Illinois Stiffing Vendors To Fund Budget Deficits - It's A "Financial Time Bomb"

Tyler Durden's picture

Anyone who has ever invested in distressed securities is intimately familiar with the many games that companies play to avoid a bankruptcy filing.  The easiest game, and the most obvious red flag for investors to spot, involves stretching out payables and managing down receivable days to build cash so you can live to fight another day.  While this may provide a temporary cash boost, it's typically the beginning of the end as vendors simply move payment terms to COD and the game quickly comes to an end.

Well, this is exactly the game that the state of Illinois seems to be playing right now to cover its budget shortfalls. As we just pointed out a couple of days ago (see "Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion"), with a $130BN pension underfunding and minimum annual contributions of $10BN, it's no surprise that Illinois needs every dollar they can squeeze out of vendors.

So, in response to their budget crisis, Illinois has done what every responsible, insolvent debtor does, namely raise more debt.  Under the program, Illinois vendors are able to sell their receivables to a consortium of lenders who have decided to provide seemingly perpetual loans to the state at a cost 1% per month.  As Reuters points out, the balance of the program is currently around $13.5BN right now but is expected to surge to $47BN by 2022, or nearly double the amount of GO bonds the state has outstanding. 

Political feuding between Republican Governor Bruce Rauner and Democrats who control the legislature has kept Illinois without a full operating budget since July 2015, contributing to a doubling of the unpaid bills backlog. The amount of overdue bills could reach $13.5 billion, or 40 percent of available operating revenue, when the current fiscal year ends June 30, the Rauner administration has projected.


Come fiscal 2022, the backlog is projected to balloon to $47 billion. No other U.S. state defers payments to the extent Illinois does to manage cash flow, credit-rating analysts said.


The one-of-its-kind, bill-payment program seeks to avert the nightmare scenario for a state in the worst financial shape in the country: a shutdown of essential services such as employee health insurance, a disruption of prison food supplies or mothballing of state trooper cars in need of fuel and maintenance.


“I don’t think there is any other alternative for us,” Illinois Central Management Services Director Michael Hoffman told a legislative panel in May.


The state's negative credit outlook means its $26 billion of outstanding GO bonds could lurch closer to the junk level if the growing unpaid bill pile impairs its ability to provide essential services, affects debt payments and inflates its already huge $130 billion unfunded pension liability.

And, of course, interest payments on the ballooning debt balance is skyrocketing.



And, like any good Illinois public project, this one comes with a healthy dose of corruption and favors to political insiders.

The firms include financial institutions such as Citibank N.A. (C.N) and Bank of America Corp (BAC.N), a distressed debt investor tied to a Rauner campaign donor, and political insiders, including Hillary Clinton's 2008 campaign manager and a former two-term Republican Illinois governor.


Lindsay Trittipoe, majority investor of the second-largest consortium, Illinois Financing Partners LLP, told Reuters his group was performing a vital function rather than exploiting the state’s financial miseries.


"Our money is flowing into the market, helping the wheels of commerce to keep working," he said.

We're rusty on our 7 step plan, how long does the "denial" phase typically last?

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MagicHandPuppet's picture

No one could have seen this coming!

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) MagicHandPuppet Nov 23, 2016 1:58 PM

That's why 'Chalky' decided to stay in DC instead of returning 'home' to:

Wait, what was it?





Occidental College Los Angeles?




Reggie's Bath House?

Comet Pizza?


847328_3527's picture

He knows nothing except community organizing, instigating riots, applying for federal taxpyer monies and destroying America like many Whore Vord grads know.

the good news is most foreign leaders know he is a total loser and will have nothing to do with him.

Mr. Bones's picture

I used to work for a company that did business in IL, word was that we were getting stiffed.  Last I heard they were weeks away from packing up and moving out, and that was months ago.  I can't say who or what but our staff walking out would be, what do they call it... "problematic."

Illinois is a self licking ice cream cone and there will be millions of greater fool bag holders, the poor bastards probably don't even know it.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) Mr. Bones Nov 23, 2016 2:22 PM

Rahm Emmanuel ~ MAN OF THE PEOPLE!

Cognitive Dissonance's picture

We're rusty on our 7 step plan, how long does the "denial" phase typically last?

As long as "We the People" are able to avoid the immediate consequences of said denial.

NoDebt's picture

Nothing makes me happier than seeing a bunch of politicians and public unions run out of money.

Especially when I don't live in that state and won't get hit with the YUUUUGE tax increases that are coming to it's residents.

A Nanny Moose's picture

What was all the nonsense about Trump stiffing contractors again?

MisterMousePotato's picture

"a shutdown of essential services such as employee health insurance, a disruption of prison food supplies or mothballing of state trooper cars in need of fuel and maintenance."


I don't think that word means what you think it means. - R.I.P. Andre

Countrybunkererd's picture

these thieving systems of "government" were put in place before the majority of the current taxpayers were even working.  How will this go down when the rates of states and locals double or more in the next few years JUST TO PAY FOR SOME 55 YEAR OLD RETIREE?


Kit Carson's picture

The last time I did a project funded by Illinois Department of Transportation they took 2 years to pay. I never bid on another.  Oh, and the 21 fine people I no longer employ still vote for the party in charge as far as I can tell.



homericninjas's picture

We told IDiOT no parts or repairs on equipment from now on unless we get in writing that we get paid in full within 30 days. We have been running about 18-24 months to get paid with massive time spent to get it. Everyone else around just told them no long ago. They told us we will wait like everyone else. So we drug their junk out to the back 40 for mouse houses, chained 'em up and are billing $50 a day each piece for storage until paid in full and then they can pick them up. Piss smell is on the house though.

KnuckleDragger-X's picture

Breach of contract taken to the class action level will be interesting. The teachers union etc don't understand what bankruptcy will do to their pensions, but not to worry, their leadership has a separate fund that is completely funded.....

Korprit_Phlunkie's picture

Government workers who are collecting or will collect a massive public pension are the most clueless group of people in the US. Excuse me I meant Public Servant", all bow for a moment of silence. Haven't met one yet who hasn't said "I deserve it" and It is no drain on taxes, it is all a seperate fund"

south40_dreams's picture

Isn't Illinois getting the obama library? Should be able to skim a few billions from that waste of time and money

rockstone's picture

No, you're missing it. With team Clinton out of business the graft money that will continue to flow in from all over the world (Trump or no Trump, they have to hedge.) can be redirected to the "Obama Foundation for the Little Sisters of Poor". That should be enough to square everything and then some.

Nexus789's picture

Won't that be the smallest library in the world, 

scoutshonor's picture

Needs shelf space for unsold copies of "The audacity of hope" he rescued from the rendering bin.

Countrybunkererd's picture

my thoughts exactly.

alinsky, marx, anton lavey(sp), and a few others... maybe 30 books.  How many did he read?  comprehension, on the other hand...

Kprime's picture

I heard they are stocking the library with 50 copies of "run dick run" and 50 copies of "curious george bush".  they hope some folks will donate enough used copies of "madam Hillary" to fill the rest of the library.

Pumpkin's picture

Anyone doing business with the lying, stealing, cheating state is just asking for it.

KnuckleDragger-X's picture

Not asking for it, begging for it....

smrstars's picture

Nothing that a good schlomo ing can't fix

Joe Cool's picture

Yawn....It's just another bailout waiting to happen...130 Billion....Meeh...

rockstone's picture

Alright. I love going to pay old guys to lay on the beach in FL. Atlas is shrugging soon.

Snout the First's picture

One the many problems with the government buying votes is that they never know when to stop. If it ever occurs to them that there are any economic limits to what they can do.

everlearner's picture

they should bring in more immigrants to help them go even deeper in debt..

847328_3527's picture

They are at the rate of over 1,500/day and handing them green cards as they walk thru the gates:


Thousands of Green Cards Have 'Simply Gone Missing,' IG Says

Thousands of Green Cards have been mishandled over the past three years, according to a new Department of Homeland Security (DHS) Inspector General report.

Electronic system errors have caused at least 19,000 cards to be issued as duplicates or with incorrect information, such as names, dates of birth, photos and gender, among other errors, the report says

Countrybunkererd's picture

at what point do the people say "this is not representation, it is theft by force, and it will not be tolerated anymore?"

<<< Much too late

<<< Never

J J Pettigrew's picture

The most powerful man in the state has his daughter as Attorney General....

The trajectory of the State is plummeting, and the Democrats ran the table in the last election.'

This chute won't open.....

Kill or be Killed's picture

It's actually his step daughter. He waited to adopt her until she was 18. Then her natural father could pay the child support to term.

Jeepers Creepers's picture

The Illinois Supreme Court basically said the state couldn't reform the system.


Something has to be done, but I get the impression these pensioners won't reform anything until they stop getting checks.

847328_3527's picture

Bankruptcy is the only way out and renegotiate pension payments based on reality, not fake financials.

Kill or be Killed's picture

That's true. Except the Baby boomers have too many votes. Nothing will change until it breaks.

markitect's picture

Of course, becuase the judges, the legislators and the like are all part of the scam amking 2 or 3 pensions.  Why would they try to stop the looting?

silverer's picture

The politicians have no problem making the promises, but they are totally somewhere else on raising taxes to cover them. They think they can "Ponzi their way through", and dump it on the next politician. The only way to save Ill-inois pension system is to raise taxes about 15 to 20%. After all, why should this be a problem? The people voted for you, give them the tax increase they need, want, and crave. Or are you scared?

Kprime's picture

well, they will always get checks, the problems won't start until the checks bounce.

Bemused Observer's picture

Why isn't lowering legislator's salaries ever brought up as a way to cut expenses?

Kill or be Killed's picture

$69k is a state reps pay. It's a pittance compared to the problem. A lot of the reps say they aren't going to take the pay. Although you never know if they do or not. Crooks, liars and thieves all.

Bemused Observer's picture

It may be a pittance, but it makes for bad optics. And 69k is not exactly minimum wage. If it really IS a pittance, it might pay off to make the gesture and show leadership from the top down..."Follow ME boys!"...not "Go THAT way!"

bankonzhongguo's picture

You can't outsource your economy and tax base.

1980XLS's picture

Build That Wall, Mr Carson

Hulk's picture

Nothing new, this has been going on for years...

bidaskspread's picture

Alright stop the truck..... "$26 billion of outstanding GO bonds could lurch closer to the junk level." So the rating agencies are calling these bonds investment grade? Fraud me thinks.

Stan Smith's picture

Of the many unsurprising stories that end up on ZH,  this has to be one of the least surprising.    The arrogance, hubris, and flat out fucking stupidity of the politios in Illinois is higher than most places.   Of course, Chicago and Cook County lead the way with this, but there's no shortage of this downstate either.

I worry about my in-laws, who's small town lifestyle, while never luxurious,  was nice.    It'll be less so now.    

all-priced-in's picture

They need 250,000 Syrian refugees to stimulate the economy.



newworldorder's picture

There are 2 economies in Illinois.

1. Chicago, Sprinfied - Cook, Kendal, Kane, Lake, McHenry, DuPage counties.

2. All the rest of Illinois Counties combined.

The State, except for local elections outside of the 6 counties around Chicago, is now and has been for a long time under the direct Control of the Democrat Party of Chicago. Nothing happens unless the Democrat Party of Chicago makes its money FIRST.

Kill or be Killed's picture

There's talk of succession downstate. No one with the balls in the legislature to propose it.