Why Illinois Is Now The Most Likely State Government To Go Bankrupt First

We have often discussed the real possibility that a state government is going to go bankrupt in the not too distant future. Politicians in these states have spent recklessly and stupidly, resulting in higher and higher taxes to cover bigger and bigger government obligations. Usually their biggest obligations are for pension and retirement commitments these politicians have made to state government workers to continually try to win their vote over the years.

And please do not think that this cannot happen. Detroit, once one of the largest and wealthiest cities in the country has already gone bankrupt. Smaller cities such as Stockton, California have already gone bankrupt. Fiscal irresponsibility and the desire to continually be in office drives politicians to make stupid, irrational, and fiscally damaging commitments and decisions.

We have always felt that the first state to go bankrupt would be either Illinois, New Jersey, California and possibly Connecticut. At one time, the race was probably too close to call. But over the past few months it looks like Illinois has separated itself from the field and has taken a pretty decent lead in the race to go bankrupt first.

Consider the reality of the fiscal disaster in the state of Illinois today, as related in a recent Reason magazine interview by Mike Riggs of Adam Schuster of the Illinois Policy Institute:

• A recent report from Moody’s Investors Service says that Illinois is one of the two most likely states to suffer the most in the next economic turn down [note: not surprisingly, New Jersey is the other state.]
• Keep in mind that Illinois politicians have created this horrible fiscal mess in the midst of one of the longest running economic growth periods in the history of the country and despite this they still could not manage their fiscal house.
• One reason for such high pension debt is that the state gives state retired government employees an automatic 3% rise in their pension benefits every year regardless of what the inflation level is.
• I know of no other retirement plan, public or private, that raises the benefits level 3% every year, making pensioners wealthier and wealthier every year (since inflation for the longest time has been well under 3%) while making the taxpayers poorer and poorer every year, paying for this robust increase while seeing nowhere near that level in wage growth.
• Many state residents recognize that the state is on a very disastrous fiscal course and are leaving in droves.
• Illinois has seen a net population loss for five years running, a population loss that makes paying off the debts more and more difficult since there is an ever shrinking taxpayer base.
• Polls show that the number reason for taxpayers leaving the state is because taxes are too high and yet the current governor, J.B. Pritzker, wants to change the tax code to raise even more taxes which will cause even more people to leave the state further reducing the taxpayer base and the death spiral is now in full blast.
• The number two reason for leaving the state is for better job opportunities which is highly related to the the top reason for leaving the state as businesses also leave because of high taxes, taking jobs with them.
• The article makes the case that Harvey, Illinois is the canary in the coal mine for the entire state.
• Harvey now has one of the highest effective property tax rates in the country because they have had to continually raise more and more tax money to finance the pension obligations they have to pay to their retired city workers.
• As a result of the pension obligation squeeze, they have had to lay off current police officers and firefighters to pay the very high pension benefits of retired police officers and firefighters.
• And Harvey is not alone since the city of Peoria, Illinois has had to lay off municipal employees and take their salaries and apply it to the pension obligations that it has as a city and Rockford, Illinois may have to sell off its city water system to raise money for their pension debt.
• And lets not forget that Chicago, the largest city in the state, has pension debt that is larger than the debt of 41 STATES.

So taxpayers throughout the state, form local towns to the state government, are likely to continually paying higher and higher taxes to fund these obscene pensions obligations and get less and less for their tax dollars in terms of current police, fire, education, and other government resources.

What a mess, a mess caused by American politicians, a mess made worse by American politicians, and a mess that is unlikely to be resolved by American politicians. I think that it is a pretty safe bet that much like Detroit, these Illinois towns and the state government itself will eventually be at the mercy of a bankruptcy court which will dictate the right fiscal remedy to fix what they have broken. And much like Detroit, that remedy is likely to be deep, painful, and a hardship for all involved, simply because politicians traded off current votes for deep fiscal pain later.

All of which leads me to place my bet on the state of Illinois as the first state to go bankrupt. Anyone disagree?

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Please visit the following sites for freedom:


http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w