State holds $3.5 billion in IOUs
By MICHAEL D. KLEMENS
As of December 31, 1989, Illinois state government was owed $3.5 billion — enough money to double for a year what Illinois spends on elementary and secondary education, or enough to let the state quit collecting sales taxes for a year.
If it sounds too easy, it's probably because it is. The $3.5 billion owed state government— "receivables" is the jargon — can be separated into three distinct components: (1) money that Illinois will never collect — about $1.8 billion, (2) money the state collects in the normal course of business — about $1.2 billion — and (3) money that Illinois will never see unless it aggressively pursues collection — about $500 million.
The third category is the most significant for the state treasury. Aggressive pursuit of those dollars may prevent them from falling into the uncollectible category. To receive the money, however, the state must first identify it and go after the debtors.
State government has taken the initial steps to monitor receivables. A program audit done by Auditor General Robert G. Cronson in 1985 at the direction of the Legislative Audit Commission found that Illinois lacked an effective system for collecting money owed the state. Cronson found that debt collection was left to individual agencies whose policies varied widely.
Rep. James F. Keane (D-28, Chicago), an audit commission member, says that lawmakers' interest was sparked by review of numerous audits that found agencies not pursuing debts. Keane says that agency directors routinely told the commission that they gave debt collection a high priority, but the same directors acknowledged that when budgets were tight, their collection staffs were hit first.
What followed was a series of laws sponsored by the audit commission that allow state agencies to use private collection firms and to use the money they collect to fund further collection efforts. The laws also make it easier to write off bad debts.
One of the Legislative Audit Commission's initiatives, the Illinois State Collection Act of 1986, requires state agencies to monitor and account for receivables. A subsequent amendment to this act requires the comptroller to produce an annual report detailing receivables. The first full-year report covered the year that ended December 31, 1989.
The auditor general revisited the receivables question in July and found the situation much improved. Cronson reported that Illinois compared favorably with 13 other large or midwestern states in its debt collection practices. And Cronson found standardized guidelines in place on recording, managing and collecting debt.
Cronson determined that Illinois is one of six states that has defined accounts receivable and one of another six that has a centralized system to record accounts receivable. Four states (Michigan, North Carolina, Ohio and Pennsylvania) have centralized collection agencies, an option that Illinois is still considering.
In his first annual report on receivables in March, Comptroller Roland W. Burris put total receivables at $3,547 billion as of December 31, 1989. Of that amount Burris listed $1,831 billion as uncollectible, leaving net receivables (the amount the state can reasonably expect to collect) at $1,716 billion.
Burris reported that $1,803 billion was 180 or more days past due. (Some of that is collectible and some is not.) Burris uses the phrase "seriously past due" for bills that are more than 180 days late. The older a debt becomes, the harder it is to collect, and Burris said that the amount of receivables more than 180 days past due was a matter of concern.
Besides identifying the old debt, the Burris report also examined receivables that will never be collected. Reasons that debts cannot be collected include bankruptcy, inability to locate the individual or expiration of the statute of limitations. Not all old debt is uncollectible; not all debt less than 180 days old is collectible. Still, the older a debt, the less likely it is to be collected. By requiring agencies to identify bills that they are unlikely to collect, the reporting system both cleans the ledgers of bad debt and shows where money is not being collected.
Believed not collectible are $235 million in income taxes, $601 million in sales taxes, $172 million in unemployment insurance taxes, $220 million in child support claims and $305 million in overpayments to welfare recipients and vendors.
The standardized accounting and the comptroller's receivables report were the initial steps in getting a handle on what the state is owed. They provide a starting point for monitoring state finances. Their value will lie in seeing whether collectibles grow or shrink.
Although the reporting is better, Rep. Keane says that Illinois must continue to press for collection of money owed the state. He says that agencies should continue to add auditors and collections personnel as long as those persons can bring in more than their salaries.
Tight financial times lie ahead for Illinois, and the cash shortage will surely elicit calls to collect the $3.5 billion already owed the state. No one should expect Illinois to collect the entire amount. The most that can reasonably be recovered is about $500 million — still a considerable sum.
December 1990/Illinois Issues/29