Yvette Shields (00:03):
Welcome to another Bond Buyer podcast. I’m Yvette Shields and I lead coverage of the Midwest from Chicago. Joining me for a chat about Illinois’s finances is the state Comptroller, Susana Mendoza. Welcome Susana. 

Susana Mendoza (00:17):
Thank you, Yvette. Wonderful to be with you. 

Yvette Shields (00:20):
I appreciated that. And so a little lead in here before we jump right into it. The state’s borrowing is managed by the Governor’s budget office, but the Comptroller holds sway over a few really other critical areas related to the state’s purse strings, and that includes paying the bills like bond and pension payments to serving as a repository for state and local government financial reports. Susanna has held the office since 2016. Am I right there? 

Susana Mendoza (00:49):
That’s right. December of 2016.

Yvette Shields (00:52):
Which means that she had to manage through the state’s infamous budget and passed when nearly 17 billion in bills had piled up and the state’s bond rating had sunk to junk. She has been a champion for socking away money in what, just a couple years ago, was a pretty meager rainy day fund and proactively posted the financial results – because the state tends to be delinquent, which is not under the control of her office – and other financial data. She posts on the website just kind of keeping investors and muni market folks and the public up to date on where we are on paying bills and the pension tab and rating agencies have really taken notice of that in their recent reports and of late she’s been urging lawmakers to as they hash out a budget to tread cautiously on spending given the potential recessionary clouds ahead. As she joins me today, the ink is drying on another straight rating upgrade. This latest one came from Moody’s, which now gives the state along with s and p, two ratings in the single eight category, still an outlier and the lowest among states, but so much better than a couple years ago. So Susanna, where are we right now in terms of outstanding bills, short-term debts, the size of the rainy day fund, and then we’ll get to the legislation. 

Susana Mendoza (02:22):
Sure. Well, thank you. If you could only imagine the big smile I have on my face right now, which I know you can’t see because this is an taped podcast, but I am so happy and proud of how far our state has come since those dark, dark days when I first got elected and had to navigate us through a budget impasse, a backlog of unpaid bills that got as bad as almost 17 billion, 16.7 to be exact and unpaid bills for services already rendered to our state at that time. For context to your listening audience, we had the average payment delay for vendors getting paid that did business with our state was 210 business days. That is nine and a half months in real people time. And today, Yvette, my oldest bill is only 17 days old and honestly, we’ve had our bill payment cycle down to well under 20 days, not even 30 days, but within a 15 to 20 day payment cycle. 

For the last two years that bill backlog that I inherited of 16.7 billion and at the time had less than $6,000 in our state’s rainy day fund, which is essentially non-existent rainy day fund. That 17 billion backlog is now gone. I paid it down two years ago before receiving a penny of federal ARPA stimulus funds and had helped lead our state to our first two credit upgrades out of the now eight that we have just recently earned. As of yesterday, when prior to these upgrades, it had been 20 years since the state of Illinois had seen an upgrade, and in the two years prior to my election as controller, our state had actually gone through eight consecutive credit downgrades during the best economic bull market of our lifetime. So that’s kind of to paint the picture for your audience that during the best economic times, Illinois self-inflicted horrible wounds to our finances. 

Then I was elected and I promised a credit upgrade. We’ve now delivered eight and hopefully as they say, eight is great, but nine will be divine and I’m looking forward to number 10 as well. So we’re going to keep moving forward, and the $60,000 are less than that that we had in our Ready Day fund that was not enough to cover 30 seconds worth of government operations and we’ve come a long way. As you know, I’m very passionate about restoring our state’s Ready Day fund to building it up and getting us better prepared to weather any economic downturn through no fault of our own in the future. And today we are sitting on 1.06 billion up from the less than 60,000 that we had, and we also have made additional payments to our state’s pension obligations, which had never happened in the 30 plus years of these pensions being in place. So this is a really, really fundamental financial turnaround for the state of Illinois that has been recognized by the credit rating agencies and we’re hoping that they continue to see the forward momentum that we have, most importantly based on strong fiscal discipline and keep rewarding us with additional upgrades. 

Yvette Shields (05:37):
Great, thanks. So let’s move on to the legislation that you’re spearheading, which would trigger automatic deposits into the rainy day and also pension stabilization funds. Can you talk about why you believe that legislation is needed and how much would you like to see the Rainy Day fund eventually hold? 

Susana Mendoza (05:59):
So I think this is critically important legislation for a number of reasons. Number one, I truly believe that we need to codify strong fiscal discipline into our everyday behavior as a state. This administration has particularly been committed to saving money for a rainy day and paying down the unfunded pension obligations when we can. Governor Pritzker has really led on this effort to save money when we can afford to the Speaker of the House, Chris Welch thinks the same way I do that saving for a rainy day and pay down pensions is important, as does the Senate President Don Harmon. All of us collectively have really been on the same page when it comes to securing our financial future and getting these credit upgrades which are instrumental to saving taxpayer money long term. Now, having said that, I have legislation that would codify this type of fiscal discipline for the long term because we may have a governor someday who doesn’t believe that saving for a rainy day is important or we may have legislative leaders who would rather spend the money the second it comes in versus save the money for the purpose of an emergency. 

And so I don’t really want to ever have our state in a position of vulnerability moving forward. And so right now, while this administration has shown through their actions that we believe in saving money for a rainy day, that we believe in improving our fiscal condition that we improve, we believe in paying down pension obligations when we’re able to do that we should also codify long-term fiscal discipline instability into our behavior. So this bill would require that anytime that two specific markers are met, and those are very important markers of affordability, the first being that our accounts payable is under 3 billion today, our accounts payable is at 2 billion pretty much on the nose, and that means that we’re able to pay our bills very quickly faster than the private sector. In fact, as they sent our oldest bill today is only 17 days old, if our accounts payable is under 3 billion, that’s one of the markers that has to be met. 

The second marker is that we would see a growth of revenue of over 4%. Clearly if we have growth of revenue of over 4%, that means that we have more money than we expected than we budgeted for, and so therefore we can afford to save. Both of those markers mean that we’re paying bills on time, we have extra money coming in before we spend any of that money, we should automatically set aside 1% of the overall budget and save that into both the state’s day fund and the pension stabilization fund. And the way it would work is when we hit these two triggers or these two markers, it would trigger an automatic deposit, 1% of the budget split in a 50 50 split between the rainy day and pension stabilization. And once we hit a targeted savings goal of 7.5% in our rainy day fund, which would equate to about 3.75 billion on a 50 billion budget, once we saved 3.75 billion, then at that point we would stop putting 50% of the 1% into the rainy day fund and we would do a hundred percent of that 1%. 

So let’s say in a 50 billion budget, you’re talking a 500 million deposit split evenly between rainy day and pensions. Once we meet our target of savings, we would put a hundred percent of that into the state’s pension stabilization fund that will help us save billions on the backend of pension, unfunded pension obligations. And it’s really the best return on investment of the taxpayer dollar at that point. And it also gives us enough in our rainy day fund where we could weather any financial downturn through no fault of our own and do it well. So that is what I would like to help put our state on a better fiscal footing long term and make sure that we’re a part of getting that done today. We’re essentially saving today so that we can invest in our future. 

Yvette Shields (10:04):
Great. So I know it passed out a committee because I wrote a story on that and it had bipartisan support, which is not an easy task in Illinois these days, although we do Democrats, you are Democrat and Democrats hold super majority, but it is significant in that you did have Republican votes on this. So what is the status? Do you expect it to come up for a house vote soon, and do you think it’s the pathway is pretty clear for it to pass and be signed by the governor? 

Susana Mendoza (10:39):
That’s a great question. I certainly hope that the answer to that is yes, right? That number one, I’m very happy that it was able to pass through the committee unanimously, by the way, with broad bipartisan support. And I also hope that in the next couple weeks we’ll have a chance to have it come up for a vote in the house. If you take a look at the legislation, it is every day picking up additional sponsors, both Democrats and Republicans, and I really don’t see any legitimate reason why it should not move forward. But as you know, sometimes these things do not happen when they make sense. And so I’ve been moving this bill now for a couple years. I actually introduced this concept before the pandemic hit. Then of course once the pandemic hit, we had to slower our movement on this because we didn’t know how bad our finances would be impacted and we wouldn’t be in the position to save right away. 

But now that we see how well we’ve done and how well we’ve weathered this storm and how quickly we’re moving forward, this is the time to do this. And so I’m going to keep working this bill hard, keep having the conversations with the leaders, keep trying to make my colleagues and my former colleagues, I should say, because I used to be member of the house years ago, have them understand that although it is hard to tell your constituents know when it comes to new spending, this is the fiscally responsible approach for all of us, and it’s the best way to protect the budgets that they crafted so carefully that they care about. But the best way to protect those budgets is to make sure that God forbid there’s an emergency, we are able to weather that storm because of the reserves that we’re building up when we can afford to save. 

So I will say that one of the challenges to this type of legislation is while people publicly support it, it’s actually getting it to pass in the actual chamber where it matters. And one of those issues is that there are no ribbon cuttings when it comes to saving money. It is not a sexy thing as a legislator. It’s not fun to tell your constituents no to new program spending, especially when you have increased revenues coming in. So being really disciplined and understanding that it’s the right thing to do, but no one may actually know about it and there’s no ribbon cutting or photo that you can take credit for is one of the challenges in getting a piece of legislation like this at the door. But you know me, I’m a, I’m relentless and I’m not going to give up and hopefully they passages so that I shut up 

Yvette Shields (13:12):
And yeah, that’s the thing. It’s hard to sell lawmakers on just the idea that rating agencies and investors are watching and care about this, but 

Susana Mendoza (13:24):
They do. And I do feel that if this bill gets codified into law, it sends the strongest message to the credit rating agencies that we are serious about long-term fiscal discipline. We are serious about not just talking about it, but putting it into our way of being as a state that the first thing we do in good times is prepare for bad times and pay down existing debts. That is a responsible approach. I feel very confidently that the credit rating agencies are looking very closely to every action that we take and in every single statement that they’ve put forth, giving us guidance as to what it’s going to take to continue to get additional credit upgrades, I take it very seriously and we want to put these things in place that would allow us to get the support that we need for these additional credit upgrades because they save taxpayers money and I care about protecting each one of those valuable dollars that people work really hard to send our way. So this is part of that, and I think it’s going to be instrumental to let the credit rating agencies know that we’re serious, and this is not just 1, 2, 3 year window dressing. We’re committed to long-term financial discipline in the state. 

Yvette Shields (14:39):
And I get, I get the idea, Susanna, that when the state gets an upgrade, I think the first place you go to is what it takes to down the report where it says what it takes to further get upgrades and governance and making these strides with the revenue surplus is really has, that’s what the rating agencies pointed to and the supplemental pension payments especially. 

Susana Mendoza (15:11):
Hey, you know what? I know I just interrupted you there, but there’s like one other point, a good example that’s easy to forget, but how diligently I look at what their recommendations are. One of them had been how quickly we can pay down our debts. And you might remember that during the pandemic, we were the only state in the nation because we had no reserves, right? We had less than $60,000 and we needed billions of dollars to get through that. The hole that was blown in our budget because of COVID 19, the original pandemic when it first hit. And so we were the only state that had to borrow from the municipal liquidity fund, but I made it very clear that I would not even sign off on borrowing unless if we had a public commitment that we would spend whatever additional dollars came in on paying down those debts first and foremost that were incurred. 

And so we had a three year window in which we legally were allowed to repay those debts over time to the federal municipal liquidity fund I should say. But instead of waiting to pay it over a three year period, I paid every penny of that down in the very first year. That’s why this concept, when your point about looking at what their recommendations are, like what’s it going to take for us to continue to improve our credit, one of those is the issue of the reporting right on the annual comprehensive financial report and how even though people assume that because a controller issues that report that it’s our responsibility, my office does issue the report, but what people might not understand is that we are subject to that rep, the information, the audited information of all the financials being completed. And if the auditors don’t complete that information on time that my office does not have the ability to put out the report on time, and that’s a totally separate entity that does not work at my direction. 

So it has been a source of frustration for me that year after year after year, well before I was ever controller, these reports have not been, these audits have not been finalized in a timely fashion and therefore the controller’s office is unable to put out timely reports. That is why over the last few years, last year specifically, I put out an interim financial report. I think it’s been two years in a row now, because I don’t want to wait for these. I don’t want to keep telling people, well, we can’t do anything because we don’t have the information yet. So at the very least, our office is now putting out interim financial reports, which the credit rating agencies are taking a look, and hopefully next year we may even move forward with legislation that creates a change in how these audited reports are submitted or puts additional pressures on the auditors. If they need more staff, then ask for more staff. Whatever it takes to get these reports put out on time, we will be supportive of, because I do think that having an annual comprehensive financial report done in its entirety and not just in an interim capacity is the correct thing to do, and I do believe it’ll lead to potentially another credit upgrade. So there’s no reason not to do this. 

Yvette Shields (18:23):
Right. Well, you’ll have to keep me posted on that legislation if you move forward with that. And I know that posting even just the interim results has one praise for both the rating agencies and other market participants like the buy side and codifying your law I’m sure would go over well. Okay, we will be back right after this important message. And we’re back talking about Illinois finances with the state comptroller, Susanna Mendoza for the muni market. Susanna, there’s two issues that really even on this upswing, fiscal upswing that weigh on their thinking. And one of course it is the 139 billion pension burden. And then the other is whether the state will show discipline in an economic downturn or return to the past actions that really dug us into a hole one time maneuvers that then led to a piling up of the bills. Again, let’s tackle the first one first. Is it enough to set aside money in the pension stabilization funds during good times or do you have thoughts on whether some other action is needed or do you think we’re okay on this pay payment schedule that we’re on and just occasionally making supplemental payments? 

Susana Mendoza (19:57):
So I think that anytime we can make additional payments on the pension bench obligations, that is something we absolutely need to do. It’s not even something we should do, it’s something we need to do. I think it’s been a major failing that not until this administration had we ever made an additional payment above and beyond the minimum payments required by law, and in fact there had been several periods of time in which pension payments had been missed entirely or delayed. And so those are the reasons that we’ve gotten completely underwater for so long and people are so worried about this or seen as an albatross. Now, having said that, Yvette, I will tell you that as the woman responsible for having to manage the state through a budget impasse, because I took office two years before Governor Pritzker was even elected as governor, and while he has been a great partner on the finances, it was my job to take on the prior governor and shine a light on all of the financial dysfunction that was happening in our state. 

I passed historic transparency reforms legislatively. I championed the bond deal that helped cut 9 billion off of the bill backlog, even pre-Governor Pritzker, and really set in place, set in motion the financial discipline and strategy behind how to pay down that 17 billion backlog of unpaid bills. So whether it’s leveraging every federal matching dollar or bill I could find to stretch the value of a dollar or borrowing inter fund fund strategies of borrowing, utilizing legislative initiative that treasurer FES and I teamed up on that allowed me to borrow from the state treasury instead of from the market at a much lower interest rate and then pay ourselves that interest back. These were really creative approaches that we took to trying to get through the pandemic and trying to limit the use of interest payments on taxpayer dollars. So all of these things were really, really critical. 

And I can tell you that when I was on the phone with grown men on the verge of committing suicide, trying to talk them off of the ledge, literally, I mean this is no exaggeration. Those were the darkest days of my tenure as comptroller trying to give people hope to not quit, to literally not kill themselves. It was a matter of life and death when you’re talking to a vendor who’s done business with this state who hasn’t been paid in a year who’s double, triple mortgage their home and feels that their life is over. So this is what it was like to be me those first two years of the last two years of the router administration. And so we had a monumentally difficult job, and I can tell you that even though everyone sees the 139 billion unfunded pension liability as this gigantic monster that we’ll never be able to get our hands around, truly it was much harder to manage the 17 billion of unpaid bills to our vendors because that had to be paid right now, right then and that minute, and we didn’t have the money. 


It’s important to keep in context that this unfunded pension liability, while it’s a huge number, 139 billion, it’s not due tomorrow. And so I tried to explain this to people that the 17 billion was not due tomorrow. It was due a year ago in some cases almost two years ago, and people were really, really cury the 139 billion. It is the huge obligation, but unlike, I guess if I try to break this down in the simple terms for people who don’t follow finances every day, and that’s if you have a mortgage payment and your house is half a million dollars, but you’re paying it over a 30 year period, if your bank called you tomorrow and said you owe them the entirety of your mortgage, then you should freak out, but you don’t because you have to pay it over a 30 year period. And while those payments might be big, they’re doable right now, the state of Illinois as a gigantic 139 billion unfunded pension liability, and we have done nothing to bring that down. 

We have made mistakes that have actually increased the liability. So at the very least, paying more into the principle, right, making those additional pension obligations, whether it’s through my bill and hopefully even more than what the bill were to require when we can afford it, that’s going to dramatically reduce, it’s going to cut billions off the backend. And so that’s a good start. It’s important to remember that not all state employees are going to retire tomorrow. Just the way you don’t have to pay for the entirety of your mortgage payment tomorrow. We’re going to do it over time. And so figuring out a path forward to how to get our hands around this beast and start to whittle away at it is an important discussion that needs to be had. So I don’t think it’s only putting more money towards pension obligations, but what that magic secret sauce is going to be to help us make more, whether what ultimate’s going to look like, I think has to be discussed, but rather than just discuss, at the very least, we need to be putting more money into those principle payments. 

Like if you wanted to pay your house to faster, you make an extra payment on your mortgage. So that’s kind of what we’re doing with this concept of making these additional payments. But I think these are conversations that years ago we could not have because we were literally hemorrhaging money out of our eyeballs. We were so underwater with a 17 billion backlog of unpaid bills that were due a year or two before, and we couldn’t have this larger discussion about how to wrap our heads around this problem over the unfunded pension liability. But now we can, and now we are. And now we’re making additional payments. And I think that credit rate rating agencies are paying close attention and recognizing that our efforts are sincere and they’re serious. So I do think that this is the first time as well that we are really not underwater on pension payments. 

We’re finally starting to see that cliff kind of start to move in the right direction, whereas we were going up with increased pension payments and now we’re starting to go down where we will be having more revenue come in and leveling off those liabilities. So that’s another thing. And as people age out of the system who are part of the tier one original legacy pensioners who have the best plan, that will also help to level off costs and more people are part of the tier two, which was the pension reform that happened in the state where their benefits are not in fact that great. So there’s multiple things happening here, and I think additional conversations that have to happen, but I think the problem is that everybody has been talking about how big the problem is, but nobody was putting money behind fixing the problem. And I think we’re finally starting to do that. So that’s a good thing. 

Yvette Shields (27:02):
I know you told, you shared so many harrowing stories when the state was really at the height of the bill backlog, which you just alluded to, where literally folks, it was life and death situations. So I know you do not ever want to see bills pile up, but you are an elected official, but you are independent of the legislature and of the governor’s office. And so what would you say to the muni market to investors in terms of fiscal discipline going forward, that if we do see our revenue sink in a recession, where are we going? What would you say to the market folks that we can have the ability to stay on track and not fall back into some of our bad habits? 

Susana Mendoza (28:02):
I would say that I have a lot of confidence that Illinois is moving in the right direction, and I would certainly try to reassure folks that Illinois is and continues and will always be a good investment. We have never, ever defaulted on our debt service payments, nor will we, certainly not on my watch. And we have a level of transparency in our state that there are other states that would only dream of having certainly look at what we’ve been able to do with transparency related to covid spending. We can account for how every single penny of all of our federal revenue came in and was utilized down to the individual glove or the individual P p E mask. So this has all happened since I’ve became controller. I’ve really tried to emphasize the need to create significant transparency, historic transparency reforms, and I’m continuously talking about the need to be fiscally disciplined. 

And I think the results of that are that you see one point by the end of June 30th, we’ll have close to 2 billion in our state training day fund. We’ll have additional deposits made into pension stabilization. It’s really like this mentality shift, right? It’s like you really have to change the culture of how Illinois has thought about money and get into the habit of when you see additional revenues, your first gut instinct has to be save and pay down pensions. And I feel like before that seemed like a pipe dream, but I don’t know if I’ve just been beating people over the head with this issue or what, and I don’t stop talking about it, but we’re actually doing what we’re saying needs to be done. And I think that nobody could deny that that’s not happening here, Illinois, that fundamentally our finances are much, much better off.

The fact of the matter is that as controller, I had already paid 9 billion off of that bill back log through smart strategic management before our new governor took office. And since he’s been governor, he’s been a partner in helping to right the fiscal ship. And so the legislature has done their part as well with, as I said, with Speaker Welch and President Harmon. And so this is an administration, all of us together who have worked really, really hard to change the culture of Springfield and to lead on the issue of fiscal discipline and fiscal stability. And I don’t think that’s going away anytime soon, but again, I’d like to see further commitments in the forms of codified legislation that would continue to save long term, whether we are here or not, this needs to be the future for Illinois, that we save first pay down debts. And then if you have really incredible revenues left over, what’s the best utilization of each of those taxpayer dollars in areas where they could provide the best return on investment? But I would love to see Illinois go from being the worst of states to being recognized as the most improved player and then moving forward we could be seen an actual leader when it comes to managing finances from worst to most improved and eventually the best. 

Yvette Shields (31:12):
Well, that’s something to strive for. I think on that, we could wrap up unless there was anything else you wanted to add. 

Susana Mendoza (31:21):
I’ll add one more thing because on that note that I know all the work that I’ve done since I’ve taken office with my team and then with this new administration. But it’s interesting that more than half, I think one of the challenges that I’ll have if I’m being brutally honest here, more than half of the legislators that are here today did not serve before 2018. So a lot of them do not have any idea or concept of what it was like to be here during the budget of what it was like to have to navigate through an almost 17 billion backlog of unpaid bills of these calls from people on the verge of ending their lives of losing everything. And so they’ve only known what it’s like to serve during an upswing, even though the pandemic hit us, we still managed through that beautifully. And so when all you’ve known is revenues coming in and you don’t know what it’s like to have to really cut back and have to tell people no and have to make the tough decisions of saving, when people are saying, I need the money now, it’s harder to do that. 

And it’s my job to educate them to let them know it was like to let them know how we never want to go back there again as a state and to let them know how lucky they are to get to serve during better times and how they can be a part of making sure that we never go back to the mix safe to the past, and that we in fact learn from them. So I know I can sometimes sound what the party pooper, but that’s okay. I love having that job, and it’s important because I have the facts to back up why it is that we need to continue down the path of fiscal discipline. Well, lastly, I’m going to say this to anyone looking at Illinois from an investment perspective, we are open for business. We are paying faster than the private sector, and we are a state that is ready for growth. 

And all of the hard work that I’ve done over the last six years to get us to this point is to get us ready for that growth spur, to get us ready to grow, to build jobs, to have people set their roots in this state. It is a beautiful, incredible state from top to bottom. We have every single type of intermodal transport. We’re not going to fall into the ocean. Not even Lake Michigan. We don’t have rolling blackouts and we don’t have hurricanes. We’ve got a lot of really great things like state of the, I’m a world-class educational systems, like I said, every type of modal transport, and we are ready to grow. So we have stability and predictability when it comes to our finances, and it’s not a flash in the pan. This is a long-term thing that we are building, and I would invite anybody who has any doubts about whether or not we want you to come open up your business here and get paid quickly to give me a call if you have any doubts, because I’ll be happy to do my part to recruit you right here to this great state of Illinois. 

Yvette Shields (34:26):
I am glad you brought up the challenge about dealing with first time lawmakers or those that don’t have that institutional knowledge because, yeah, I have to think that is such a challenge when you haven’t firsthand felt the pain of just how tough things were then. So Well, thank you so much, Susana, for joining us today. 

Susana Mendoza (34:52):
Aw, thanks so much for having me, and hope we get to do it again soon. 

Yvette Shields (34:55):
Yeah, it was great to chat. Special thanks to Kellie Malone and Kevin Parise who did the audio production for this episode. Please don’t forget to rate us or review us and subscribe to our podcast at For the Bond Buyer, I’m Yvette Shields, and thank you so much for listening.

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