Delaying and Denying A Necessary Reality Check

It looks like Illinois wants to get in the game for having one of the worst budget situations in the nation. Illinois' fiscal situation rivals that of New York or California, and no one in the state wants to do a damned thing about it.

Like those other states, Illinois spent billions more than it could afford and there are no federal bailouts awaiting it this year.

For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession. Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state’s bills and refuses to take the painful steps — cuts and tax increases — to close a deficit of at least $12 billion, equal to nearly half the state’s budget.

Then there is the spectacularly mismanaged pension system, which is at least 50 percent underfunded and, analysts warn, could push Illinois into insolvency if the economy fails to pick up.

States cannot go bankrupt, technically, but signs of fiscal crackup are easy to see. Legislators left the capital this month without deciding how to pay 26 percent of the state budget. The governor proposes to borrow $3.5 billion to cover a year’s worth of pension payments, a step that would cost about $1 billion in interest. And every major rating agency has downgraded the state; Illinois now pays millions of dollars more to insure its debt than any other state in the nation.

“Their pension is the most underfunded in the nation,” said Karen S. Krop, a senior director at Fitch Ratings. “They have not made significant cuts or raised revenues. There’s no state out there like this. They can’t grow their way out of this.”

As the recession has swept over states and cities, it has laid bare economic weakness and shoddy fiscal practices. Only an infusion of federal stimulus money allowed many states to avert deep layoffs last year.

States face a choice. Make those layoffs, reduce benefits to state workers, or raise taxes.

Raising taxes isn't an option because taxpayers are sick of funding state workers' benefits that exceed those of the private sector. Reducing benefits isn't an option because the unions generally refuse to give up hard earned benefits and they also stand in the way of layoffs. Layoffs aren't always an option either because the politicians get flack from the unions, who form a major constituency to be satisfied in elections.

So, the states go from bad to worse in their fiscal situation.

The politicians make awful decisions to leverage future state fiscal responsibility to fund current obligations - borrowing heavily, which increases the debt load. Ignoring the pension obligations or worse - borrowing to make payments has made the Illinois situation a particularly perilous one.

And while the NY Times wants to blame the failure to raise taxes on the state GOP, Democrats have been the ones to pass budgets that are in deficit year after year - ignoring the balanced budget requirements. Corruption and graft have left the state devoid of any leadership.