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Illinois Comptroller Tells Governor: “The State Can No Longer Function”

Thursday June 22nd, 2017   •   Posted by Craig Eyermann at 6:21am PDT   •  

12071081 - poor man showing empty pockets in front of american state of illinois flag Illinois’ fiscal situation is getting worse. ZeroHedge summarizes the state’s rapidly deteriorating predicament:

With just 10 days to go until Illinois enters its third year without a budget, resulting in the state’s imminent downgrade to junk status and potentially culminating in a default for the state whose unpaid bills now surpass $15 billion, Democratic Illinois Comptroller Susana Mendoza issued a warning to Illinois Gov. Rauner and other elected officials on Tuesday, saying in a letter that her office has “very serious concerns” it may no longer be able to guarantee “timely and predictable payments” for some core services.

In the letter posted on her website, Mendoza who over the weekend warned that Illinois is “in massive crisis mode” and that “this is not a false alarm” said the state is “effectively hemorrhaging money” due to various court orders and laws that have left government spending roughly $600 million more a month than it’s taking in. Mendoza said her office will continue to make debt payments as required, but indicated that services most likely to be affected include long-term care, hospice and supportive living centers for seniors. She added that managed care organizations that serve Medicaid recipients are owed more than $2.8 billion in overdue bills as of June 15.

“The state can no longer function without a responsible and complete budget without severely impacting our core obligations and decimating services to the state’s most in-need citizens,” Mendoza wrote. “We must put our fiscal house in order. It is already too late. Action is needed now.”

A combination of the state legislature’s failure to produce a budget during the last three years, court-ordered spending, and most significantly, spectacularly underfunded state government employee pension funds, where Illinois’ former state employees benefit payments are almost uniquely protected from ever being reduced by the state’s highest law.

Some states (seven) have a constitutional provision that specifically states that public pension plans create a contract between the state and participant (employee) although the protections vary state-to-state. Michigan, for example, has a constitutional provision that protects benefits accrued to date while Illinois’ constitution says accrued and future retirement benefits are protected. These kinds of specific protections make it impossible (barring extreme circumstances) to change an employee’s retirement benefit. This rigidity is why unfunded pension liabilities in these states (Illinois in particular) are so alarming – because the law essentially prohibits the legislature to making any changes that could decrease that liability. The law only allows for changes to future employees, whose benefits are of course not included in that unfunded liability.

In other words, Illinois’ dismal fiscal state was entirely created by its elected officials and the people on the state government’s payroll, whose long-running abuse of power to put themselves ahead of everyone else in the state has been enshrined in the state’s constitution.

No wonder the state can no longer function. The only remaining question is how did it take the state so long to get to this point?

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June 2017