Posted on 11/25/2016 7:43:51 AM PST by Lorianne
Anyone who has ever invested in distressed securities is intimately familiar with the many games that companies play to avoid a bankruptcy filing. The easiest game, and the most obvious red flag for investors to spot, involves stretching out payables and managing down receivable days to build cash so you can live to fight another day. While this may provide a temporary cash boost, it's typically the beginning of the end as vendors simply move payment terms to COD and the game quickly comes to an end.
Well, this is exactly the game that the state of Illinois seems to be playing right now to cover its budget shortfalls. As we just pointed out a couple of days ago (see "Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion"), with a $130BN pension underfunding and minimum annual contributions of $10BN, it's no surprise that Illinois needs every dollar they can squeeze out of vendors.
So, in response to their budget crisis, Illinois has done what every responsible, insolvent debtor does, namely raise more debt. Under the program, Illinois vendors are able to sell their receivables to a consortium of lenders who have decided to provide seemingly perpetual loans to the state at a cost 1% per month. As Reuters points out, the balance of the program is currently around $13.5BN right now but is expected to surge to $47BN by 2022, or nearly double the amount of GO bonds the state has outstanding.
(Excerpt) Read more at zerohedge.com ...
NJ is in the same boat, and we’ve seen several credit downgrades as a result. Any Americans who can are fleeing (along with employers) to avoid the pension payments to government workers who retired decades ago (on top of the ridiculous salaries paid to our public school teachers working six hours per day, 180 days per year); soon there will be nothing here but government workers, the unassimilated permanent urban underclass, and hordes of foreigners trafficked here to keep the government worker caste “administering” SOMEONE outside the ghettoes...
The only very small ray of hope here in IL is that House Leader In Perpetuum, Mike Madigan, lost his supermajority in the recent election. This will make it easier to at least get some less controversial things done, as when he had a supermajority the Democrats were judge, jury, and executioner.
Don’t worry, Illinois! President Hillary will champion a bail...oh, woops. Never mind.
Ah, but in a State these vendors are usually significant political donors.
Donors don’t put up with this.
Reminds me of how Hemmingway described how Spain went bankrupt. “Two ways. First slowly, then quickly”.
I heard they stopped paying lottery winners. That must really put a damper on ticket sales.
Note to self - don’t sell anything to Illinois unless it’s paid for in cash, up front.
“”That’ll be cash on the barrelhead, mate
You can take your choice
You’re a bankrupt state
No money down
No credit plan
No time to chase you
‘Cause I’m a busy man...
They’re apparently unaware of credit hold and COD in Illinois state government. All they are doing is losing their float.
Just wait till Trump yanks funding for refusing to drop their “sanctuary” city status.
A good piece; the teachers’ unions have maintained a huge PR offensive focused mainly on current pay (which already is outlandish in and of itself), and they don’t want the pensions even discussed. However, the problem couldn’t be concealed from taxpayers because so much current revenue has to fund retirees from decades ago, leaving little for current services. Chris Christie waged a good fight against these unions, and capped property tax increases at 2% (they are already among the highest in the nation); now taxpayers and the companies that hire them (both expected to fund this government worker caste) are fleeing in droves, and the state is turning into a public assistance basketcase. The nail in the coffin for teachers was the Asbury Park Press releasing salaries for all teachers in NJ; people were shocked at how many of our “underpaid” teachers were making nearly $100K (or more) working 6.5 hours per day for 180 days per year (with lifetime employment and no consequences for failure).
My town just built a new “board of education” building, a sure sign taxpayers can expect more financial rape in the coming years.
After sales of lottery tickets plummeted, the state of Illinois was forced to restore payoffs for winning tickets.
Grew up in New Jailsey. IMO anyone who chooses to live there deserves all the grief they get!
Yeah you might stiff me once being a sovereign state, not twice. COD or no delivery and the price of anything you want to pay cash for goes up to try and recover from the first time the state went deadbeat.
Some of us have circumstances (family - especially ageing parents, mortgages) that make it difficult to leave; we did elect Chris Christie twice but somehow the same voters consistently elect two Dem senators - and this is especially bad when Republicans control the senate because we have no influence at all.
If nothing more, NJ should serve as a warning to other states as to what happens when government employees become a dominant political factor, and also what happens when most voters are low-info people.
I, having no financial knowledge or training in any way shape or form, know of 2 Illinois financial stories. The first involves a nursing home. They had patients who were being covered by Ill. version of medicaid. The payments stopped. He tried to evict the patients, and a judge ordered him to keep them. He said at some point the business would just shut down.
The second involves a friend of mine who was collecting unemployment benefits. She got them for a few months, then they stopped. She was told she was owed the benefits, and her i’s were all dotted and t’s all crossed, but the state had no money, so she wouldn’t be getting them. Ever. She moved out of state.
I tried to talk my Mom into leaving years ago. I failed! She can visit me when she wants, but I have no sympathy for her
If she’s old enough her property taxes should be frozen (unfortunately, they are frozen at already-high levels).
It’s tough to change if she lived here for a long time...
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