Mendoza suggests Illinois due for credit upgrade
Illinois Comptroller Susana Mendoza is pictured in her Capitol office in 2019. (Capitol News Illinois file photo)
Says state will work with Treasury for permission to spend federal aid to repay COVID borrowing
By PETER HANCOCK
Capitol News Illinois
SPRINGFIELD – Illinois Comptroller Susana Mendoza is asking the nation’s three major credit rating agencies to reconsider the state’s credit rating with an eye toward a possible upgrade.
In an April 28 letter to executives at Moody’s Investors Service, S&P Global Ratings and Fitch Ratings, Mendoza argued that Illinois has virtually eliminated its backlog of past-due bills while keeping current on its bond payments and pension obligations, all in the midst of a global pandemic.
“Please be assured that my office is doing everything possible in managing the current backlog of bills and addressing Illinois’ finances head on,” Mendoza wrote. “The Office of Comptroller urges your agencies to consider these positive factors and progress made paying down the backlog when evaluating Illinois’ credit worthiness.”
Illinois currently has the lowest investment-grade credit rating available from all three rating agencies, one notch above what is considered “junk bond” status.
Mendoza wrote that letter on the same day her office announced that the state’s bill backlog – actually, the sum total of all outstanding vouchers waiting to be paid – had been decreased to just $3.5 billion.
According to the letter, the oldest outstanding commercial voucher at that time was just two days old. The backlog was within the 30-day billing cycle that is common in the business world, Mendoza’s office said.
In fact, Mendoza said during an interview Tuesday that she believes the state now needs to come up with another word besides “backlog.”
“The key statistic here is that right now we are up to date with all of our commercial vouchers,” Mendoza said. “So there is no one waiting to get paid in my office. There could still potentially be some people that are waiting to get paid because their invoices might be at the agency level and they just haven't sent them to us. But you're talking about a minute group of people.”
Since Mendoza announced that the backlog had been paid down, the amount of outstanding vouchers has fluctuated daily, roughly between $3.5 and $4.5 billion. But she said the bulk of that is the result of interfund borrowing – when the state transfers money from other funds into the general revenue fund to meet short-term cash flow needs – as well as the normal “ebb and flow” of daily business in state government.
Apart from those expenses, though, the state does have significant short-term obligations coming due, including roughly $3.2 billion the state borrowed from the Federal Reserve during the pandemic, plus another $400 million borrowed from the state treasurer’s office.
Both Mendoza and Gov. JB Pritzker had said in earlier interviews that they wanted to use a portion of the roughly $8 billion in federal relief funds that Illinois expects to receive through the recently-passed American Rescue Plan to pay off the Federal Reserve loans. But new guidelines from the U.S. Treasury Department that were released on Tuesday specifically prohibit using those funds for “payment of interest or principal on outstanding debt instruments, including, for example, short-term revenue or tax anticipation notes, or other debt service costs.”
State Rep. Michael Zalewski, D-Riverside, who chairs the House Revenue Committee, said in an interview Wednesday that he does not believe the relief funds can be used to repay the Federal Reserve and that any repayment plan will have to be “part of a broader budget conversation.”
But Mendoza said in a statement Wednesday that she believes there may be room to negotiate with Treasury on the use of those funds.
“The Dept. of the Treasury said it welcomes feedback to the interim guidance on permitted uses of the stimulus funds,” she said in an email statement. “(The Governor’s Office of Management and Budget) and our office will be seeking to clarify with the Treasury that guidance against using these funds to pay debts unrelated to COVID-19 does not prevent their use for paying debts accrued for spending related to COVID expenses. Our office has made clear that stimulus funds will not be used to pay legacy costs such as pensions.”
During a separate news conference Wednesday, Pritzker insisted the state is committed to repaying the Federal Reserve loans one way or another, but said he believes the state should be allowed to use the relief funds for that purpose.
“Look, the federal government is sending us dollars and then telling us that we can’t then send those dollars back to the federal government to pay for the borrowing we took out last year. Clearly it doesn’t make a lot of sense and so we’ve talked to the Treasury Department about that,” he said.
Capitol News Illinois is a nonprofit, nonpartisan news service covering state government and distributed to more than 400 newspapers statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.