.
So the $6 Billion brought in $3 Billion in Federal matching funds. Then Mendoza took the $3 Billion to pay off more Medicaid bills, that resulted in another $1.5 Billion from the Feds in a matching fund. That $1.5 Billion then was again applied to Medicaid bills, which brought in $750 Million. And this continued until all the funds were exhausted that could generate a match from the Federal government.
By leveraging the Medicaid match of 50%, the backlog of bills was dramatically reduced from where it was, and the $6 Billion in bonds, which the state pays an interest rate of just under 3.5% generated savings FAR in excess of the $6 Billion borrowed.
And that interest rate of 3.5% on the bonds, compares with an interest of about 10% to 12% the state HAD been paying on the bill backlog that exceeded 60 days.