One State To Declare Bankruptcy? And It’s Not Even California, New York

Margaret Thatcher was reported to have said that socialism works until you run out of other people’s money. As usual, she nailed it. And the citizens of the United States are about to get one heck of a real-life lesson in Thatcher Economics.

The failure of the socialist welfare state will not be experienced to the same degree in every state. Some state governments are better managed than others. And the extent to which citizens have become dependent on state-funded social programs varies among jurisdictions. But the problem remains.

When we speculate on which state will crater first, we often think of California.  However, it appears that the winner of the award for the first state to go bankrupt might be Illinois.

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“Facing billions in unpaid bills and pension obligations, the state is hitting a cash crunch that is rare even by Illinois standards.

“A top financial official just warned 100 percent of the state’s monthly revenue will be eaten up by court-ordered payments. [Governor] Rauner is calling a special session of the Democrat-led General Assembly in a bid to pass what he hopes will be the first full budget package in almost three years.”

One could stop with the story right there, and have plenty of material to use to write several articles, or even books.

How do you mismanage things so badly that you have “billions” in debt that you are already in default on, even before the crisis becomes full-blown? What sort of derelicts run a state government for three years without a budget? (Sort of explains the debt, doesn’t it?) And what are these “court-ordered payments” that are consuming all of the state’s revenue?

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And then the real tragedy hits: the lottery fails.

“The state lotto requires a payment from the legislature each year. The current appropriation expires June 30, meaning no authority to pay prizes. In anticipation of a budget deadlock, the state already is planning to halt Powerball and Mega Millions sales. 

“‘It is disappointing that the legislature’s inability to pass a budget has led to this development and will result in Illinois lottery players being denied the opportunity to play these popular games,’ Illinois Lottery Acting Director Greg Smith told Fox News.”

This would be hilarious if it were not so tragic. The state is essentially in undeclared bankruptcy, and some government pencil-pusher is sad gambling will be curtailed. As long as we’ve ventured into that area, talk about a disappointment. Imagine having won the lottery big-time, only to learn now that the state that is to pay out your winnings over the years is going to default.

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What about state employees’ pensions? Before that, what about state employees?

“‘We’re like a banana republic,’ [Governor] Rauner said earlier this month, after the General Assembly failed, yet again, to pass a budget package by the regular session deadline. ‘We can’t manage our money.’

“The governor has called for a special session starting Wednesday. The state so far is operating on a series of stopgap spending packages.”

That’s not going to work much longer.

“But the problems are years in the making, caused in large in part by the state’s poorly. funded pension system— which led Moody’s Investors Services to downgrade the credit rating to the lowest of any state. The state currently has $130 billion in unfunded pension obligations, and a backlog of unpaid bills worth $13 billion.”

So does Illinois declare bankruptcy to discharge or dramatically restructure its debt?

“Reports have suggested the state could be the first to attempt to declare Chapter 9 bankruptcy — but under the law, that’s impossible unless Congress gets involved.

“‘Nobody here in Illinois is considering bankruptcy—first of all, it’s not allowed,’ said Steve Brown, press secretary for Illinois House Speaker Michael Madigan. ‘Second of all, it would damage the reputation of the state and it’s just not necessary.'”

It might be illegal for the state to declare bankruptcy, but that does not fix anything. It amounts to stamping your feet and refusing to acknowledge the obvious.

And then the remark about damaging the “reputation of the state.” Who cares about the reputation of your state, something that’s already atrocious? What about the businesses that provided goods and service to the state that won’t get paid? Or the teachers, police, and other retirees who were promised pensions that might not happen?

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Meanwhile, the Republican governor and the Democrats in the legislature are battling it out. The governor claims to have a plan. The Democrats don’t like it.

“‘We have a very real deadline looming,’ Senate Republican Leader Christine Radogno told Fox News. ‘The alternative to not finding a compromise will be devastating to Illinois.'”

One of the few things that a politician hates more than a budget is a deadline. And this is one that they have pushed off for so long that, with all due respect to the governor, they might have passed the point of no return.

Source: Fox News

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