"From Horrific To Catastrophic": Court Ruling Sends Illinois Into Financial Abyss

First Maine, then Connecticut, and finally late on Friday, confirming the worst case outcome many had expected, Illinois entered its third straight fiscal year without a budget as Republican Governor Bruce Rauner and Democratic lawmakers failed to agree on how to compromise over the government’s chronic deficits, pushing it closer toward becoming the first junk-rated U.S. state.

By the end of Friday - the last day of the fiscal year - Illinois legislators failed to enact a budget, and while negotiations continued amid some glimmers of hope and lawmakers planned to meet over the weekend, the failure marked a continuation of the historic impasse that’s left Illinois without a full-year budget since mid-2015, and which, recall, S&P warned one month ago will likely result in a humiliating and unprecedented downgrade of the 5th most populous US state to junk status.

Then came the begging.

According to Bloomberg, on Friday Illinois House Speaker Michael Madigan, a Democrat who controls much of the legislative agenda, pleaded with rating companies to "temporarily withhold judgment” as lawmakers negotiate. “Much work remains to be done,” the Democrat said on the floor of the House Friday, before the chamber adjourned for the day. “We’ll get the job done.”

Meanwhile, the state remains without a spending plan, its tax receipts and outlays mostly on "autopilot", leaving it with a record $15 billion of unpaid bills as it spent over $6 billion more than it brought in over the past year, and with $800 million in interest on the unpaid bills alone. The impasse has devastated social-service providers, shuttering services for the homeless, disabled and poor. The lack of state aid has wrecked havoc on universities, putting their accreditation at risk.

However, in a "shocking" development, just hours remaining before the midnight deadline to pass the Illinois budget, and Illinois' imminent loss of its investment grade rating, federal judge Joan Lefkow in Chicago ordered Illinois to come up with hundreds of millions of dollars it owes in Medicaid payments that state officials say the government doesn’t have, the Chicago Tribune reported. Judge Lefkow ordered the state to make $586 million in monthly payments (from the current $160 million) as well as another $2 billion toward a $3 billion backlog of payments - a $167 million increase in monthly outlays - the state owes to managed care organizations that process payments to providers.

While it is no secret that as part of its collapse into the financial abyss, Illinois has accumulated $15 billion in unpaid bills, the state's Medicaid recipients had had enough, and went to court asking a judge to order the state to speed up its payments. On Friday, the court ruled in their favor. The problem, of course, is that Illinois can no more afford to pay the outstanding Medicaid bills, than it can to pay any of its $14,711,351,943.90 in overdue bills as of June 30.

The backlog of unpaid claims the state owes to managed-care companies directly, as well as to the doctors, hospitals, clinics and other organizations “is crippling these providers and thereby dramatically reducing the Medicaid recipients’ access to health care,” Lefkow said in her ruling (attached below).

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Friday’s court ruling, which meant that the near-insolvent state must pay an additional $593 million per month, may have been the straw that finally broke the Illinois camel's back.

“Friday’s ruling by the U.S. District Court takes the state’s finances from horrific to catastrophic,” Comptroller Susana Mendoza, a Democrat, said in an emailed statement after the ruling.

As a result of the court decision, “payments to the state’s pension funds; state payroll including legislator pay; General State Aid to schools and payments to local governments -- in some combination -- will likely have to be cut.” 

"As if the governor and legislators needed any more reason to compromise and settle on a comprehensive budget plan immediately, Friday's ruling by the U.S. District Court takes the state's finances from horrific to catastrophic," Mendoza said in a statement. "A comprehensive budget plan must be passed immediately." Realizing where all this is headed, she said that payments to bond holders won't be interrupted (more below).

Illinois Comptroller Susana Mendoza

Friday night's legal decision followed a previously discussed ruling, when on June 7, Judge Lefkow ordered lawyers for the state to negotiate with Medicaid recipients to come up with more money, but she stopped short of dictating how much more the state should pay each month, or when. That decision sent Illinois General Obligation bond soaring.

Earlier this week, the parties again went before the judge to say they were at an impasse, with lawyers for Medicaid recipients asking for more than $1 billion a month to cover past and ongoing costs.

Lawyers for Illinois countered that they could only come up with approximately $75 million more a month, which would translate to $150 million with federal matching dollars. Although the state is way behind, state officials said in court filings that they have been making more than $1 billion in Medicaid related payments each month in 2017, “including payments to safety net hospitals, MCOs, and other providers.”

While the state was livid over the decision, plaintiffs were delighted. Tom Yates, one of the lawyers who represented the Medicaid recipients. said the judge’s ruling is a “fair result” that will help them have access to care. “Medicaid is an incredibly important program for 25 percent of the state’s population,” Yates said. It remains unclear, however, where Illinois would find the required funds.

In her ruling, Lefkow said the state must pay the $2 billion toward its past obligations beginning July 1 and ending June 30, 2018. She ordered the state to file monthly reports showing that it’s making the payments consistent with the ruling. The Judge said she considered submissions by managed care organizations, including The Meridian MCO and Aetna Better Health Inc., in reaching her decision. Meridian is owed $540 million and Aetna is owed $700 million, the judge said. In addition, she considered submissions from doctors and clinics.

Adding insult to crippling financial injury, the judge also ordered the state to file monthly reports showing that they are making the payments consistent with the ruling.

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Meanwhile, despite the recent fireworks, things in Illinois remain on autopilot as the state needs a new budget to change financial direction.

Without a budget, Bloomberg writes, the state has continued to spend more than it brings in. That’s forced it to cover “core priority” payments first, including payroll, debt service and pensions that total about $1.85 billion a month. While those bills include some Medicaid-covered payments like health services for children and adults, the state has said there aren’t enough funds to include general payments to managed-care organizations as a top priority.

Also, without a budget that includes borrowing to pay down the bill backlog, Illinois by August will run out of money for key expenses for the first time since the stalemate began, according to Comptroller Mendoza. That means school funding, state payroll, and pension payments could be affected, she said. There won’t be enough money for these mandated or court-ordered payments.

As noted above, Mendoza said that this won’t jeopardize debt-service payments, however she probably should have added "for now." For now, Illinois hasn’t missed any bond payments and state law requires it to make monthly deposits to its debt-service funds.

For now, despite the Illinois deadline coming and going, the political standoff shows no signs of ending.

And now the market is set to react: investors have already punished Illinois for its fiscal woes. Yields on the state’s 10-year bonds have soared to 4.8%, 2.8% points higher than benchmark debt. That’s the highest yield of all 22 states that Bloomberg tracks.

Summarizing best the chaos in Illinois was John Humphrey, the head of credit research for Gurtin Municipal Bond Management, which oversees about $10.1 billion of state and local debt who said that “recognizing that they’re continuing to work through the weekend, it doesn’t look good to adjourn halfway through your last day.

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The case is Memisovski v. Wright, 92-cv-01982, U.S. District Court, Northern District of Illinois. Full court ruling below:


N2OJoe Shocker Sat, 07/01/2017 - 09:57 Permalink

.The impasse has devastated social-service providers, shuttering services for the homeless, disabled and poor. The lack of state aid has wrecked havoc on universities, putting their accreditation at riskThat's horrible! All those people being incentivized to actually find work and other losing their government enforced cartel status!

In reply to by Shocker

jeff montanye luky luke (not verified) Sat, 07/01/2017 - 22:56 Permalink

israel is america's greatest political curse, no doubt about it.but apropos of the comment above that these are the people that would be in charge of single payer: so what?  do you think that the administrative people in all the other economically developed countries that have single payer health at one half the cost of the u.s. health system are unusually competent and hard working?  france?  italy?  spain?no.  the design is better.  and so are the results except for the top 1% richest or so.and fuck them.  they have had it their way for too fucking long.  they will always be able to get the best of whatever they want.

In reply to by luky luke (not verified)

maxwellsdemon Montani Semper… Sun, 07/02/2017 - 00:29 Permalink

Hey asshole Montani Semper; how's the weather in Tel Aviv? Even the more placid of the goys are learning that their debt created fiat money locks them into debt slavery to the Jewish/Zionist banksters while the the smart goys know 911 was a Mossad job and Israel runs our fed.gov.  The goyim know.https://www.youtube.com/watch?v=qS8eysb0IukA global reset is coming

In reply to by Montani Semper…

All Risk No Reward Pairadimes Sun, 07/02/2017 - 02:53 Permalink

Big government is and EFFECT. The ROOT CAUSE is the Debt-Money Monopoly and their Mega-Corporate Fascist "human power elite."Debt-money systems are a complete fraud, top to bottom. Here's the proof, again. Pay attention. 1. Money is issued as debt (yes, specie isn't, but it is negligible)Bank of England Admits that Loans Come FIRST … and Deposits FOLLOW http://www.zerohedge.com/contributed/2014-03-20/bank-england-admits-loa… OK, with that out of the way, let's simplify the example in such a way that people aren't confused by the complexity. Let's say I, the private internation banking cartel, loan you, society, $20 @ 5% interest. In one year, you will owe me $21 due to double-entry bookkeeping adjustments that add $1 interest liability to your balance sheet and $1 interest asset to my balance sheet. Let's summarize: In one year you will have access to $20, you will owe me $21, AND I WILL CONTROL THE $1 YOU NEED TO PAY ME BACK, OTHERWISE, PAYBACK IS IMPOSSIBLE. BTW, the 5th grade level math works the same even if you add millions, billions, trillions, or quadrillions after the amount. Behold, the Debt-Money Artificial Zero-Sum Monetary System Game where the debt-money instantiators collect interest on the world's money supply. Who said there isn't money for nothing and chicks for free! Can you reason out the absolute necessity for inflation or else the debtors go bust? You will be bust in one year if I just hold onto the $1 interest asset. I will effectively steal your collateral and you will be to monetarilly illiterate to know - at least, that's the case for almost everyone I've ever met or conversed with (not all, but darn near!). But, I don't want to steal $20 worth of stuff one time. I want to steal much more over time and, simultaneously, occult the methodology that does it. So I lend another $20 to someone else. Now, technically, you can earn $1 and pay your debt to me, so you think the system is equitable - after all, you paid your debts, right? But the guy who gave you a $1 only has $19, and still owes me $21. The $1 of inextinguishable debt turned into $2 of inextinguishable debt as the gross debt as the debt-money supply grew from $20 to $40. Errr, inflated. This is why they inflated... to manage the money supply to only bankrupt the number of people they determine to bankrupt. They asset strip those they bankrupt, roo. It is literally a societal asset stripping conveyor mechanism.However, debt can't grow exponentially forever, so the debt-money bubble will bust and the asset stripping will accelerate well beyond the Great Depression level of ordinary person asset stripping. BTW, a "bailout" is when the Debt-Money Monopolist Mega-Corporate Fronts lend $20, stick the proceeds in their corporate front "pockets," tell you they did it for you, and then send you a bill for $21 after the year is up and they gave you exactly ZERO DOLLARS. There is a reason they train us to think "ignorance is bliss." Is that enough data and logic for ya? Be sure to ask questions if you don't comprehend reality. Resources:How To Be a Crookhttps://www.youtube.com/watch?v=2oHbwdNcHbcPoverty - Debt Is Not a Choicehttps://www.youtube.com/watch?v=t7BTTB4tiEURenaissance 2.0 The Rise of [Debt-Money Monopolist] Financial Empirehttps://www.youtube.com/watch?v=96c2wXcNA7ADebunking Moneyhttps://www.youtube.com/watch?v=5iBSBVew-3YKrugman (and each MIT economist professor - THEY KNOW AND THEY OCCULT!) is a Goebbelsian propagandist as he covers the crimes of wolves with his fake sheep suit and lisp.Krugman to Lietaer: "Never touch the money system!"https://www.youtube.com/watch?v=Q6nL9elK0EYAnd don't think Steve Keen is any better. He was called to the carpet for not admitting the system is a fraud when it was explained EXACTLY HOW THAT FRAUD WORKED... and he tucked tail and ran away PRETENDING he was responsive...The Principal And Interest On Debt Myth (technically correct, but practically reveals inherent fraud as exposed CLEARLY in the comments section)https://www.forbes.com/sites/stevekeen/2015/03/30/the-principal-and-int… line - Steve Keen won't "touch the money system" either. He learned well from his Debt-Money Monopolist Overlords.30 sheckels of silver over THE TRUTH."The best way to control the opposition is to lead it and/or finance it."~Yours truly, based upon Vladimir Lenin's quote

In reply to by Pairadimes

jeff montanye Great Deceivah (not verified) Sat, 07/01/2017 - 23:06 Permalink

i'll let you head up that effort on chicago's south side, your sense of humor will ingratiate you.illinois should consider single state single payer like california, or maybe join it (could probably get massachusetts too).  donald trump, imo, is just waiting to be "forced" into it.  it would certainly turn around that voter approval rating, not to mention history's.ought to legalize and tax weed too; there are quite a few "dry" states between colorado and d.c./massachusetts.  but they better hurry, michigan, minnesota, ohio and arkansas have medical mj and certainly could use more revenue too.

In reply to by Great Deceivah (not verified)

glitzcity N2OJoe Sat, 07/01/2017 - 10:45 Permalink

You suffer from selective reading comprehension. Illinois is $15billion behind in unpaid bills, where does it say that they owe $15billion for social services? No the bulk of they money is owed for something else. The else is usually something that white employees and contracts get their hands on.Did the state stop paying off crony criminal white pensioner class?

In reply to by N2OJoe

helloimjohnnycat Strelnikov Sun, 07/02/2017 - 03:56 Permalink

Da !The only thing those pasty-white ugly lefties care about is lubbin' Negroes.The only thing the uglier Negroes care about is lubin' dere duk muh-diks , insertin' doz greased-up aids sticks into duh white wimmins' orifices, smokin' blunts, gamblin' with dere welfare grift, swillin' alkyhol chased with grape drank, makin' new lil niggahs, fightin', robbin', rapin', murderin', and attendin' Negro Universidy aka, duh State Penitentiaries.Hail's fire, I don't think there's one good shoe-shine boy left in duh whole hold-upped dark-hole chicongo ghettoz.Carry on ya' mofos and always keep it real.Now, cRap me a new rythmn & ryhme that makes absolutely no sense to anyone who understands, speaks, and writes the English language.    

In reply to by Strelnikov

wildbad N2OJoe Sat, 07/01/2017 - 12:38 Permalink

ill in noise is just the fastest horse in the race to the cliff but its a full field. then there is the private sector too which has benefitted bigly from zirp or effective nirp. when you hear about "it not ending well"...this is it.  it is ending and all is not well.  this slow-mo trainwreck will be played out in HD EVERYWHERE and noone will remain unaffected.

In reply to by N2OJoe

Sudden Debt N2OJoe Sat, 07/01/2017 - 13:16 Permalink

FUCK THEM!! THEY ARE NOW WHAT GREECE WAS TO EUROPE!Everybody made fun of them, so now that another state that's a big bigger then Greece is bites the dust, we can't show mercy.There will be plenty of other states to go bankrupt and yeah... the local natives will have a hard time.BUT THEY ARE ALL LAZY AND GREEDY! WHATEVER HAPPENS, THEY DESERVE IT! Nobody cried for Greece when they fell into trouble. Remember that always. Everybody made fun of them.

In reply to by N2OJoe