What is the Lapse Period and Why Should We Care?
October 6, 2010 - 4:46pm
The State of Illinois is allowed to carry bills from one fiscal year through a specified period of time in the next fiscal year. This period of time—known as the lapse period—has been extended for FY2010 from two months to six months to give the State longer to deal with its mountain of unpaid bills.
The State Finance Act (30 ILCS 105/25) allows state agencies to continue to use the previous year’s spending authority to pay for last year’s bills during the first two months of the current fiscal year. With the State’s fiscal year ending on June 30, this usually means that the State has until August 31 to pay bills from the prior fiscal year.
For FY2010, however, the law was amended by the Emergency Budget Act of 2011 (Public Act 96-0958). This Act extended the lapse period for FY2010 through December 31, 2010. Bills had to be approved by state agencies and submitted to the State Comptroller’s Office by August 31, 2010.
According to a recent report, Illinois ended FY2010 on June 30, 2010 with $4.7 billion in approved but unpaid bills at the Comptroller’s Office. During the period between June 30 and August 31, an additional $1.7 billion in bills were presented for payment. In total, more than $6.4 billion in revenues from FY2011 will be needed to pay bills from FY2010, meaning that these revenues are not available to pay debts incurred in FY2011. The total of more than $6.4 billion in FY2010 bills to be paid in FY2011 represents a record for any lapse period.
At the end of FY2011’s first quarter on September 30, 2010, Illinois had $5.5 billion in outstanding payables, according to the Comptroller’s Office. Of that total, $2.0 billion were bills left over from FY2010 and $3.5 billion were FY2011 obligations.
Governor Pat Quinn hopes to eliminate the remaining FY2010 backlog of bills by selling roughly $1.2 billion in bonds based on tobacco litigation proceeds and obtaining additional revenues through inter-fund borrowing and from the State’s tax amnesty program.
“A significant failure of any of these sources will place remaining fiscal year 2010 obligations in jeopardy,” the Comptroller’s Office said in its October 2010 Comptroller’s Quarterly report. “This would create a scenario in which unsatisfied payees could be forced to seek legal and judicial remedies to obtain payments in amounts unprecedented in the State’s history.”
State vendors such as social service agencies that are owed money due to spending authority that has lapsed because of the close of the fiscal year may seek compensation in the Illinois Court of Claims. The extension of the lapse period means they will have to wait up to four extra months before they could seek judgments in the Court of Claims.
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