Now there's another state on the brink of collapse and I'm not sure the dam will hold. Daniel W. Haynes, Illinois's comptroller, says "This is not some esoteric budget issue; we are not paying bills for absolutely necessary essential services" in a NT Times article of Saturday July 3. So you think California has been mismanaged? Wait till you here this....Illinois has a budget deficit of at least $12 billion. That's equal to half the state's budget! And, to top it off, their federal stimulus dollars are almost completely spent.
Collapse is imminent as the cracks are starting to show. The state's pension fund is 50% underfunded and legislators left for summer break without deciding what to do about 26% of the state budget. The governor wants to borrow $3.5 billion to cover a year's worth of pension payments costing about $1 billion in interest. Every major rating agency has downgraded the state so the cost of funds will be even greater.
What are we learning about the past 18 months? Well, it's interesting to note that the three states in significant financial trouble are Illinois, California, and New York. All three are blue states run as entitlement states with huge government overhead and excessive taxation. The author of the article, Michael Powell, makes the observation that Illinios's problems are a result of the "dysfunctional political class" failing to take the necessary steps of cutting jobs and increasing taxes. Well at least he's half right. Increasing taxes has worked well in Greece, now hasn't it Michael.
Although countries can go bankrupt, states really can't. The other 47 will be carrying water for the states of CA, NY, and IL for a while. In Washington, the Obama administration wants another "stimulus" while piling on additional expenses like the new health care bill. Are we learning anything from the free spending policies of California, New York, and Illinois?
Grab a bucket.
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