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Illinois fix to unpaid bills may end up as financial time bomb

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Illinois owes a handful of financial consortia more than $118 million under an obscure program intended to speed up overdue payments to the cash-strapped state’s vendors, an analysis of state records shows.

Political feuding between Republican Governor Bruce Rauner and Democrats who control the legislature has kept Illinois without a full operating budget since July 2015, contributing to a doubling of the unpaid bills backlog. The amount of overdue bills could reach $13.5 billion, or 40 percent of available operating revenue, when the current fiscal year ends June 30, the Rauner administration has projected.

Come fiscal 2022, the backlog is projected to balloon to $47 billion. No other U.S. state defers payments to the extent Illinois does to manage cash flow, credit-rating analysts said.

The one-of-its-kind, bill-payment program seeks to avert the nightmare scenario for a state in the worst financial shape in the country: a shutdown of essential services such as employee health insurance, a disruption of prison food supplies or mothballing of state trooper cars in need of fuel and maintenance.

“I don’t think there is any other alternative for us,” Illinois Central Management Services Director Michael Hoffman told a legislative panel in May.

But it comes at a heavy cost with unlimited late-payment fees now approaching 20 percent in some cases for Illinois’ cash-strapped government, whose general obligation (GO) low-investment grade credit ratings are the lowest among U.S. states.

The state’s negative credit outlook means its $26 billion of outstanding GO bonds could lurch closer to the junk level if the growing unpaid bill pile impairs its ability to provide essential services, affects debt payments and inflates its already huge $130 billion unfunded pension liability.

“No other state or business would operate by incurring obligations to its vendors and setting up a third-party payment structure that dramatically inflates the costs of those services,” said Laurence Msall, president of the Chicago-based Civic Federation, a non-partisan government watchdog.

Under the Vendor Support Initiative (VSI) program launched last year to replace a similar plan introduced in 2011, state vendors can get paid without delay 90 percent of what they are owed by state-designated financial lenders.

When the state finally pays, the vendors get the final 10 percent, while the lenders keep the late-penalty fees. In Illinois, receivables more than 90 days past due accumulate interest at a rate of 1 percent per month.

 

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Hong Kong protests spread to subway as bank warns of economic fallout

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Reuters- A major bank warned on Wednesday that weeks of protests in Hong Kong could hit the economies of the Chinese-ruled city and mainland China itself as demonstrators prepared a sit-in at a subway and site of a mid-summer mob attack.

Hong Kong-based Bank of East Asia Ltd (BEA) posted a 75% slump in first-half net profit after it wrote down loans in China because of a downturn in commercial property markets outside China’s top cities.

It also warned that social unrest in Hong Kong and a trade dispute between China and the United States could affect the economies of China and the former British colony.

“The tense atmosphere (in Hong Kong) is likely to weigh on consumer and business confidence, and on in-bound tourism, if there is no resolution soon,” it said in a statement.

Some Hong Kong companies have been dragged into controversy after 11 weeks of sometimes violent clashes between police and pro-democracy protesters, angered by a perceived erosion of freedoms.

Pilots and cabin crew at Cathay Pacific Airways described a “white terror” of political denunciations, sackings and phone searches by Chinese aviation officials.

“The recent situation in Hong Kong causes signs of concerns for the local SMEs (small and medium-sized enterprises),” bank co-chief executive Adrian Li told reporters. “It is because you see that if the current condition continues, (it) shall affect tourism, retail trade as well as investors’ confidence. Nevertheless, our Hong Kong asset quality remains very healthy.”

Protesters were preparing to gather on Wednesday at the suburban Yuen Long mass-transit rail station, one of a series of running demonstrations over 11 weeks that have sometimes turned violent, including the storming of the legislature and havoc at the airport.

On the night of July 21, about 100 white-shirted men stormed the station hours after protesters marched through central Hong Kong and defaced China’s Liaison Office – the main symbol of Beijing’s authority over the city.

The men attacked black-clad protesters returning from Hong Kong island, passers-by, journalists and lawmakers with pipes and clubs, wounding 45 people.

Anger erupted in June over a now-suspended bill that would allow criminal suspects in Hong Kong to be extradited to mainland China for trial. Hong Kong leader Carrie Lam said again on Tuesday the legislation was dead.

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24 Hours Across Africa

Saudi Arabia implements end to travel restrictions for Saudi women: agency

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Reuters – Saudi Arabia has begun implementing previously announced changes that allow adult women to travel without permission and to exercise more control over family matters, state news agency SPA reported on Tuesday.

“The passports and civil status departments and their branches in all regions of the kingdom have started to implement the amendments stipulated in the royal decree,” the report said, citing an interior ministry source.

Reporting by Stephen Kalin; Editing by Gareth Jones

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