Chicago, IL, June 16, 2017 -- An article published today by The Fiscal Times raises the question: “Could Illinois be the first state to go bankrupt?” The suggestion is not far-fetched, says the nonpartisan financial watchdog Illinois Policy Institute.
Under current law, Illinois cannot file for bankruptcy. But Congress can and should amend federal bankruptcy law to give Illinois this option. To be honest, it would not matter if it did, politicians will simply throw the debts on the back of its citizens as they always have.
Here’s how dire Illinois’ situation is:
No budget: Illinois is the only state in the nation without a state budget. The last time Illinois had a full-year’s budget in place was 2013. Even when Illinois has had state budgets, they were not balanced; the last time Illinois had a balanced budget was in 2001.
Billions in unpaid bills: Illinois state government currently has $15.1 billion in unpaid bills. Vendors and service providers across the state are shutting their doors or reducing services on account of not getting paid by the state.
Skyrocketing pension debt: Illinois has more than $130 billion in unfunded pension liabilities. Local governments throughout the state, such as cities and counties, have racked up an additional $56.8 billion in unfunded pension liabilities.
Supersized pensions: The average career public school teacher in Illinois retires at age 59, has saved $153,900 for retirement account but will collect $2.2 million in pension benefits. The average career state worker retires at age 59, has saved $63,000 for their own retirement but will collect $1.6 million in pension benefits.
Government retiree health care-related debt: Beyond supersized pensions, Illinois is also on the hook for $56 billion in costs related to healthcare for government pensioners. It has no money set aside for this.
Budget deficit: Despite not having a state budget, most state spending is on auto-pilot. The state is poised to close the fiscal year on June 30, 2017 with a $6 billion budget deficit. The state will collect $32.4 billion in revenue but spend more than $38 billion this fiscal year.
Almost “junk”: On June 1 Moody’s downgraded Illinois’ credit rating to Baa3, just one notch above a noninvestment-grade, or “junk,” rating. Moody’s has also placed the state rating on “negative” watch, meaning the agency could downgrade Illinois again in the near future.
Is near-“junk” rating due to budget impasse? No. Illinois’s credit rating has been downgraded 21 times since March 2009. It had many downgrades during times when it had tax increases and budgets in place.
Illinois population is shrinking: Illinois lost more residents than any other state in the U.S. in 2016, according to the U.S. Census Bureau. That was the second year in a row that the state’s population declined.
No wonder taxpayers are leaving: Illinois has the second highest property taxes in the U.S. And this week, Republican state lawmakers and Republican Gov. Bruce Rauner – who campaigned on the premise of lowering taxes – proposed raising the state income tax by $5 billion a year, as well as implementing a variety of other tax increases or new taxes that would cost every Illinois household $1,125 a year in higher taxes.
Even the lottery is leaving: Thursday, PowerBall and Mega Millions announced they may drop Illinois due to its financial instability.
Refusal to reform: State politicians have a long-standing history of borrowing, taxing, and using other budgetary maneuvers to address budget deficits, rather than enacting structural and spending reforms.
Could this actually happen to us? Ask Cyprus, Greece, or Russia (1989)? Or, maybe we should ask the residents of these empires. Wait, where are they? Thats right, they drowned in debt and faded into history just as those before them!
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.