I’ve been blogging about the mess that is my home state of Illinois and just as I thought…it managed to find a way to make things worse.
Illinois legislators cannot agree on a budget. It closed the “fiscal year $6 billion in the red.” The state also has “unpaid bills to state contractors and vendors that’s reached about $14.5 billion and roughly $130 billion in unfunded pension liabilities.” S&P downgraded the state’s credit rating to a step above junk. Then the state’s GOP leader resigned on Friday.
A judge has ordered Illinois to pay $293 million towards Medicaid bills just as the state entered its THIRD FISCAL YEAR without a budget.
Before I continue, I have to get this off my chest. Illinois can start off by slashing the budget…by A LOT. That would help its situation.
U.S. District Judge Joan Lefkow announced on Friday that Illinois must “start paying $293 million in state money toward Medicaid bills every month and an additional $1 billion over the course of the next year.”
The Chicago Tribune reported:
U.S. District Judge Joan Lefkow’s ruling came after lawyers representing Medicaid patients and attorneys for the state were unable to agree on a plan to deal with bills and pay down a $3 billion backlog owed to health care providers.The ruling requires the state to start promptly paying all new Medicaid bills, which is estimated at about $586 million per month, and to pay down $2 billion of its bill backlog in payments spread out over the course of the coming fiscal year. The federal government pays half of those costs, so the bottom line for the state will be $293 million per month and $1 billion in backlogged bill payments over the next year.
Illinois Comptroller Susana Mendoza admitted this ruling will force her “to cut payments to the state’s pension funds, state payroll or payments to local governments.”
Remember, the state has $130 billion in unpaid bills towards pension liabilities. The patients’ attorney David Chizewer lashed out at Illinois:
“What they secretly want is for the parent to step in and stop the behavior,” Chizewer said. “I think the state is asking the court to step in.”
In early June, Lefkow stated that “it was reasonable for Medicaid providers to expect their bills to be paid, if not in full, then enough to maintain patients’ access to care.” When she made that ruling, the bills added up to $2 billion. By the end of the month? $3 billion.
Illinois lawyers acknowledged the backlog, but also insisted that “there wasn’t evidence to show that Medicaid patients had been denied care as a result.”
Um, okay. So we should wait until the providers don’t have the funds to treat patients? That makes sense! At that mention, Lefkow also demanded something else. The Tribune continued:
Lefkow said it was “obvious” the state was failing to comply with her court order to pay the Medicaid bills. But she wanted evidence of harm that’s been caused to Medicaid patients as a result. She ordered the lawyers for the patients to submit affidavits documenting the damage.
Lefkow also criticized Illinois’s priorities:
Lefkow said she was bothered that “other people who are not as needy as these people are getting 100 percent” payment of their bills. Lefkow said she wasn’t in favor of depriving workers of their salaries or skipping pension payments, but said the state “has a real problem explaining” how some people are being paid while others are not.
As I mentioned above, Illinois has entered its third fiscal year without a budget on Friday.
Democrat House Speaker Michael Madigan promised to hold a vote “on a revenue package that is modeled on the bill supported by the governor, and House and Senate Republicans.” However, House Republican Leader James Durkin stated that “he had made no deals.” From NBC Chicago:
“There is no agreement on a comprehensive budget package that includes reforms and revenue,” Durkin said in a statement. “This impasse can only be resolved in a negotiated manner. It is our hope that Democrats will remain at the negotiating table.”
But if the House passes this bill, nothing will happen because the senate “adjourned Saturday afternoon” and will not return until Monday.
Of course fingers have pointed to Republican Governor Bruce Rauner, who has said he does not want tax hikes and wants a “budget on a series of his policy changes that he viewed as pro-business.” Democrats want more revenue and said that Rauner’s vision is “anti-union and anti-middle class.”
Or maybe the Democrats should listen to the voters, who voted for Rauner. He ran on these promises so it’s not shocking that Rauner wants to slash the budget and not raise taxes. But I digress.
The legislatures have said they’re “optimistic,” but in reality they are about $1.5 billion apart. Politico reported that “$800 million in recommended cuts by Republicans.”
Even before this year Illinois held an awful credit rating. On June 1, S&P downgraded the state “to triple-B minus from triple-B.” Yes, that is literally one step above JUNK. From The Financial Times:
S&P and Moody’s, the two biggest rating agencies, relegated the state’s $25bn of “general obligation” debt to the lowest possible investment grade at the start of June. They warned that they would push it into non-investment grade territory — popularly called “junk” — if the legislature failed to pass a budget for a third year running.“The rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations,” Gabriel Petek, an S&P analyst, said in a statement at the time. “The unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments.”
If Illinois reaches junk status, it could affect the states around it:
“Even if Illinois legislators manage to agree on a new budget and stave off the threat of a credit rating downgrade in the near-term, adverse demographics mean that the public finances in Illinois and many other rust-belt states will come under increasing pressure over the next decade,” Paul Ashworth of Capital Economics wrote in a report last week.
Knowing the severity of the situation, Madigan has fired off numerous “letters to bond houses asking them for extra time before downgrading the state’s bond rating.”
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