Illinois Comptroller: "The State Can No Longer Function"

Tyler Durden's picture

With just 10 days to go until Illinois enters its third year without a budget, resulting in the state's imminent downgrade to junk status and potentially culminating in a default for the state whose unpaid bills now surpass $15 billion, Democratic Illinois Comptroller Susana Mendoza issued a warning to Illinois Gov. Rauner and other elected officials on Tuesday, saying in a letter that her office has "very serious concerns" it may no longer be able to guarantee "timely and predictable payments" for some core services.

In the letter posted on her website, Mendoza who over the weekend warned that Illinois is "in massive crisis mode" and that "this is not a false alarm" said the state is "effectively hemorrhaging money" due to various court orders and laws that have left government spending roughly $600 million more a month than it's taking in. Mendoza said her office will continue to make debt payments as required, but indicated that services most likely to be affected include long-term care, hospice and supportive living centers for seniors. She added that managed care organizations that serve Medicaid recipients are owed more than $2.8 billion in overdue bills as of June 15.

"The state can no longer function without a responsible and complete budget without severely impacting our core obligations and decimating services to the state's most in-need citizens," Mendoza wrote. "We must put our fiscal house in order. It is already too late. Action is needed now."

Unveiling the most dire langage yet, in her letter Mendoza said "we are now reaching a new phase of crisis" perhaps in an attempt to prompt the Democrats and Republicans to sit down and come up with a comrpomise:

As Illinois’ Chief Fiscal and Accountability Officer, my Office is responsible for managing the state’s financial accounts as well as providing the public and the state’s elected leadership with objective and timely data concerning the state’s difficult fiscal condition. As you are quite aware, I have been very vocal regarding these issues and the budgetary impasse since assuming office six months ago; however we are now reaching a new phase of crisis.

She then addresses "the full extent of [Illinois'[ dire fiscal straits and the potential disruptions that we face in addressing even our most critical core responsibilities":

Accordingly, I must communicate to you at this time the full extent of our dire fiscal straits and the potential disruptions that we face in addressing even our most critical core responsibilities going forward into the new fiscal year.  My Office has very serious concerns that, in the coming weeks, the State of Illinois will no longer be able to guarantee timely and predictable payments in a number of areas that we have to date managed (albeit with extreme difficulty) despite an unpaid bill backlog in excess of $15 billion and growing rapidly.

The cause for alarm in America's most bananish state is well-known: living far beyond one's means, resulting in soaring deficits and the critical need for constant debt funding.

My cause for alarm is rooted in the increasing deficit spending combined with new and ongoing cash management demands stemming from decisions from state and federal courts, the latest being the class action lawsuit filed by advocates representing the Medicaid service population served by the state’s Managed Care Organizations (MCOs). As of June 15, the MCOs, and their provider networks, are owed a total of more than $2.8 billion in overdue bills at the Comptroller’s Office. There is no question that these obligations should be paid in a more timely manner and that the payment delays caused by the state’s financial condition negatively impact the state’s healthcare infrastructure. We are currently in court directed discussions to reach a workable and responsive payment schedule going forward, but any acceleration of the timing of those payments under the current circumstances will almost certainly affect the scheduling of other payments, regardless of other competing court orders and Illinois statutory mandates.

There was one silver lining: a default is not imminent, at least not in Mendoza's view, as the comptroller explained that "debt service payments will not be delayed or diminished going forward and I will use every statutory avenue or available resource to meet that commitment."

It is a necessary pledge in order to attempt to avoid further damage to our already stressed credit ratings and to make possible the additional debt financing that we all know will be required to achieve some measure of stability going forward.

And when "every available resource" runs out, that's when things get really bad.

* * *

Meanwhile, as the state's budget director warns of fire and brimstone, in a last ditch attempt to reach an agreement with the legislature, Illinois' Republican Gov. Bruce Rauner will deliver a brief address Tuesday night calling for unity as lawmakers prepare to return to Springfield for a special session, a move Democrats quickly dismissed as a political stunt.

The speech, which is closed to the press but expected to air live on 6 p.m. television newscasts, comes just days after Rauner launched a TV advertising blitz attacking Democratic House Speaker Michael Madigan, whom the governor has spent years vilifying as the source of the state's deep financial woes according to the Chicago Tribune. Democrats have long argued that Rauner's frequent political attacks do little to bring about common ground. The governor says political gamesmanship is part of being in public service but should not impact what happens at the Capitol.

Rauner will give his remarks at the Old State Capitol, where Abraham Lincoln gave his "House Divided" speech and Barack Obama kicked off his first White House run in 2007.

The speech will fall short.

Democratic governor candidate J.B. Pritzker called Rauner's address a "sham," saying Rauner "either doesn't have the slightest clue what unity is or just doesn't care." House Democrats called it laughable, saying if Rauner wanted to negotiate he would do it behind closed doors not in front of television cameras. "I find it tragically comedic that a governor who has done more to divide this state than probably any other governor in history is going to give a unity address," said Rep. Christian Mitchell, D-Chicago.

It's not just the Democrats: Republican lawmakers said they would vote for that tax plan, but only if the hike were limited to four years starting in July, and were tied to a four-year property tax freeze. The Senate Democrats' plan makes the tax hikes permanent and applies them retroactively to the beginning of 2017.

While Rauner is expected to talk about the need for unity and compromise, House GOP leader Jim Durkin said last week that Republicans expect "substantial compliance" from Democrats, warning that he would reject "reform light or anything that is significantly diluted."

* * *

Finally, in a harbringer of what's to come for the entire state, Bloomberg reports that Chicago’s junk-rated school system just went "no bid", and is paying bond-market penalties similar to those seen during the financial crisis. The Chicago school district, slammed by the fallout from the Illinois budget gridlock, has been stuck paying punitive interest rates on $167.5 million of adjustable-rate bonds after PNC Capital Markets failed in March to resell the securities once previous owners sold them.

Remember the failure of Auction-Rate Securities just before all hell broke loose in 2008? Well, it's kinda like that.

The rate on the bonds, which are supposed to stay extremely low because investors can resell them to banks periodically, jumped to a maximum 9% on March 1 from 4.64% the week before and has stayed there ever since, according to data compiled by Bloomberg.

The spiraling interest bills are reminiscent of the chaos that erupted in the wake of the Lehman Brothers Holdings Inc.’s bankruptcy in 2008, when state and local governments were stung by soaring costs after investors sold the variable-rate securities en masse just as banks were scrambling to raise cash. In Chicago’s case, though, it reflects how skittish investors have become about holding the debt of the cash-strapped school system.

In another preview of what's coming once Illinois is junked, the school district agreed this week to pay a rate of 6.39% for a short-term $275 million loan from JPMorgan Chase & Co. to help make a pension payment and cover the cost of staying open through the end of the school year. As we reported last week, the schools didn’t receive $215 million more in state aid to make the retirement-fund contribution after a measure was vetoed by Governor Bruce Rauner. Illinois has failed to pass a budget for more than two years as the Republican governor and Democrat-led legislature battle over how to close the state’s chronic budget deficits.

"Chicago Public Schools has been unable to crate a fiscally responsible budget and it relies on outside sources that, as we see, sometimes comes through and sometimes don’t,” said Matt Dalton, chief executive officer of Rye Brook, New York-based Belle Haven Investments, which manages $6 billion of municipal bonds, including about $3 million of insured Chicago school debt.

“That’s unsettling investors."

Unfortunately, that's just the beginning, and once the state itself is junked, investors will be even more unsettled.

But the biggest insult and injury is to the near-insolvent state is that Illinois is facing a full-blown crisis just one day after chronic defaulter Argentina managed to pull off a 100 year bond offering, which was 3.5x oversubscribed.

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Cluster_Frak's picture

Bullish Illinois state debt. Yay!!!

Cognitive Dissonance's picture

Put a fork in them. They're well done.

Hal n back's picture

I think one move woukd cure most of the problem. Cutting pension, esp for thise who retires early and saw pensions spiked. Take away the spiking , but Madagan will not let that occur. In fact, illinos legislators past and present have an inherent conflict of interest on all of this with their lucrative pensions and health care.

There, problem solved. Bankruptcy needed to do it.

Bumpo's picture

More Illegal Immigrants is the answer! By the way ... Not my circus, Not my monkeys. No need to involve the rest of us.

luky luke's picture

Americans MUST come to grips with the fact that SOMETHING is weighing down on the country.

http://biblicisminstitute.wordpress.com/2014/07/17/is-america-cursed/

armada's picture

The Federal Gov is wasting money. The solution is send it to the states instead.

Never One Roach's picture

Promise to hire 10,000 refugees.....

Shocker's picture

Between Pensions, Schools, Illegal Immigrants that pretty much can financially burden any city.

Going out of business isn't just for businesses anymore

Layoff List: http://www.dailyjobcuts.com

-

El Vaquero's picture

Y'all know that most of their account balances are stored electronically.  Why not just add another zero?  What could possibly go wrong!?

 

(Fuck, now the Fed will probably do some sort of twisted muni bond QE.)

Keyser's picture

Let's see what happens when Dick Durbin, Tammy Duckworth and that fuckwit Luis Gutierrez appeal to the good graces of DJT to releive Illinois' plight... One would hope that they get laughed out of the oval office... 

Socratic Dog's picture

I'm just pleased she sees her true priorities. Debt payments before senior citizens and hospice. I'd truly hate to see those poor jew bankers go without their debt payments.

Okienomics's picture

Actually, the whole "hemorraging money" thing is very good news for Illinois.  The article just above this one in the ZH banner from Standsburied Research says an expert is finally breaking his silence (as if) and warning everyone to get out of cash.  Illinois is ahead of the curve.

ultraticum's picture

"The State Can No Longer Function"

Wake me when the dream is over!

Chauncey Gardener's picture

Besides, our new 51st state, Puerto Rico needs the money a lost worse than Illinois, and then there's Moonbeam, and now Oregon.

 

fattail's picture

I've been told trump is a vindicitive narcissist.  Hopefully, kushner will remind him hillary won illinois, and he will tell durbin to take a hike.

wherewasi's picture

Daily News Headline "Trump to Illinois:  Drop Dead"

Stuck on Zero's picture

The smartest thing for Illinois to do is sell billions in 100 year bonds at -.5%. They'd be a far better investment than Argentine bonds.

PTR's picture

And goldman would still get a cut from the sale, thanks to Tiny Dancer.

strannick's picture

Extend and pretend meets unfunded social promises/liabilities.

Coming soon to a Fed/State/Municipal Gov near you

targayren hous's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobproplan.com

LasVegasDave's picture

As Paul Kersey of http://stuffblackpeopledontlike.blogspot.com/ is fond of saying

 

you can either have a functioning civilization or you can have black people, but not both.

Anarchyteez's picture

Yup. You America hating Dims that think you have right to my production.

MasterControl's picture

America was cursed by the dutch after they shipped that poison to her.

espirit's picture

Arrest anyone with a red stapler that won't go home when you quit paying them.

They might burn Chi-town down.

SWRichmond's picture

Never let a good crisis go to waste, right?

edotabin's picture

To Illinois: Close it down. Out of business. Go fishing. 

It's all a scam and you are nothing more than proof of this.

Bye.

Keyser's picture

Perhaps once and for all, Luis Gutierrez will shut his fucking mouth... 

Creative_Destruct's picture

"Arrest anyone with a red stapler.... They "(will) "burn Chi-town down"...

Yep, burn it down then head to PR to drink Margarittas on the beach...

Then they can burn that place down too.

Two down...more to go.

turnoffthewater's picture

Democratic Illinois Comptroller Susana Mendoza issued a warning, Don't blame me!
Let the hunger games begin

vealparm's picture

The public union pensioners must be shitting their pants...........But, but,but.....we were promised, we have a contract.

Antifaschistische's picture

emergency 5% cut, across the board in all payroll rates.   Return to full upon balanced budget.

Immediate cut in Pension distributions of all kinds.

or...I'm sure, a bailout discussion with the White House would be very entertaining.  Make it a pay-per-view event with all proceeds going to Illinois.

Hitlery_4_Dictator's picture

I think it's safe to say, with all the crap happening around the world.....SHTF big time.  

Just Another Vietnam Vet's picture

 

HRC born n raised there.

BO learned the political rope a dope there.

Last two governors from there went to prison.

Shy town is recording record gun violence, drug problems, and murders. 

No budget for 3 years.

Can not pay the bills or even maintain roads. 

Gas tax is outrageous.

Even the lotteries are kickin Illinois out, and don't want em.

Keep payin out ridiculous high pensions to all high paid folks in on the take.

Can Not even legally file bankruptcy. 

Talk about screwed.....

 

And the Fed tells us all is just fine.   Hike those rates up.....  

or has the terrible legislation and or corruption all these years finally made a difference.

Now Come to the Feds for a big fat hand out or bailout ....like yur entitled. .

 

 

 

peippe's picture

you miss the point-

getting a few people set up with fine pensions so they can get the hell out of that hole & enjoy extended retirement!

Mission accomplished.

Keyser's picture

You left out the fuckwit Luiz Guttierrez, the asshole that villifies the GOP at every turn... 

divingengineer's picture

They say Illinois, what they really mean is Chicago is broke.

Shinebama's picture

Both Shitcago and the state are broke. I'm doing my best to GTFO, put my condo on the market last Saturday. Things are getting ugly fast, and neither the evil leprauchan Madigan or the Governor have a clue how to fix it. 20% income tax rate, anybody?

Truther's picture

Fuck you Rham, you dirty fucking chicago Joo.

How to you like that Libtards? Ehhh?

Cluster_Frak's picture

Calpers will bail them out - socialist will not let socialist go bankrupt.

GUS100CORRINA's picture

Illinois Comptroller: "The State Can No Longer Function, We Have Reached A New Phase Of Crisis"

My response: Maybe Illinois can do what Argentina just did over the last 48 hours? They can sell 100 YEAR BONDS. That action should allow the corrupt politicians of Illinois to kick the can down the road for a little longer. In addition, maybe the FED can be a buyer of last resort.

See how easy it is to solve a financial problem. QED!!!

VWAndy's picture

 Then not make good on the bonds intrest payments.

El Vaquero's picture

If this shit blows, I think we'll need CALTROPS when the gibs run out.  

overbet's picture

Why are they cutting the elderly off before the working capable class? The elderly cant work and, because of the work ethic of their generation, probably put in their share of hard work in during their lifetimes. Id cut off the younger generation welfare first.

fbazzrea's picture

there are many places to cut but none so well as "elderly and ill" for photo ops.

bet there's a few banksters still getting payments after the proposed cut-backs on seniors

overbet's picture

Ahhhh....fucking dirty

ToSoft4Truth's picture

Animal House, right?

 

 Kevin Bacon - Fraternity Paddle

 

https://www.youtube.com/watch?v=qdFLPn30dvQ

khnum's picture

actually I was thinking a Blues Brothers fundraiser myself but John is no longer with us.

Kidbuck's picture

The state has no fucking business supporting the elderly. However, it's a big part of their plan to destroy the family and it's working. Buying votes cradle to grave. What could go wrong?