{"id":76697,"date":"2017-07-02T07:24:52","date_gmt":"2017-07-02T11:24:52","guid":{"rendered":"https:\/\/stateofthenation2012.com\/?p=76697"},"modified":"2017-07-02T07:28:44","modified_gmt":"2017-07-02T11:28:44","slug":"from-horrific-to-catastrophic-court-ruling-sends-illinois-into-financial-abyss","status":"publish","type":"post","link":"https:\/\/stateofthenation2012.com\/?p=76697","title":{"rendered":"“From Horrific To Catastrophic”: Court Ruling Sends Illinois Into Financial Abyss"},"content":{"rendered":"

ZeroHedge.com<\/p>\n

First\u00a0Maine<\/a>, then\u00a0Connecticut<\/a>, 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\u2019s chronic deficits, pushing it closer toward becoming the first junk-rated U.S. state.<\/p>\n

By the end of Friday – the last day of the fiscal year – Illinois legislators failed to enact a budget, and while negotiations\u00a0continued amid some glimmers of hope<\/a>\u00a0and lawmakers planned to meet over the weekend, the failure marked a continuation of the historic impasse that\u2019s left Illinois without a full-year budget since mid-2015, and which,\u00a0recall<\/a>, 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.<\/p>\n

Then came the begging.<\/p>\n

According to\u00a0Bloomberg<\/a>, on Friday Illinois House Speaker Michael Madigan, a Democrat who controls much of the legislative agenda,\u00a0pleaded with rating companies to “temporarily withhold judgment\u201d\u00a0<\/strong>as lawmakers negotiate. \u201cMuch work remains to be done,\u201d the Democrat said on the floor of the House Friday, before the chamber adjourned for the day. \u201cWe\u2019ll get the job done.\u201d<\/p>\n

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.<\/p>\n

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,\u00a0federal 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\u2019t have,\u00a0<\/strong>the\u00a0Chicago Tribune<\/a>\u00a0<\/strong>reported. Judge Lefkow ordered the state to make $586 million in monthly payments (from the current $160 million)\u00a0<\/strong>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.<\/p>\n

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\u00a0any of its $14,711,351,943.90 in overdue bills\u00a0<\/a>as of June 30.<\/p>\n

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The backlog of unpaid claims the state owes to managed-care companies directly, as well as to the doctors, hospitals, clinics and other organizations\u00a0\u201cis crippling these providers and thereby dramatically reducing the Medicaid recipients\u2019 access to health care<\/strong>,\u201d Lefkow said in her ruling (attached below).<\/p>\n

* * *<\/p>\n

Friday\u2019s 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.<\/p>\n

\u201cFriday\u2019s ruling by the U.S. District Court takes the state\u2019s finances from horrific to catastrophic,\u201d\u00a0<\/strong>Comptroller Susana Mendoza, a Democrat, said in an emailed statement after the ruling.<\/p>\n

As a result of the court decision, \u201cpayments to the state\u2019s 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.\u201d<\/p>\n

“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).<\/p>\n

<\/a>
\nIllinois Comptroller Susana Mendoza<\/em><\/p>\n

Friday night’s legal decision\u00a0followed a previously discussed ruling,<\/a>\u00a0when 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.<\/p>\n

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.<\/p>\n

<\/p>\n

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, \u201cincluding payments to safety net hospitals, MCOs, and other providers.\u201d<\/p>\n

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\u2019s ruling is a \u201cfair result\u201d that will help them have access to care. \u201cMedicaid is an incredibly important program for 25 percent of the state\u2019s population,\u201d Yates said. It remains unclear, however, where Illinois would find the required funds.<\/p>\n

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\u2019s 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.<\/p>\n

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.<\/p>\n

* * *<\/p>\n

Meanwhile, despite the recent fireworks, things in Illinois remain on autopilot as the state needs a new budget to change financial direction.<\/p>\n

Without a budget,\u00a0Bloomberg writes<\/a>, the state has continued to spend more than it brings in. That\u2019s forced it to cover \u201ccore priority\u201d 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\u2019t enough funds to include general payments to managed-care organizations as a top priority.<\/p>\n

Also, without a budget that includes borrowing to pay down the bill backlog,\u00a0Illinois by August will run out of money for key expenses for the first time since the stalemate began, according to Comptroller Mendoza<\/strong>. That means school funding, state payroll, and pension payments could be affected, she said. There won\u2019t be enough money for these mandated or court-ordered payments.<\/p>\n

As noted above, Mendoza said that this won\u2019t jeopardize debt-service payments, however she probably should have added “for now.”\u00a0For now<\/strong><\/em>, Illinois hasn\u2019t missed any bond payments and state law requires it to make monthly deposits to its debt-service funds.<\/p>\n

For now, despite the Illinois deadline coming and going, the political standoff shows no signs of ending.<\/p>\n

And now the market is set to react: investors have already punished Illinois for its fiscal woes. Yields on the state\u2019s 10-year bonds have soared to 4.8%, 2.8% points higher than benchmark debt.\u00a0That\u2019s the highest yield of all 22 states that Bloomberg tracks<\/strong>.<\/p>\n

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\u00a0\u201crecognizing that they\u2019re continuing to work through the weekend, it doesn\u2019t look good to adjourn halfway through your last day.<\/strong>\u201d<\/p>\n

* * *<\/p>\n

The case is Memisovski v. Wright, 92-cv-01982, U.S. District Court, Northern District of Illinois. Full court ruling below:<\/em><\/p>\n