Illinois is a mess and this time the machine politics of Chicago isn’t the primary culprit.
An on-going conflict between Illinois’s Republican Governor Bruce Rauner and Democratic Speaker of the State House Michael Madigan has resulted in a pileup of $15 billion dollars worth of unpaid bills. Meanwhile, pension liabilities are currently estimated to weigh in at $250 billion dollars. These massive debt burdens are now threatening to overwhelm the entire state, which could cause a cut off in services, collapsing pension plans, and a potential shut down of the state government.
As per usual, both Republicans and Democrats are blaming one another for the impasse. So far, court orders have been required to make sure that state employees and others are being paid. Regardless, some of that $14.6 billion dollars has already accrued with doctors, dentists, and others sweating over unpaid bills. Pensioners now have good reason to wonder if they’ll ever see their pension payments in full.
Meanwhile, Illinois’s bonds have fallen to junk-level status. When it comes to government debt, junk bonds are usually reserved for developing countries with shady financial systems. Illinois gets to put itself among an “illustrious” list.
So what’s causing the pile up? First, there hasn’t been a budget for two years. Governor Rauner and Speaker Madigan have simply been unable to come to an agreement, and have failed to put forward a budget for the third straight year. Rauner has been very hesitant to signal any support for any budget that includes extensive tax increases. Meanwhile, some are accusing Speaker Madigan of refusing to consider the necessary tax increases needed to restore fiscal solvency. Why? Tax hikes could hurt down-ticket elections, and that could cost Madigan his speaker’s position.
Without a budget, billions of dollars worth of infrastructure projects are expected to grind to a halt come July 1st. No, there’s not going to be any Independence Day celebrations. If anything, our Founding Fathers would be embarrassed because Illinois simply doesn’t have the money to pay for the work. Not only will this put hardworking construction workers out of a job, but Illinois’s infrastructure isn’t exactly in the best shape.
Yet, as scary as the current liabilities are, it’s the pension payments that are truly threatening to overwhelm the Illinois state government. Some estimates peg Illinois’s state government as facing liabilities of up to $250 billion dollars. Other estimates point to unfunded liabilities hitting $119.5 billion dollars in 2015, up from approximately $110 billion the year before. Interest payments on the debt alone are estimated at $9.1 billion.
Even if Illinois does finally get a balanced tax/spending budget in place, the state will still have to grapple with its pension payments. Illinois has a Gross Domestic Product of over $600 billion dollars, and is one of the more economically prosperous states. Regardless, pension debts of $250 billion dollars could overwhelm the state and its residents. If strong tax hikes are needed, which they almost certainly will be, it could drive citizens and businesses away from Illinois.