$12 Billion Sits Unused With Illinois Treasurer. Why? – WP Original
By: Mark Glennon*
What sense is there letting $11.5 to $14 billion of state money sit around indefinitely, unused, invested mostly short term and earning little? The Illinois Treasurer’s holdings are an important part of the state’s overall situation, so the question should have an obvious answer. It doesn’t. In fact, digging into the question exposes a subject so nontransparent that the general public, and probably most legislators, can’t be expected to assess it.
Here’s what we know: As of the end of last month, the Treasurer held $12.2 billion of state money, called the State Portfolio. It’s invested in bank accounts and securities earning on average a little over one-half of one percent per year. That’s aside from other monies held or administered by the Treasurer, including the college savings program and funds owned by municipalities invested on their behalf by the Treasurer. (Including those, the Treasurer’s office manages about $25 billion.)
State Portfolio holdings that large are not temporary or seasonal. Data on the Treasurer’s site go back to January 2014. The balance then was about $12.3 billion, and it has ranged from $11.5 to $14 billion since then.
Carrying such a large balance is especially odd at a time when over $7.6 billion of bills are unpaid, many of which bear penalty interest of nine to twelve percent per year. It’s like letting your credit card go unpaid and running up interest at high rates even while you have cash sitting in the bank that could have been used to pay the bill. The Department of Central Management Services recently said it estimates the interest accrued on the state’s unpaid healthcare bills alone is now $176 million, according to the State Journal-Register. The state has paid out over a billion dollars in interest and late payments over the last ten years, the Civic Federation wrote recently.
Why? There are two explanations, though neither is complete and neither is a justification.
First, money held by the Treasurer is mostly restricted by statute to particular uses — restricted “funds.” Absurdly, over past decades, the legislature created over 750 of these funds, each for specific expenditures. The Treasurer has no discretion to change them. Neither the current Treasurer, Michael Frerichs, nor past Treasurers bears any blame for this. The Treasurer has mostly just an administrative role — to invest the money he receives and release it subject to rules set by statute. Frerich’s office responded quickly to my initial questions on this. Deputy Treasurer Jay Rowell sent me current balances in the 25 biggest of those 750 funds, which are linked here. (Details on all funds are in a COGFA report linked here, though it has not been updated since 2013.)
But the restrictions imposed for those 750 funds are really just the legal and historical background on why the cash sits unused. The question remains whether there’s any logic to it. We’ll come back to that.
Money sitting in those funds cannot be disbursed except through an appropriation or a budget, which is the second partial explanation for why the $12.2 billion is unused. Illinois has no budget. Rowell emphasized lack of a budget as the problem and gave this example:
Consider the LUST Fund – the Leaking Underground Storage Tank Fund. Each time you purchase gasoline, a small portion of the purchase is set aside in a special fund to pay for the removal and clean-up of leaking underground storage tanks. Money goes into the LUST fund. However, as a result of this budget impasse, money currently does not go out of the LUST fund.
On the other side of the aisle, I spoke to Rep. Jeanne Ives (R-Wheaton). She, too, emphasized the need for a budget as a partial answer, and said,
The fact that billions of dollars are sitting in the care of the Illinois Treasurer, some accumulated in special funds waiting to be released and other amounts potentially open to fill budget gaps, illustrates the immediate need for a budget. It also shows why it is important to have a new set of eyes on our budget instead of one party rule for over a decade. It’s time for a comprehensive review of spending priorities and accumulated funds.
Rowell and Ives are certainly right that a budget would free up some of the cash, but here’s the thing: The Treasurer’s holdings have long been about as large as they are now, $11.5 to $14 billion, with or without a budget. June 2015 was the last month in which a budget was in place and the balance then was $11.5 billion, not much lower than today’s. So, lack of a budget doesn’t explain the persistent, huge balance.
Then there’s the State Portfolio money that’s not in those restricted funds, which Ives alluded to. An Associated Press analysis put the total in those funds at $6 billion this past December, which is the most recent total I can find. That leaves another $6.1 billion that’s evidently unrestricted and could be budgeted or appropriated. (Whether it would be wise to do that is another question.)
Those special purpose funds are subject to being raided or “swept,” and some have been in the past, which helped “balance” last year’s budget. That is, the restrictions imposed by the statute for each fund can be undone by the legislature with the Governor’s signature. Much has been written about whether further sweeps are appropriate now, and it’s not my point to debate that or imply these monies should be raided. (Personally, in fact, I think the state should guard every dime it has for critical expenses because the fiscal crisis will get far worse. Raiding the State Portfolio is a one-time fix only; we need sustainable, dramatic reforms.)
Instead, these are the take-away points and open questions:
• First, much better, more comprehensible information should be available. The Treasurer could easily put up real-time balances in all funds along with their dedicated purposes. Especially important is the total of all those restricted funds and the difference that’s unrestricted. Why isn’t that readily available? And how much of the Treasurer’s money might get disbursed simply by passing a budget? Beats me. Comptroller Munger is setting the pace for transparency in her office, making huge amounts of information easily accessible on the Comptroller’s site called The Ledger. The Treasurer should follow her lead.
• Second, the State Portfolio is invested short term with low returns, presumably because balances in all those individual accounts fluctuate, even though the total always exceeds $11.5 billion. What’s the sense in that? It seems fair to ask whether, insofar as we don’t expect to raid that money, at least some of it should be in, say, ten-year treasuries, which would yield one percent more than the Treasurer currently earns, and easily could amount to many tens of millions of dollars. Or what about using some of the money to pay off those bills bearing a 12% penalty rate?
• Third, there’s the obvious question of what sense it makes to have 750 special funds if they artificially tie up cash this way. Particular groups succeeded in earmarking money for their chosen causes, but do they serve any real purpose now? You may recall that Munger was quick to identify the administrative burden of having so many funds after she took office. As an example, she cited the state’s wildlife and fish and a separate salmon fund, both through the Department of Natural Resources. “As far as I know, we don’t have some big salmon industry in Illinois,” Munger said. “Why is that not some part of Fish and Wildlife?”
Overall, it really comes down to that final point Rep. Ives made: “It’s time for a comprehensive review of spending priorities and accumulated funds.” It sure is. Twelve billion dollars is too much to be left permanently idle, especially during a fiscal crisis.
Update: AM560 radio interview on this article linked here.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.