Illinois Unpaid Vendor Backlog Hits A New Record At Over $16 Billion

Tyler Durden's picture

Back in July, the state of Illinois narrowly avoided a junk bond rating with a last minute budget deal that included a 32% in hike in income taxes.  Republican Governor Bruce Rauner vetoed the budget and called it a "disaster," but both houses of the state legislature voted to override his veto.  Meanwhile, S&P and Moody's were apparently both convinced that the budget deal was sufficient for the state to remain an investment grade credit and all lived happily ever after, if just for a few months.  Per CNN:

Illinois narrowly avoided becoming the first U.S. state ever slapped with a "junk" credit rating from S&P Global Ratings after it passed its first budget in more than two years.

 

The ratings firm removed the threat of an imminent downgrade for the fifth most populous state in the country on Wednesday, ruling that the Illinois budget deal has lowered the risk of a "liquidity crisis." Now the state is rated one-notch above "junk" territory, and S&P said the odds of a downgrade within the next year have "substantially diminished."

Back in July, S&P defended its IG rating by saying that the budget package brought the state's revenue and spending closer to parity and "reduced the near-term uncertainty that had come to characterize its financial operations." 

Of course, if that's true, then someone is going to have to explain to us why the state's unpaid payables balance continues to balloon higher with each passing day and now stands at a record $16,046,145,423.20 according the comptroller's office... 

 

...which is only a 3-fold increase over the past two years.

 

But, if you're a resident of Illinois, or worse yet a pensioner in one of the state's massively underfunded pension plans, Democratic Comptroller Susana Mendoza would like for you to know that there is no reason for concern as she has the perfect solution to the state's debt problem: $6 billion in more debt.  Per Reuters:

The bill backlog is growing despite the enactment of a fiscal 2018 spending plan and income tax increase in July that ended a budget impasse between Illinois’ Republican governor and Democrats who control the legislature.

 

“What is going to take this backlog down is the borrowing,” said Abdon Pallasch, spokesman for Democratic state Comptroller Susana Mendoza.

 

A provision in the budget enacted by lawmakers over the vetoes of Governor Bruce Rauner authorized the sale of up to $6 billion of general obligation bonds to pay bills from vendors and service providers that are accruing late payment penalties of as much as 12 percent.

That said, Republican Governor Bruce Rauner points out that there is a small problem with Mendoza's magical $6 billion debt cure-all, namely that there is no funding available to pay 12 years worth of interest payments.

But on Monday, the governor told reporters that the bonds do not solve any problem because lawmakers failed to set aside money to make principal and interest payments over the 12 years the debt would be outstanding.

 

“We need to come up with roughly half a billion (dollars) of cuts just to be able to service a bond offering,” he said, adding that he planned to meet with legislative leaders for discussion.

That said, we're almost certain that if bondholders didn't care about that near-bankruptcy experience back in July, they're also not going to have any problem underwriting another $6 billion worth of debt that has no shot of ever being repaid.

 

And we're pretty sure these guys won't care either...

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takeaction's picture

All is fine in debt land....

Kick the can...

Been doing it for years...

You will figure it out...

Everything is AWESOME.

https://www.youtube.com/watch?v=StTqXEQ2l-Y

Juggernaut x2's picture

Rauner the RINO is more concerned with getting MOAR rights for his new BFFs- illegal aliens

wee-weed up's picture

Yep, even a Lib Repub Guvner can't teach economics to Libs. It's totally over their heads.

yogibear's picture

So the democrats in Springfield will do what they do best, raise taxes.

Not by a little, but a lot.

DocBerg's picture

Flee while there is still time!

whatamaroon's picture

Don't you mean fleece while theres still time??

Shinebama's picture

Already did, a month and a half ago.

BunkerZee's picture

Pay those bondholders - SCREW everyone else!

THIS I is why I hold so much municipal debt - plus the coupons are tax free!

As always, watch what they do, not what they say.

NoDebt's picture

Here are the numbers:  We're broke.

And, by the way, who are these "vendors" still supplying shit to them?  Are they fucking stupid or something?  YOU ARE NEVER GETTING PAID.  Hell, even suppliers to Toys-R-Us wised up and went to cash-and-carry months ago.

 

takeaction's picture

I bet they will get paid.....just like when there is a gov't shut down.  These vendors probably over charge the FUCK out of the city....like an illegal going to the Emergency room.  The bill is $15,000 for your injury...costs the hospital actually very little...never paid.  If they don't get paid, they just right it off to counter the poor suckers like myself who really have to pay. All "Cost Averaged".  So when the "Bailout" comes and the threats of children and old people dying if they are cut off...it is like a huge windfall when everyone id paid...and then...nothing changes...and REPEAT.

NoDebt's picture

Mmmmmm..... be careful there, my friend.  You're in the ballpark but not safe at home if you're a vendor thinking that way.  The calculus of "how much will I really get paid?" is VERY tricky business.  It's usually settled in court and only after MANY years have elapsed.  And sometimes the decision can go completely against you.

If you're a big company with teams of lawyers you'll probably do OK if you're willing to play the long game.  But if you're some lowly food service or janitorial company, you're fucked.  Even if you eventually get paid, it's too late to matter.

 

cossack55's picture

Home of "Da Bears"

yogibear's picture

Looks like their on their way to a losing season again.

Nearly everyone is in Chicago to take advantage of the system.

Shinebama's picture

Only the members of the free shit army, which has overrun the city. So yea, everyone.

LetThemEatRand's picture

OT but I just looked at the BoatUS hurricane site, and they have Maria as a Cat 5 with 173 mph sustained winds.  That's like an F3 tornado hitting an entire landmass, and it's just hours from making landfall in Puerto Rico.  And the pressure is dropping as of 8pm.  This could be truly catastrophic.  

NoDebt's picture

Puerto Rican bond holders "Triple tax free!!".  Another class of idiots who are nervously eyeing the financial condition of the reinsurers of their bonds and not liking what they see.

Oh, and, yeah, a lot of people in Puerto Rico are going to die from the hurricane.  But nobody cares about that because they're not Americans.  No.... wait.  Um, scratch that.  Nobody cares about that because they are brown people.

 

LetThemEatRand's picture

The lack of compassion around here and most places frankly is pretty amazing.  MSM certainly could give a shit, but I guess they just mirror the population and give them what they want.

I had a good friend who moved to PR to start a diving business a few years back.  Unfortunately the business didn't work out, but thankfully he's back in Florida (which by comparison is safe).

Juggernaut x2's picture

It's always been hurricane alley down there so it is hard for me to sympathize, sorry.

LetThemEatRand's picture

It's been 100 years since they had a storm of this magnitude hit.  

There are many places in the US that are subject to catastrophic damage from earthquakes, hurricanes, tornados, forest fires, floods, volcanoes, etc.  Some measure their safety zones by thousands of years, which is comforting until the next one happens.  

Where do you live?

Juggernaut x2's picture

Upper Midwest so nothing ever happens- maybe some Mississippi River flooding. 100 years? That is less than the blink of an eye in terms of 4.5B years of earth's age- besides, accurate weather records have only been kept for 150 years so previous to that maybe Cat 5s hit every few years for all we know

gregga777's picture

I suppose you are aware that the Mississippi Valley is a "failed" continental rift subject to massive earthquake risk. There was a massive earthquake in Missouri along the Mississippi River in the early 1800's. Few, if any, people were killed and there was little property damage because hardly anyone lived there. It's a much different situation today.

BandGap's picture

Have family in Florida and California. I never minded shoveling snow.

All my compassion is saved for them.

 

Haitian Snackout's picture

I know this was not directed at me but please bear with me for a moment...I live about 70 miles from the volcanos, about double the distance of the large volcanic boulders that litter the landscape, 30+ meters above sea level, and about 10 meters above what looks like to me to be the century or so high water mark. So while I can't say for sure that it is a complete lock, I think I have done the basic due dilligence. I have had no special training. Although some RE experience. My house never floods like many of my neighbors. And has been there for over 50 years. Anyone could have done the same tire kicking with minimal research. So while I certainly have compassion, I also believe in making ones own luck.

Archibald Buttle's picture

that is all well and good, and i commend you for doing your due dilligence in selecting your wisely located abode. you neglected to inform us if you have sufficiently zombie-proofed said abode.

NoDebt's picture

Do you think everyone who is on your side shows up in a nice 3-piece suit with a broad smile and firm handshake with promises of love and kisses?

No, my friend.  People who don't know you but are on your side nonetheless, are usually more like me.  Salty, bitchy, thoroughly mal-tempered people who support you anyway because it's obvious you need it and I can help.  It would be immoral not to.  

Read my post again and, through all the satire, ask yourself honestly:  If it came down to either NoDebt or somebody I didn't know, when the chips are down, who would I trust to help me out and not fuck me over?  If your answer is "somebody else" you're a fool.

Puerto Ricans are AMERICAN CITIZENS for fuck's sake.  OF COURSE I have compassion for them.  My compassion would come in the form of forgiving ALL of their debt on account of their utter and obvious inability to ever pay it.  That won't replace the lives lost but I'm not God.  I can't alter the course of the hurricane and I can't bring the dead back to life.  So that's the best I can do.  Anybody offers you anything better than that is a liar and a fraud.

 

LetThemEatRand's picture

NoDebt, my friend, I was agreeing with you and I noticed your compassion in your post.  Your sarcasm was not lost on me.  My ire was not directed at you.

HRH Feant2's picture

Damn that was a helluva rant!

LaugherNYC's picture

Anyone who bought any form of PR debt in past 15 years that didn't carry an expressed, explicit gurantee of timely PI from USG was buying toilet paper. Given access to below matket rates by giving PR exemption from other states' income taxes was nthing more than encouraging the gorge. Sad.

 

If Warren Buffet had stepped in and bought $5 billion of PR debt, then you'd have known some special bailout was coming. None of the crooked signals were sent. PR will sink below the waves on its mountain of unpayable debt, and maybe be should grant the desires of all those obese loveles who run around screaming and carryng "Viva un Puerto Rico libre" signs at every PR day parade.

 

Give them their freedom. Cut off all the aid, benefits and frre shit from the US, and let's see how they do. Just like all the other Carib islands... people who think 3 hours is a full workday and disparage those work hard to move up, get a real job and get the fuck out.

 

Never had worse vacations than those taken to PR. Even the DR put them to shame with their work ethic. A PR worker told me how taking less pay, in cash, was better than on the books, so he could game the US benfeits system for free shit.

 Now a monster storm will scour the place clear. Let's hope the rebuilding doesn't turn into the predictible scramble to steal as much aid investment as possible. Why do I feel that in 5 years I'll be readng how all the aid money got siphoned off into sweetheart deals with shell companies run by relatives of the politicians in power, and nothing got built, but the cash is gone? 

 

To anyone who still holds PR paper hoping for some kind of payout, good luck to you.

To the honest people in PR, who work hard and believe the system is fair and set up to provide opportunity, I wish you the best. God bless you.

youarelost's picture

Socialism fails. Like Trump said.

Juggernaut x2's picture

Trump is a beneficiary of crony capitalism, which is socialism for the rich- Trumptards just bleat about socialism because they think it makes them sound cool like Orange Jesus.

nmewn's picture

So you're one of his crony-capitalist bankruptcy lawyers.

How come you didn't get him off the hook with a well placed call to politburo or duma members like crony-socialists do, they buy you off? ;-)

Archibald Buttle's picture

OT-ish, but if you like your rocket man you can keep your rocket man?

Yen Cross's picture

  I'm flabbergasted at the complete lack of coverage about Illinois and it's fiscal problems.

 Do the Feds actually think they can sweep that shit-show under the rug?

  Do MUNI bond dealers actually think they can repackage and sell this shit, like subprime R/E paper? I just had a revelation...

 The next crash is going to come from a massive global sovereign debt crisis.  No one gets paid, except for the people holding the gold, ammo, beans, water, ect...

NoDebt's picture

Easy, son.  Easy.  You're going 1, 2, 6 on this thing.  

No, the feds don't think they can sweep this shit-show under the rug.  I'm one of the few who believes the Feds will NOT come to the rescue.  They don't give a shit one way or the other because they have their own fiscal problems to deal with.  The most likely path is that they will assist in a special "restructuring" but on a state-wide scale, similar to the GM bankruptcy.  Going beyond that raises serious Constitutional concerns about State sovereignty and the core of Federalism (which, I concede, nobody gives much of a shit about but it actually is a thing).

Yes, Muni bond dealers think they can repackage and sell this shit.  In fact, I think they are salivating at the thought.  Remember, they don't OWN it, they just sell it for a commission.

As for massive sovereign debt crises.... c'mon.  How long you been on this board?  At least as long as me.  You should know better.

 

Pernicious Gold Phallusy's picture

The Constitution? That's just an obsolete boat somewhere in Boston.

Shinebama's picture

Funny, I was watching the Big Short (again) last night on Netflix where they were comparing CDO's to dog shit wrapped in cat shit, remarketed as AAA bonds. Only difference is savvy investors won't fall for that IF they look at the contents that have IL bonds in them.

Analog Kid's picture

Add in the fact that if the Feds jump in to 'save' Illinois, they have to do the same thing with all the other mismanaged states...

Father ¢hristmas's picture

It is being swept under the rug so that when they pull it, everyone can act surprised and a massive bailout can be slammed through.

Remember 2008?  "We never saw it coming.  We have to restore confidence in the markets."

Remember 2001?  "No one could have predicted Osama Bin Laden would seek to fly planes into skyscrapers.  We need a Patriotic Act to be quickly passed through a bipartisan Congress to reassure the American public, so they can continue flipping subprime real estate."

yogibear's picture

"Do the Feds actually think they can sweep that shit-show under the rug?"

Yes they do.


Pollygotacracker's picture

Illinois is a disaster area. The public employees are responsible. I feel no pity for greedy hogs.

Seasmoke's picture

Hogs get slaughtered. And public TAKERS everywhere are hogs. 

yogibear's picture

LOL, Chicago area high school teachers making $120,000/yr pensions.

Plus a 3% increase yearly. They still want more, and are snooty about it.

Pernicious Gold Phallusy's picture

"If you don't give us more, we'll make sure your kids can't add."

Archibald Buttle's picture

pretty sure that directive comes from way higher up than anybody in the admittedly corrupt teachers union. and it's not exactly a brand new thing btw...

yellowsub's picture

They should automate education first before vehicles...