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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OccamsCrazor's picture

BULLSHIT ON THE STATE's DEMOCRATS, calling out Rauner.  We know the TRUTH you dumb fuckers, and its Madigan and everyone of you sychophant's who are beholden to Madigan and his 28 years of over promising higher pension payouts, total mis-management EVERY YEAR for 28 years, total OVER SPENDING what the state doesn't have,  and then falsely blaming or blistering every and any Republican governor who has attempted to do the right thing.

 

The state's mess came many many years before Rauner ever stepped in it.  

 

The DEMONCRATS in Illinois are GUTLESS WEASELS, and Madigan is a gutless, spineless, narcissistic corrupt little prick fraudster. 

THIS IN ON YOU MADIGAN AND YOUR CORRUPT LITTLE BASTARDS IN THE HOUSE. 

 

Reaper's picture

Open the can of worms. If the Fed can bailout European entities, the Fed can bailout Illinois.

pc_babe's picture

Its the Russians, er ... Trump's fault

LIBTARDS ... ya gotta luv 'em!

Able Ape's picture

Illinois can't get it UP!  Where's the monetary Viagra?...

bluskyes's picture

Dissolve the state and make it an unincorporated common-law territory - free of admiralty law.

Horse Pizzle's picture

Another Chicago fire is next.

squid'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."

Let me translate that government speak into English for ya'all.

She's saying that without a budget, they can't continue to sell bonds to further indebt future generations so the current crop of over paid state workers and retired state workers can keep getting their booty.

You'll note that no where does she even mention the sustainability of same. The governor is doing the right thing, DEFAULT!! When you are in an unfixable debt situation, that is what you do. This way you cannot borrow any more money and you MUST make do on current tax receipts.

 

If he sticks to his guns, he'll stick it to the unions. The courts cannot order that blood be delivered from a stone but the courts can declare that contracts entered into under fraudulent terms are void. That will come, likely after the Illinois justice dept doesn't pay the judges for a month or two because the bond holders need to get paid. That is when you will start to see flexibility from the judiciary .

 

This is interesting to watch.

 

Squid

Black Star Ranch's picture

I can't think of a better state to start with.

I wonder if the Russians had anything to do with this too?

Megaton Jim's picture

Maybe another country would buy Chicago and take it off our hands?!?

Thisfuckenlife's picture

I have yet to meet someone outside the state of Illinois who cares about the wretched state they got themselves into.

 

Except for other Democrats who only want the rich to bail them out of course :p

Megaton Jim's picture

I want to see how restless the natives get when their EBT cards quit working!

Bemused Observer's picture

The services most likely to be affected are long-term care, senior services, and hospice? Seriously? Did you pick those three deliberately?

 

Fuck you, you pathetic, lying sacks of shit. I couldn't HELP but notice no cuts to your OWN bloated salaries, huh?

 

Eat shit and die, you useless, overpaid, entitled little princesses. You all make me sick to my stomach. I'm surprised more of you aren't taking bullets...oh well, there's still time...we can only hope.

 

How does it feel to be so hated, so despised, by your own people? Do let us know, although frankly, I don't really care. I only hope I get to see the looks on your faces when you finally get it, and realize that THIS time, you fucked up for real, and there's no going back, bitch.

 

I hope your people tear you to pieces with their bare hands, with you on your knees, crying like the little bitches you ARE...nasty little fuckers.

Porous Horace's picture

In any budget crisis, the most-needed services are cut first. It's called extortion.

Bemused Observer's picture

The services most likely to be affected are long-term care, senior services, and hospice? Seriously? Did you pick those three deliberately?

 

Fuck you, you pathetic, lying sacks of shit. I couldn't HELP but notice no cuts to your OWN bloated salaries, huh?

 

Eat shit and die, you useless, overpaid, entitled little princesses. You all make me sick to my stomach. I'm surprised more of you aren't taking bullets...oh well, there's still time...we can only hope.

 

How does it feel to be so hated, so despised, by your own people? Do let us know, although frankly, I don't really care. I only hope I get to see the looks on your faces when you finally get it, and realize that THIS time, you fucked up for real, and there's no going back, bitch.

 

I hope your people tear you to pieces with their bare hands, with you on your knees, crying like the little bitches you ARE...nasty little fuckers.

Xena fobe's picture

No funds for senior services but benefits for illegals will continue.  In California, they are famous for threatening lay offs in police and fire depts.  Vote for this tax increase or criminals will run rampant and your homes will burn down.

Crush the cube's picture

Calling Mrs. O'Leary's cow.

Maybe Porto Rico can buy their bonds, and they can buy Porto Rico's.

peippe's picture

so, if it's 'over', 

can my friends & i buy remaining hard assets for pennies on the dollar

and ship the viable equipment to the East & gut the gov't offices of copper & whatnots?

Well? 

My opening bid is 25 pounds Sterling.

sessinpo's picture

Can we just send them all to N Korea? Sarc\

newworldorder's picture

Just another story on the local Chiraq news. Not one ripple of worry amongst the populace. They do believe the Democrat Party will fix things. After all the Obama Library will revitalize the South side of the city.

navy62802's picture

That massive sucking sound is the budgetary black hole known as Chicago. Illinois should get exactly zero federal assistance for electing irresponsible Democratic leadership. Let their cities descend further into chaos and watch the democrats devour themselves with violence.

Sizzurp's picture

You could lay off 80% of the state employees and probably never notice a difference.

wow thats crazy's picture

6.39% for a short-term $275 million loan from JPMorgan Chase & Co.

 

I can get a better rate for a credit line 2.75% Man the banks loving fucking the country over. 6.39% fuck off

Porous Horace's picture

Trump should build his wall around Chicago, to keep people from getting out (ala "Escape From New York"), and just let nature take its course.

I Write Code's picture

If they taxed murder they could balance the books tomorrow.

RightStuff1944's picture

Electing Democrats to public office is the same thing as communal suicide.  Their irresponsible "do-gooder" attitude is not affordable.  See Lyle Rossiter's "The Liberal Mind:  The Pshchological Causes of Political Madness". 

Thethingreenline's picture

Judging by number of comments and the tone, all need to step back and take a deep breath and re assess the situation. Illinois can't afford to not pay the pensions. Illinois will pay them one way or the other, as broke pensioners will need state and government assistance. Period. This is what TTGL means by pensions must be paid. As far as SHOULD be paid, that is more of moral question and the short answer is YES, and TTGL has outlined this response in previous posts.
Maybe Illinois should consider legalization of marijuana and use tax proceeds SPECIFIC to fund pensions. Other even more out of the box ideas could be approved. Increase to on water supply to other states. Tax on Uber, who is putting traditional cabbies out of business. The point is there are many ways to manage this crises, but cutting pensions that are entitled to workers is not and should not be solution.
TTGL

William Dorritt's picture

IL should mandate that pensioners live in the State to collect.

Teachers should be required to live in their school districts, I suggested this to a teacher who laughed in my face and asked me if I had seen the taxes in my district.

Black Star Ranch's picture

Cutting the pensions make the most sense to get the most attention. Face it. All Pensioners who retired between the 90s and now can stand to be "dinged" for 20%

 

William Dorritt's picture

IL has two types of corruption: Rep and Dem

"One hand washes the other", they won't prosecute each other inside of their agreed Turf

All three branches and the local govts are complicit, follow the money from limited permits, pensions, contracts, favorable treatment at the Courts if the prosecutor can't bury the investigation. The reverse is true, expect to get railroaded if you get in the way. Police laughing in the videos as they begin the railroad process with housewives is always a good clue.

The Attorneys in the IL Bar participate with the Prosecutors and Judges, expect to be subverted and thrown under the bus every step of the way by the Fraud BAR and Courts in IL

 

Fitzgerald went on TV to warn away Rham, Jessie JR and others once they appeared on wire taps, so the US DOJ is part of the IL corruption problem. Sessions has failed to clean House at DOJ.

 

To measure the corruption in IL; compare any govt to a corresponding govt in Indiana, perhaps the cleanest State in the US

William Dorritt's picture

Dennis Hastert Republican (Convicted Teacher Pedo)

 

lost his first run for Congress because this was known in his community.

Second time he ran, Hastert was cash flush with consultants.

When he was appointed Speaker of the House, in line for the Presidency, no one in DC knew who the guy was.

Corruption runs deep in IL and DC

One hand washes the other

kp duty's picture

Too many piggys, not enough teats.  Time for baby back ribs.

 

Quickwahay's picture

Govenor Goofy in Minnesota is probably already working on an incentive program to draw more deadbeats in for the democrap voter base. Not enough room in these new style car trunks to supply the necessary votes to get their candidates over the hump in elections.              

NoYouAreAnAsshole's picture

In the "brain dead" wisdom of the ages, the state assembly, controlled by democraps, passed and the state's governor, a Republican signed into law  lowering the state income tax from 5% to 3.75% in 2015.   WTF?  Rescind the tax reduction for starters!  Then raise state sales tax by 1-2%.

By the way, the above income tax reduction was done in the face of 2014-2015 budget spend increase of 16%!  WTF?  In 2014, tax collections were $39 billion while expenditures were $51 billion! 

Meanwhile, if the taxpayers were smart - and in Illinois they aren't - they would convert defined benefit pension plans of all state, county, and city  employees to 401k plans. Offer present pensioners a one-time pay out and be done with them.  Convert all state, country and city employees and pensioners from present state plans to odildo care - after all they helped elect odildo, the two democrap senators, and the 13 out of 18 democrap congress critters. 

labillyboy's picture

I have to laugh that they treat this as though it's some kind of surprise... 

Democrats will never learn that they cannot spend more money than they take in now, nor promise it to people in the future for votes.

The gold plated bureaucrat defined benefit pensions with fraudulent underpinnings will kill IL, CA and several other Democrat/Union kingdoms.

It really is simple math, basic accounting and finance 101 here... not Democrat strengths.

Drop-Hammer's picture

No mention of cutting off the innumerable niggers, spics, illegal aliens, and refugees welfare.