IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

 

KERIM and ADVIJ MEMISOVSKI, by their
mother THERESA MEMISOVSKI, et al.,

Plaintiffs, No. 92 1982
V. Hon. Joan Humphrey Le?(ow
BARRY MARAM, et al.,

Defendants

 

MONEIA BEEKS, et al.,
Plaintiffs No. 92 4204

V. Hon. Joan Humphrey Le?<ow

PHILIP BRADLEY, et al.,

Defendants.

 

 

DECLARATION OF KEVIN SCHOEBEN

1, Kevin Schoeben, state that I have personal knowledge of the facts set forth herein, that
I am competent to testify, and if called to testifvaould state as follows:

1. My name is Kevin Schoeben. I am employed by the Of?ce of the Illinois
Comptroller as Assistant Comptroller. I am responsible, in part, for overseeing the operations of
funds and ?scal management functions of the Of?ce.

2. I am the direct supervisor over the Director of Funds and Fiscal Management, Mr.
Kevin Fitzpatrick. Mr. Fitzpatrick manages the daily activities of releasing cash from

approximately 35 state funds and authorizing the use of that cash to pay for speci?c purposes as

authorized by enacted appropriation legislation (which for Fiscal Year 2017 was a limited
enacted appropriation bill), continuing appropriation clauses, court orders, and consent decrees.
A continuing appropriation clause is a provision in enacted legislation that authorizes spending
for a particular. purpose payments to retirement systems) automatically year after year
without the need for new appropriation legislation each year.

3. I am familiar with the various ?ands of the State Treasury. I also am aware of the
current balances presently in each fund. As part of my duties and responsibilities, I monitor the
amount of ?nancial liabilities owed by the State and the level of authorized and available money
in the various state funds used to pay those liabilities. The appropriation levels for state funds are
authorized either through enacted legislation or court order. For example, enacted legislation
might set the appropriation level for general state aid to public schools, which then gives the
Comptroller the authority to pay general state aid vouchers submitted by school districts.

4. Payments to managed care organizations (MCOs) and Medicaid-funded providers
are made out of the State?s General Revenue Fund. That fund is managed under my direct
supervision.

Of?ce of the Comptroller Duties and Payment Processes

5. In ful?lling its duty'to manage the State?s ?nances under direction of the State
Comptroller, the Comptroller?s Of?ce must make payment decisions based on the State?s
estimated revenues for each month as compared to the State?s obligations. The State
cannot spend money that it does not have. The State also cannot spend money that is not
authorized.

6. Since at least July 1, 2016, the start of the current ?scal year, there has been

insuf?cient money in the State?s general funds each month to pay all of the State?s debts and

?nancial obligations that are due based on required fund transfers or vouchers for payment
submitted to the Of?ce of the Comptroller. Some payments have been delayed for short periods
of time and some for longer periods of time. Since July 1, 2016, the backlog of bills to be paid
from the general funds rose 82 from $7.7 billion to $14 billion as of May 16, 2017. The total
amount of payments required by statutes, court orders, and continuing appropriations exceeds
available revenues.

7. Because of the insuf?cient balance to pay all debts owed as they come due, the
Comptroller?s Of?ce must prioritize the payment of the State?s debts. As a result, the Of?ce has
determined, in accordance with numerous court orders and statutory mandates, that some debts
critically support the core functions of government and are scheduled for priority payment to the
extent suf?cient funds are available in the State?s General Revenue Fund. Such payments are
characterized within the Comptroller?s Of?ce as ?core priority? payments.

8. Core priority payments include, in no particular order, the following: 
payments necessary to comply with various federal court consent decrees (which include
Medicaid-covered payments for providers of residential and in-home services for adults with
developmental disabilities; (ii) mental health and medical treatment for adults with physical
disabilities and serious mental illness; health care services for children and adults; and (iv)
medical, mental health, and residential services for children in foster care); payments for
elementary and secondary education; (0) state employee payroll; payments to local
governments, debt service; and payments to state pension funds. Core priority payments
total approximately $1.85 billion each month, which represents about 90% of average 

.

a. Medicaid and Other State Bene?ts. The Medicaid payments noted
above and other state bene?t payments amount to approximately $160 million per month.
Without an enacted appropriation for this ?scal year, such payments are authorized pursuant to
several federal court consent decrees, including B.H. v. Tate, Beeks v. Bradley, Ligas v.
Norwood, Williams v. Rauner, Colbert v. Rauner, and Memisovski v. Maram. The services
subject to these federal court consent decrees are provided or administered by various state
agencies, including the following Illinois departments: Healthcare and Family Services, Human
Services, Children and Family Services, and Aging. Due to lack of available funds, the.
Comptroller is unable to include the general payments to MCOs within this core priority
category, but nevertheless works to ensure, as required under the court orders, that payments for
those covered services are made as if there is no budget impasse. As discussed below, the
primary challenge to making more timely payments to MCOs is the lack of available cash ?ow
to meet core spending needs, not the lack of a state budget and enacted appropriations
legislation.

b. Elementary and Secondary Education. In accordance with the State Finance
Act, the State transfers approximately $270 million each month from the General Revenue Fund
to other funds for distribution to public elementary and secOndary school districts around the
10th and 20th of each month. If payments are not made in accordance with the mandated
schedule, elementary and secondary schools could potentially miss a payroll that would lead to
stoppage of school operations or even the closing of schools. Apart from the payments to schools
discussed above, due to lack of cash available in general funds, the Comptroller?s Of?ce is
currently unable to afford priority treatment for other school funding, particularly the mandated

categorical grants to schools, which total approximately $1.7 billion annually and are

supposed to be distributed in four quarterly payments. To date, the Of?ce has been able to
process only one of these quarterly payments during this ?scal year.

c. State Employee Payroll. The State spends approximately $370 million
each month for payroll for approximately 63,000 employees to continue state operations. These
payments are authorized to some extent by enacted appropriations, and otherwise by a court
order.

d. Debt Service. The State owes approximately $226 million each month in
payment of debt service. The debt service pays the principal and interest on state bonds, which
are backed by the full faith and credit of the State. Payment of the State?s various debt
obligations on bonds is required by Article IX of the Illinois Constitution, as well as the General
Obligation Bond Act (30 ILCS 330) and the Build Illinois Bond Act (30 ILCS 425). Failure to
make these payments will result in default and adversely impact the State?s credit rating.

e. Pension Payments. The State spends approximately $593 million per
month on the State?s contributions to the ?ve public retirement systems (Judges? Retirement
System, General Assembly Retirement System, State Employees? Retirement System, State
Universities Retirement System, and Teachers? Retirement System) for approximately 270,000
retirees and survivors. These payments are authorized by statutory continuing apprOpriations that
are directly issued to these systems so that retired public service employees and survivors can
meet their needs during retirement.

f. Local Governments. The State spends between approximately $60
million and $175 million each month for payments to local governments. Payments to local

governmental entities are required by 35 ILCS 5/901, which mandates that the State transfer a

certain portion of the State?s income tax revenue from the General Revenue Fund to the Local
Governmental Distributive Fund.

9. Cash Management. In making payment decisions, the Comptroller?s
Of?ce considers the variation in revenue deposits into the state treasury, while also
considering obligations due in the current month and in upcoming months. As a result, the
balance in the General Revenue Fund at the end of a month may be higher than what would
appear to be necessary given the bill backlog, not because all current obligations have been paid,
but rather because there are large obligations that will need to be paid in the next month, so
additional revenue is kept in the General Revenue Fund for those later payments. And, because
actual revenues sometimes fall short of estimated revenues, the Comptroller?s Of?ce seeks to
keep a minimum of $20 million in the General Revenue Fund at all times. Letting the balance
fall below $20 million is not consistent with sound ?scal management.

Current Payment Obligations

10. Approximate $14 Billion Bill Backlog. As of May 16, 2017, the total
outstanding debts owed by the State from the general funds, as represented by vouchers sent by
State agencies to the Comptroller?s Of?ce, is $7.4 billion. This amount ?uctuates as debts are
paid out of available funds, and as new debts accrue when vouchers are submitted to the Of?ce
for payment. In addition, the Comptroller?s Of?ce estimates that that state agencies have not yet
sent vouchers to the Comptroller?s Of?ce that total an additional estimated $6.6 billion in
General Revenue Fund obligations.

11. For the period July 2016 to March 2017, the state?s obligations for the categories
described in Paragraph 8 above totaled approximately $15.2 billion. For that same time period,

the total revenue in the General Revenue Funds was $15.3 billion. This has made it dif?cult for

the Comptroller?s Of?ce to keep up with the amount of core priority spending, much less all of
the $14 billion in additional obligations the State owes.

12. As noted, the State?s revenues vary each month. For example, because of income
tax receipts, the State had relatively high revenue in April. On the other hand, revenue into the
state?s general revenue fund during February, 2017 was the lowest amount of receipts in the last
?ve years, and was $385 million, or 21% lower than February, 2016. This variation puts an
added strain on meeting even core priority spending needs on a month to month basis.

13. After core priority obligations are paid using approximately 90% of the average
revenues, the Comptroller?s Of?ce is left trying to apply the remaining 10% for all other
liabilities that are also accruing every day. For those months when suf?cient revenues are
available, the Of?ce generally pays these obligation on a ?rst?in??rst-out basis, although the
Of?ce tries to place a priority on other payments for essential services to the state?s most
vulnerable citizens, including but not limited to long?term nursing care community home care
and supportive care for the elderly, early childhood block grants, hospice, ambulance, public
health protection grants, and MCOs, etc. The ability to make these payments is stressed by the
lack of revenues necessary to make expenditures.

14. Pending Vouchers/ MCO Payment History Status. As of May 16, 2017, the
oldest general commercial vouchers for payment are from September 1, 2016. Because the
Comptroller?s Of?ce has prioritized MCO vouchers above general commercial vouchers, the
oldest outstanding vouchers for payments to MCOs are from November 14, 2016. In other
words, payments on MCO vouchers are approximately 75 days ahead of the general commercial

vouchers.

15. As of May 16, 2017, there are approximately $2.1 billion in pending vouchers at
the Comptroller?s Of?ce to MCOs from the Department of Healthcare and Family Services. This
amount does not include vouchers that may be in process at the agency level but have not yet
been submitted to the Of?ce. Vouchers submitted to the Of?ce for MCOs that are payable from
the state General Revenue Fund average approximately $276 million per month. MCO vouchers
may vary signi?cantly in amount and arrive at the Of?ce on an irregular basis throughout the
year. The variance in receipt and amount makes cash management unpredictable.

16. As of May 16, 2017, the Of?ce has released $8.33 billion in MCO payments from
all fund sources for FY 2017, including $1.86 billion from the General Revenue Fund and $6.47
billion from numerous other state_funds managed by the Department of Healthcare and Family
Services. Because the State had an in?ux of income tax revenue in April, on April 26, 2017, the
Comptroller?s Of?ce was able to utilize $400 million from the General Revenue Fund to match
federal reimbursements to pay $800.8 million to 11 MCOs. That amount was in addition to
approximately $50 million paid to the Cook County MCO earlier in the week. These payments
represented about a third of the pending vouchers seeking payment from the General Revenue
Fund. Moreover, on April 27, 2017, the Of?ce was also able to pay $151.1 million directly to
hospitals, which also represented about one?third of the pending vouchers in the Of?ce from
hospitals.

17. Outlook. Given the uncertainty caused by the increasing backlog of unpaid bills
and the lack of available cash ?ow to meet the State?s obligations, the Of?ce of Comptroller is
left to triage payments for the state?s core priority needs and critical services to the state?s most
vulnerable citizens. Any further mandated payment priorities will compromise the Of?ce?s

ability to issue payments for core priority obligations.

I declare under penalty of perjury that the foregoing is true and correct.
Executed on May 18, 2017

/s/KeVin Schoeben

yaw/c,