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Recent Court Ruling Sounds Death Knell For Illinois

By Gary St. Fleur. Originally published at ValueWalk.

As Illinois continues to run continuing deficits as it operates without a budget, a recent court ruling plunges the already financial weakened state into financial oblivion. Illinois has entered its fifth straight year without a budget and Law makers within the state are no closer to reaching a workable resolution bring the unthinkable of a once unthinkable Illinois bankruptcy closer. This has brought the financially ailing state on the cusp of obtaining the disreputable honor of being the first state in the union to receive a Junk rating.

Illinois bankruptcy
tpsdave / Pixabay

As Friday drew to a close, Illinois law makers failed to come to a resolution regarding the budget.


The state  has been without a budget since mid-2015. The 5th most populous state in the U.S now faces the real possibility of obtaining a junk status rating as credit agency S&P warned almost one month ago. The reaction has been apt, according to news reports from Bloomberg, Illinois House Speaker Michael Madigan went to task on Friday in attempt to dissuade credit ratings from adjusting their ratings for the distressed state. She pleaded that the rating companies should withhold judgment until the lawmakers could come to decision.

These cries may fall on deaf ears as the state continues to run up a tab it cannot possibly pay. As of now, the state has $15 billion in unpaid bills, a $6 billion increase in expenses from the prior year and mounting interest on unpaid bills. This has created a devastating situation for social programs within the state that provide aide to the homeless, disabled and poor. Universities within the state are also at risk of losing accreditation due to lack of state aide.

While the state embraced the prospect of the loss of its credit ratings because of failure to pass a budget by the midnight deadline, a federal judge in Chicago has ordered Illinois to pay millions owed in Medicaid payments. The state, which doesn’t have any money to make these payments, was ordered to make $586 million in monthly payments (from the current $160 million) as well as another $2 billion because of backlog payments of $3 billion.

This action was due to the fact that the state has withheld obligated payments to medical providers. The managed-care companies complained that the lack of payments has affected their ability to provide access to health care.  The judge who oversaw the case, Judge Joan Lefkow, ordered the state lawyers to negotiate with Medicaid recipients. It is clear that the state will not be able to come up with any payments and an Illinois bankruptcy is becoming a possible solution.

Yields attached to the state bonds have reacted accordingly, sending the state’s 10-year bonds to 4.8%. The fate of the state is in limbo and the prospect of an Illinois bankruptcy appears inevitable.

The post Recent Court Ruling Sounds Death Knell For Illinois appeared first on ValueWalk.

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