"From Horrific To Catastrophic": Court Ruling Sends Illinois Into Financial Abyss
1
July, 2017
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).
* *
*
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).
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.
* *
*
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.”
America's Pension Bomb: Illinois Is Just the Start
We've written quite a bit
over the past couple of months about the pending financial crisis in
Illinois which will inevitability result in the state's debt being
downgraded to "junk" at some point in the near future (here
is our latest from just this morning: "From
Horrific To Catastrophic": Court Ruling Sends Illinois Into
Financial Abyss).
Unfortunately, the state
of Illinois doesn't have a monopoly on ignorant politicians...they're
everywhere.
And, since the end of World War II, those ignorant politicians have
been promising American Baby Boomers more and more entitlements while
never collecting nearly enough money to cover them all...it's
all been a massive state-sponsored scam.
Illinois,
Maine, Connecticut: the end of the old fiscal year and the failure of
numerous states to enter the new one with a budget, means that some
of America's most populous states have seen their local governments
grind to a halt overnight until some spending agreement is reached.
Now we can also add New Jersey to this list.
No comments:
Post a Comment
Note: only a member of this blog may post a comment.