In Illinois, Late Payments Fray the Safety Net

 

CHICAGO — On weekday afternoons when schools let out in Humboldt Park, a predominantly Puerto Rican neighborhood on Chicago's West Side, dozens of children, ages 6 to 16, head to a community center known as the Youth Service Project . When they arrive at the center's activity rooms, the children must do their homework first. Then they're allowed to play, read books about sharks, throw balls at each other or just hang out with friends.

It's a safe place in a neighborhood troubled by gang violence. Two years ago, two participants at the Youth Service Project were killed, and two more were injured, in the fighting. The youth at the center, which runs an arts education program, responded to the deaths by painting an indoor mural of their memories of that summer's events. It shows a SWAT team van, a church cross against a blue sky and a funeral home — although the center's staff, fearing that the funeral home would be a distressing image for the kids to see every day, have moved a bookshelf in front of it.

The center plays an important role in the life of Humboldt Park. Indeed, the state of Illinois, which provides 95 percent of the Youth Service Project's funding, expects the center to provide all of the services under its contract. The catch is that, with all the state's fiscal troubles lately, no one knows when the state will actually hand over that money.

In the past, the center has had to wait a month or two to get paid. This year, the center went six months without receiving a single check from the state. To get by, the center exhausted its line of credit, cut back on services and laid off seven of its 32 staff members. Only half as many children were able to take advantage of the Youth Service Project's programs as did two years ago.

This summer, gang violence picked up once again. Three police officers were killed, including one who guarded the mayor's house. While overall homicide rates are down in Chicago, the brazenness of the attacks prompted two state legislators to propose calling in the National Guard. The adults who work at the Youth Service Project have noticed more aggressive behaviors among the teens they serve, making them more difficult to work with.

"To turn kids away, it's a very heartbreaking matter," says Kenny Martin-Ocasio, the center's executive director. "We don't want to do that, but I don't know how much more we can be pushed to do."

Business as usual

What the Youth Service Project experienced with its funding wasn't an isolated bureaucratic snafu. Rather, it's just the way Illinois government operates these days. In the midst of the worst fiscal crisis since the Great Depression, lawmakers have not been able to agree on a balanced budget that actually brings in enough revenue to pay for all the programs they want.

The result is that Illinois doesn't have enough cash on hand to pay its bills. In fact, the state is falling further and further behind. The state is now $6.4 billion past due on its obligations. For some perspective, $6.4 billion is nearly a quarter of all the general revenue received by the state last year.

The impact of that backlog is being felt all across Illinois. Service providers, vendors, universities and others who do business with the state are struggling to stay open, let alone plan for the future, in an environment where they never know when their next check will arrive from Springfield. Many have resorted to layoffs or letting their own bills go unpaid, trickling the economic impact down to businesses that have no direct connection to the state.

During the recession and its aftermath, of course, almost every state has had to make deep budget cuts, and those cuts have taken a toll on services. What Illinois is experiencing is different. The turmoil at the Youth Service Project is not a result of policy choices made by political leaders to cut back on youth violence prevention. Rather, it's a result of choices they haven't made. By failing to balance revenues with expenditures, lawmakers have turned their budget problem into a cash-flow problem, pushing decisions of how to spread the state's fiscal pain to the governor's budget office, which prioritizes payments, and to state Comptroller Dan Hynes, who writes the checks.

The state's huge pile of unpaid bills doesn't show up as borrowing on its balance sheet, but that's essentially what it is. Illinois pays only minimal interest for late payments, and that money comes well after it cuts checks to its vendors, service providers, universities and school districts. So the state is essentially taking out low-interest loans from groups like the Youth Service Project. Martin-Ocasio says the arrangement with the state basically makes contractors "involuntary lenders."

A PHARMACIST'S LAMENT

For most of his career as a pharmacist, the state of Illinois owed Tom Miller money. The majority of customers at Miller's pharmacy in Marion, a small town in rural southern Illinois, were on Medicaid. As Miller recalls, the state rarely sent him his reimbursement checks on time.

Nothing in the past two decades, however, came close to the hassles Miller experienced getting paid during the Great Recession. At one point, Miller says, the state didn't pay him back for nine months. Finally, on July 19, Miller shut his doors. The business is now going through bankruptcy proceedings. Because he took out loans secured by his personal property to keep his pharmacy running, Miller worries that he will be headed for individual bankruptcy, too.

When Miller's pharmacy closed, five employees lost their jobs. His patients lost services-like home delivery-that bigger, chain pharmacies don't offer. Many of those patients are elderly and have known Miller for years; they don't want to go to another drug store, he says.

While other pressures were affecting Miller's business in recent years, he says it was the delinquency of the state of Illinois that put him out of business. He couldn't order medicines from suppliers. Borrowing money from banks based on the anticipated payments was next to impossible, he says.

Today, says Michael Patton, executive director of the Illinois Pharmacists Association, the average time it takes the state to pay a pharmacist is 153 days. Drug stores with a high percentage of Medicaid recipients, like Miller's, are supposed to get paid faster. The goal is to pay them in 45 days. But the average time for those expedited payments, Patton says, is 90 days. 

While the stimulus package requires states to pay other health care providers quickly, it has no such protections for pharmacies.As a result of the delays, many pharmacies are not accepting any more Medicaid patients, even as Medicaid enrollments climb because of the recession, Patton says. Some pharmacies are even turning away existing clients who are on Medicaid.
For this series, Stateline focused most of its reporting on Illinois because it leans on the practice of delaying payments more than any other state. But recently, California and New York also have experienced cash flow difficulties that resulted in delayed payments to citizens, vendors and local governments. While the circumstances differ in each state, they all share a combination of huge budget problems and political paralysis — a phenomenon that, given the enormous fiscal strains on states, could easily spread to other capitals, too.
 

As for Illinois, the situation almost certainly will get worse before it gets better. "Revenues tend to be slower to come in during the fall than they are during the spring," Carol Knowles, a spokeswoman for the comptroller's office, wrote in an e-mail to Stateline . Making matters more difficult, according to Knowles, is that the state has not yet determined how to make its annual pension payment. "It is going to be a very, very, very (I can't type enough verys here) tough year in fiscal year 2011."

Hardships for human services

For Illinois, trouble with paying bills promptly is nothing new. Even before the recession, the state frequently delayed payments to doctors, hospitals and nursing homes who treated Medicaid patients. Now, the federal economic stimulus law requires states to pay those Medicaid providers quickly. But that means other people doing business with Illinois must wait even longer for their money.

Lately, much of that burden has shifted to contractors in the human services field. While states are largely responsible for maintaining the social-safety net, they contract out most of that responsibility. In Illinois, wide swaths of the safety net — from domestic violence hotlines to job training programs — rely on nonprofits whose receipts primarily come from the state. When the state takes half a year to pay its bills, those nonprofits can't make their payroll. The programs they provide suffer, as do the people who depend on them.

For example, Family Rescue is a nonprofit on Chicago's South Side that helps women and children who experience domestic violence. The organization has set up offices at a police station and at a downtown family law courthouse in order to help victims of domestic violence get restraining orders and handle other legal issues. The state stopped paying for the services in April, forcing Family Rescue to lay off two of its six employees working on that program this summer. Each of them normally handles 400 to 500 cases a year.

The cuts have put additional stress on the remaining staff. Even as Family Rescue is losing capacity to handle its normal caseload, court officials have been asking the agency for more and more help. In a field where emotionally fragile clients benefit from a personal touch, one caseworker at the police station recently had to consult with a client at the courthouse over the phone and through a translator. Joyce Coffee, Family Rescue's executive director, says the state's backlog of bills is fraying the safety net in unseen ways. "What they don't understand," she says of the state's political leaders, "is that if you lose one staff member, you lose the ability to serve hundreds of clients."

In the suburb of Elgin, the Community Crisis Center reduced its staff from 72 people to 62. The group relies on volunteer work from former staffers to help victims of domestic violence and sexual assault, along with homeless people. Stress is high for the remaining staff, because of lengthy furloughs and increased workloads, says executive director Gretchen Vapnar. "Some of my staff are making $26,000 a year, and they have to give up a month of salary," she says.

Long delays in state payments create a snowball effect that makes the job of Family Rescue, the Community Crisis Center and other related organizations even harder. The nature of the safety net is that many programs are tied together and only work if all the pieces are in place. When Family Rescue tries to move a woman and her children out of a shelter to a more stable setting, the agency relies on other nonprofits to provide medical services or job training to help the family along. But the other agencies are strapped for cash too, laying off staff and reducing services while they wait for their own payments from Springfield to come through.

The Urban Institute asked human service nonprofits around the country about problems they encountered with government contracts in 2009. Some 60 percent of nonprofits in Illinois reported that late payments were a

Half a billion behind

The pain for service providers is widespread. At one point this summer, according to state data acquired by the Heartland Alliance for Human Needs & Human Rights, Illinois owed 2,172 nonprofit organizations more than $490 million. The debts ranged from 6 cents to $10.9 million; 136 organizations were waiting for at least $1 million. While that list includes numerous hospitals, universities and other types of nonprofits, Judith Gethner, executive director for the Illinois Partners for Human Service , says safety-net groups are especially vulnerable.

The lucky ones have been able to get loans from banks, Gethner says. But lenders are wary. Given the state's spotty record of paying its bills, lenders often view loans to organizations that depend on state money as high-risk loans. Giving from foundations and individuals has dried up with the slumping economy. And nonprofits, unlike local governments and universities, cannot raise taxes or tuition or tap other new revenues while they wait for the state to send money. This summer, the Youth Service Project blew through the only line of credit it had available. Family Rescue still has $400,000 of credit available, but as Coffee says, "it wouldn't cover payroll very long."

Late this summer at the Youth Service Project, checks from the state suddenly began arriving again. That allowed Martin-Ocasio to staff back up, completing a cycle that has become strangely common for human service providers in Illinois. While struggling nonprofits in Illinois will often hire back the staff they have laid off, it increases their costs: Unemployment insurance premiums go up for employers with a history of layoffs. But the cycle also makes it difficult to retain experienced employees who tire of losing their jobs whenever the state stops paying its bills.

Martin-Ocasio reports that Illinois has paid the Youth Service Project almost all that it is owed and that programs are running smoothly again for now. Still, he is wary: His funding stream could disappear again at any time without warning. " The uncertainty of the fiscal health of the state," he says, "leaves us vulnerable to having to repeat the same practices of laying off staff, reducing programs and turning away youth."

 
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