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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wookiee's picture

That younger generation will violently protest though.

The old ones will just quietly die.

jerry_theking_lawler's picture

Who is buying all of this junk debt, from IL to Argentina?? Is the .fed, levering and loaning with the implicit guarantee that the loaned money go into levering and buying this toxic garbage as well.

 

When does the music stop....because there are NO chairs any more (so it is going to be very, very funny..epic, but funny).

espirit's picture

No chairs. No music. The fire exits are chained shut.

Billy the Poet's picture

Sounds like another exciting night at Pulse.

Keyser's picture

The same people that are buying corporate debt, all asset classes and all bonds in the world, the central banks... They print the $$$ out of thin air and spread it around to keep the system afloat... Let's see how long this lasts after the first central banker is drawn and quartered on the capitol lawn... 

beaker's picture

Now watch them lay on the guilt trip that there will be no school teachers, police, and firemen.  You will hear crickets when asking them about the fat pensions they gave themselves.

Thethingreenline's picture

What is it with you people?
Pensions,pensions, pensions, always the pensions. Sorry people worked their tail off for 25 years and made a DEAL and now that they stole the money from the pensions trust, now they want to cut the pensions? How about cut your pension? Always wanting to cut those who worked the hardest, 25 years of slinging Sh**. Sorry, that ain't gonna fly. TTGL already gave ideas how to correct this and does not include cutting pensions!!!

TTGL

GunnyG's picture

Fuck em. They are getting almost as much in a pension as they did while working. I get 55% after 21.5 years in the Corps. Let them suck on it.

divingengineer's picture

Shit, you're killing it.
I'll get 1.1% per year of service.

Tapeworm's picture

25 years?

 What about the taxcows that work for fifty years to fund this crap?

The Toothman's picture

Cut my pension? I don't have a pension. All I have is what I save after the Govt. takes 45%. So fuck 'em. Small businesses have been shit on the last 10 years, time for the public employee gravy train to stop.

man from glad's picture

+1.  fuck em. Busted my ass for decades. Never once took a dime of ANY .Gov assistance. All I got was a tax hike everywhere I looked. And no doubt these greedy .Gov's will be coming after our savings next (read: bail-in).

Frank Underwood's picture

To hell with them and their pensions. Welcome to the real world

slwsnowman40's picture

Because pensions made sense when people died in their 60s and 70s after retiring at about 50.  But that's not the case anymore as people routinely live to their 90s after retiring at about 50.  Add in the included healthcare benefits, increased welfare, and the ever increasing government salaries (because no government worker ever takes a paycut) and eventually, the only employee of the state will be someone making sure the direct deposits occured.

It the same story in California and they are looking at doing universal healthcare for everybody in the state.

August's picture

Don't know what teachers might pull down, but Chicagoland school district administrators have obscene levels of retirement benefits:  

$300,000 annually and up.

Nice work if you can steal it.

Blankenstein's picture

Not sure about the city, but in the suburbs, the teachers can get a master's degree from one of the Illinois diploma mills and make about $80,000 - $100,000 working 9 months of the year.  

Among the highlights of the Naperville teachers' salaries:


--- 2 sex ed teachers pulling down $122k and $115k

--- A $112k drivers ed teacher

--- 14 guidance counselors pulling down between $100k and $124k

--- 21 gym teachers with six figure salaries, the highest being $151k

--- 8 social workers and 4 psychologists reeling in 6 figures 

--- And of course, an army of 57 administrators pulling down between 100k and $242k a year.

 

http://chicagolampoon.blogspot.com/2011/05/napervilles-fat-teachers-sala...

 

El Vaquero's picture

Jesus!  In my parts, a teacher with 20 years and a PhD doesn't even make $80k.  A Bachelors and the first year will net a teacher somewhere around $32k, and schools, which take up 40%-50% of the state budget, pay about 2/3s of their budget to teacher salaries.  I know I'm in a poor-ass state, but fuck, no wonder IL is so fucked.  

wherewasi's picture

Similar in Jersey... except we're almost the smallest state in the union annd have 590 school districts... do the math

NoPension's picture

This asshole is obviously going for a red down record.

bookofenoch's picture

Right! NEVER cut pensions. Or schools. Or healthcare. Or welfare. Sure you can default on some public works payments. Gotta make the bond coupons...

I know!!!!! Confiscate sleepless slave property and tax the productive till they go gault. Wut cud go rong?

BeanusCountus's picture

It's simple. Can't borrow anymore, credit ruined because no one trusts them to pay long term obligations. They either raise taxes to fund the deficit, or bills go unpaid. Pensions are some of those bills. And people don't want their taxes to increase because they haven't fixed anything and Illinois will be back for more increases next year. They fucked up. Let'em go bust. That's not evil. Just get on with it. If pensions get cut they get cut.

Icewater Enema's picture

Who backstops your 401K or SEP or IRA? Or your savings account? Which tax can be raised to replenish it if it runs dry? 25 years of slinging shit? What about the rest of us who will have to sling shit until we're 75 just to survive? Wisconsin finally made teachers pay some of their own way and we don't have the problems IL does. The IL public employees were giggling over their beers while the politicians stuck the bill to the "civilians" for decades.  But now the the problems have come home to roost. Tough shit.

Mr.BlingBling's picture

What is this "pension" of which you speak?

Sorry, I jest. But pensions are just such an abstract concept to a private-sector denizen such as myself--EXCEPT WHEN I'M PAYING MY FUCKING TAXES.

Cluster_Frak's picture

hell yeah, libtards will unleash south chicago on the northern burbs. Negroes will reclaim their fair share from the white man.

Loanman26's picture

Pssst hey buddy? Not gonna happen up here in McHenry.

The ones that try will be swiss cheese.

Good shooters up here.

Moe Howard's picture

Lived in McHenry County a few times. Yep, a lot of guns up there. Didn't see a black person up there until the 70's.

Scuba Steve's picture

Now they're fucking your wives and breeding your daughters ...

Cheers !

SilverRoofer's picture

LOL

Hahahahahahahaha hahahahahaha

ran out of other People's Money ????

 

HalinCA's picture

Huh?  'full extent of our dire fiscal straits'

Does she mean 'full extent of our fiscal dire straits'?

We all know what 'dire straits' are  http://dictionary.cambridge.org/dictionary/english/in-dire-straits

but what are 'fiscal straits'?

Maybe she's listened to too much of the real deal ...  https://youtu.be/Il8ZC3O64AU

Maybe the state needs to hire people are are more than semi-literate.

Eurotrash Sorehead's picture

Look out murcans! A wind just escaped the windy city - take cover and cover your wallot and your nostrils

yogibear's picture

Cut down  $100,000/yr  plus HS teacher pensions  and $250,000/yr  administrator pensions, as well as other fat public pensions.

And  making Illinois a sanctuary for illegals isn't helping.

GunnerySgtHartman's picture

Time for Illinois to start issuing 100-year bonds.  Speculators never die, so why not?  LMAO

silver sword's picture

Guess the dumbasses finally ran out of everyone else's money;

Hooray for Socialism!

it really does work!

As soon as they're done completely destroying Venezuela (sitting on largest confirmed oil reserve on earth and still eating out of trash cans) they can focus on destroying what is left of Merika . . .

Fo da chilluns, of course!

JackMeOff's picture

This time the savers will pay...

skinwalker's picture

The Feds or the Fed will bail them out if need be.

There's too big to fail, and Illinois is way beyond that.

bookofenoch's picture

Not politically acceptable for DJT

wookiee's picture

The Republican Congress will out-vote him and bail-out IL thinking that the Dems will be their friends.

BeanusCountus's picture

Donald and Repubs might have something to say about that if it happens on his watch.

Salsa Verde's picture

Receivership:  Put em on a choke chain and start jerking the leash.

TePikoElPozo's picture

dallas cops are smart

they saw this train comming from a mile away

 

in another note: MAKE SURE YOU CONTRIBUTE 110% OF YOUR DISPOSABLE INCOME INTO YOUR 401K

MANvsMACHINE's picture

At best, that 401K is going to be a 101K by the time you go get your funds.

Ink Pusher's picture

More likely looking like a grand total of $4.01 after fees,taxes,penalties and surcharges.Almost enough for bus fare home from your accountant's office.

 

Cozy Vanilla Sugar's picture

$0.40 actually as you'll be held up at knife point while deboarding the bus for the $4.01. The thief will be a former cop, recently terminated due to budget constraints.

A little girl, heretofore unscarred by the city crumbling around her, and having witnessed your plight, will give you her ice cream money.

The ice cream money will be in the form of a $1,000 winning IL scratchoff ticket, which has been restructured unilaterally by Illinois crown prince Rahm Emanuel at 0.0004x par.

wookiee's picture

B.S.!

I put in $4,400 a year for 16 years and quit working with $780,000.  Transferred that into a self-directed psp.  Bought and sold real estate for 4 years.  Now I don't work at all with $1 million in cash/stocks/etf's.  True that all personal withdrawals are full-rate taxed, but so far the etf's have made enough to pay the taxes and keep the balance level.

401(k) did fine by me.

Ol Man's picture

Every payday that YOUR money doesn't go into YOUR pocket, consider it gone.  Because you will never see it again, be it taxes, insurance or retirement.

 

IT IS GONE.

 

This public service anouncement has been brought to courtesy of the "I got mine, and yours too" club...