Illinois is Drowning

I last wrote about Illinois’ finances in January before I left for Florida.  I tend to write before out of state trips thinking that while I’m out of the Illinois, away from the bad news, those running the state will come to their senses, find a compromise, pass a budget, and move forward.  But when I come back I find the same old stuff going on.  There’s only two and a half months left in this fiscal year, the rest of April, then May and June.  After the failed meeting of the governor and legislative leaders last Tuesday it appears we will go this entire fiscal year without a budget.  It’s hard to believe.  Really it is.

 

As luck would have it I retired as executive director of a largely state funded youth and family serving agency when I was 62.  Had I not done so, had I chosen instead to work till I was 65, this would have been my final year running YSB.  I would have gone out on this awful note, assuming I had made it through those three years without the stress killing me.  There are a lot of questions that must be asked.  I wish there were more answers.  I hardly know where to begin.  How about these for starters:

What will the auditors say?

If you run a private agency that receives any significant amount of state revenue you must submit to and pay for an independent outside audit of your books every year.  CPA’s come in and crawl all over your files.  Mostly computer files nowadays.  They come on site, set up their laptops and multiple screens, stay for a week, and while there go over your accounts with a fairly fine tooth comb.  Their large goal is to determine if you are solvent.  They make a report directly to your board of directors, who have a fiduciary responsibility to make sure spending is attributed to activities funded and revenue is more or less are in the ball park to cover those expenses.  The auditors ask a lot of questions of everyone and then go back to their offices and write the audit.  $30,000 later you have the report, a clean audit hopefully, and that’s that for another year.  If I were still involved I would have these questions for the CPA's. 

Are those state contracts for which agencies haven’t been paid considered good receivables?

Receivables are monies you earned, dollars you can assume with confidence you will receive, but simply have not yet gotten the check.  Can agencies still assume their unpaid FY 2016 money is on its way?  If you go the entire year without being paid and start a new one, can you realistically expect the state can and will pay you for an entire year once a new one is underway?

Where will the money that is owed private agencies come from?

If the state ends the year with the kind of deficit that is projected, which is a dead cinch to happen, having given up a sorely needed tax increase that lapsed eighteen months ago, how will it manage to write new contracts, honor them, and yet pay for last year’s services as well?  On what account will those checks be drawn?  What is the likelihood the state will be able to double pay agencies it didn’t pay this whole year?  I’m no accountant, but I’d say that is a significant problem. 

If agencies can no longer afford to hire staff and deliver services because of non-payment by the state, who will truly have breached their contract agreement? 

There was never much negotiation per se in those contacts for social services agencies.  As much as private agencies tried to say we were partners we certainly weren’t equal partners.  Those contracts are pretty lopsided.  After all the state has the money.  I may have from time to time boasted that the terms of the contract we were offered were unacceptable, and acted as if I could negotiate my own terms, but in the end we took what the state gave us and did what we could with it. 

This year a significant number of contracts for human services were signed by state officials who have not paid their contractors a dime.  But clearly there was an expectation that the services be delivered by the private agencies like always.  Referrals were made to providers.  For example local police continued to call agencies for help with runaway kids in the middle of the night.  Those calls were fielded and responded to in person by staff that were hired and in place per the terms of the contract.  Emergency foster parents took those kids into their homes when they could not be safely reunited with their parents and received payment for doing so.  Monthly reporting of service units went on as usual.  Training events and meeting were held.  Monitoring for quality continued.  Quarterly expense reports were required by the state.  The state and its communities certainly received value for the services provided although payment has yet to be rendered.  If the agencies possibly could they held up their part of the bargain.  So who didn’t hold up their end?  Doesn’t it follow that the party not paying for the services breached that agreement?

If you construct a financial report based on the expectation of payment, and payment does not occur, how long can you reasonably expect to carry that credit?

It’s too simple I know but occasionally I had to learn to write off bad debt as an executive director, sometimes at the urging of my finance director, other times the auditors, but I learned over time to look more realistically at the payer and manage that problem before it grew.  The conversations went something like this, often between my day care director and me.  Day care was the program where bad debt most often occurred.  Amounts billed and amounts paid got out of whack.  We had to find and fix the problems.

    

“How much does (Mrs. Smith) owe on her day care bill?”

“$840.”

“How many weeks is that?”

“Twelve.”

“What’s going on at home?”

“She’s in the middle of a divorce and her husband isn’t paying child support.”

“Has she been able to pay anything?”

“She gave us a check for $40 last week.”

“Was it good this time?  Did it bounce?”

“We were able to cash this one.”

“When was the last time she paid before that?”

“Before Christmas.”

“Christmas was two months ago.”

“I know.”

Pause.

“Have we refigured her subsidy?  Did you do a redetermination based on her new situation?”

“Yes.  We’ve done everything we can.”

“She’s in too deep already.  Think about it.  Where is she, or her husband, going to get that kind of money?”

“I don’t know.”

“Who else can watch her daughter?”

“Maybe the husband’s Mom.”

“You’re going to have to cut her off.  Talk to her again, and you decide when.  But is she doesn’t pay a significant amount soon you will have to tell her she can no longer bring her little girl here.”

It broke my heart to do that.  Several hearts were usually broken every time that occurred.  We did everything we could to avoid it.  But we barely broke even at the day care center even when every family paid in full.  We wrote off bad debt fairly regularly, and over time learned how to limit it in the first place.  We covered all we could with privately raised money but there is a limit to everything.  It’s not pretty.  In the end money talks and you have to listen.  If the State of Illinois was a day care parent at my old day care center, which they often are by the way, I’d be saying “Where are they going to get that kind of money?”

Harsh reality has a way of setting in.  We elected a new governor over a year ago in hopes he would bring new ideas and fresh approaches to the fiscal mess Illinois is in.  What has happened is that the mess is now significantly worse.  If elections are any indication of momentum and future success Governor Rauner and his fellow rich campaign contributors did not advance support for his turnaround agenda in the primary but rather lost ground.  In seven months we will again be able to gauge public sentiment in a tangible way when we vote in a state and national election.  At that time we will see more clearly how Rauner backed candidates fare.  But seven months is too long.  In the meantime we have this awful financial swamp to drain.  Private agencies, which in Illinois deliver the lion’s share of human services, are dying.  People are losing their jobs.  Programs are being closed.  People who need help are being turned away.  The private sector agencies delivering those services may not recover.  You can’t turn that around on a dime. It that the intent here?  But they have contracts.  Signed contracts.

 

By the November election we could be five months into yet another budget stalemate.  How can a Fiscal Year 2017 budget possibly be passed when FY 2016 is in such shambles?  Budgets are how priorities are expressed, initiatives are launched, problems are addressed, corners are turned.  Budgets are how politics and political movements are made real.  We’re nowhere in Illinois.  Stymied.  At a standstill.  Screwed, blued, and tattooed.

If you were a board member responsible for the fiscal well being of a private agency that helps vulnerable people in your community just how are you to view the balance sheet of your agency?  Is it possible that it is solvent on paper but broke in reality?  Will the state make good on signed contracts that are more than twelve months old?  If they say yes aren’t you obligated to wonder not only when but how they will manage to provide payment?  Will new contracts be offered for the year beginning July 1?  Will they fare any better?

I know I’ve written this before but let me repeat myself.  I didn’t vote for Governor Rauner but I wasn’t necessarily opposed to a Republican at the helm of the executive branch bringing new ideas to the Springfield equation.  I worked with Republican administrations that got things done.  Together with communities they created good policy for kids and families, reduced spending where tired ideas proved outmoded and funded initiatives that sparked progressive change.  Yes, Republican governors and their appointees, often working with a House or Senate or both controlled by Democrats.  Jim Thompson was one, Jim Edgar was another.  If I had the chance to speak to Bruce Rauner I would paraphrase a bit from a memorable politician on the national stage long ago by saying to him:

“I met Jim Edgar.  I worked with Jim Edgar.  Governor, you are no Jim Edgar.”

(That original line was Sen. Lloyd Bentsen’s in an impromptu exchange with Sen. Dan Quayle in a 1988 vice presidential candidate’s debate.  Substitute Jack Kennedy for Jim Edgar and you’ve got the connection.)

Neither Edgar nor Thompson nor any governor of either party no matter how crooked or conniving would have put risk Illinois‘ colleges and universities and their students, its public schools and school children, it social service agencies and the vulnerable people they serve, the progress made by agencies committed to building up Illinois’ poorest communities; at risk of failure to the extent our new governor has by stubbornly persisting in this game of political chicken.  Something needs to give and something will give in time.  But does no one else see how much damage is being done?  Important systems of care are being taken apart.  Does our Governor think they can simply be put back together like new when his ploy to get what he wants is over?  He should think again.

 

And as far as blame goes does anyone know Bruce Ranuer’s jacket size?  48 long maybe?  Because in a scene reminiscent of the Master’s golf tournament our governor should be prepared to put on the jacket of responsibility for this for this fiasco and wear it well.  He owns this.  Congratulations Bruce.  You won the blame for this outright by your rhetoric, and that jacket is richly deserved.  By doin’ and sayin’ the same thing over and over you have guaranteed no action has taken place.  That’s not how a Governor cares for the citizens of his state.

What we need are proposals that have a chance of being accepted, and players on the Springfield stage that will accept half a loaf when they wanted it all.  So far neither have emerged.  Most glaringly, we need action from the governor’s office.  As we wait, without recourse that we know of, Illinois drowns.  Drastic measures are called for.  Stay tuned.