One objective of this blog is to encourage productive discussion and debate within the "comments" forum. Leaving comments has been made easier. No registration is required. Comments can be left anonymously. A Hassle free and easy forum to leave a comment. However, any inappropriate comments will be deleted by blog administrators. Thank you for commenting so your voice can be heard.

Monday, May 10, 2010

Illinois - California's Ugly Step-Sister.

I have been writing for some time about the enormous problem facing States thoughout the US with respect to budget shortfalls.  In paticular I have called out the problems facing California and how it may affect us all.  And, much like the problems facing Greece, the "solutions" proposed by governments usually involve cutting services, reducing pensions, raising taxes and other severe austerity measures.

The Wall Street journal has an article about Illinois and the problems which they, and all States, face.  From the WSJ:

State budgets typically lag the national economy by several years, and the recession has decimated income-tax and sales-tax revenue. Lawmakers often don't want to aggravate voters by raising taxes during an election year.
But legislatures find cutting expenses politically difficult, too. State budgets are dominated by education and health care programs that many voters cherish.
As a result, Illinois, along with other states, routinely has postponed paying its bills, shortchanged pension plans and spent more than it collects in revenue.
In the past these issues found ways to work themselves out.  But what about now?  California may be having some budgetary shortfalls, but Illinois needs to find $13 billion – equal to half the state's general fund budget. Which half of the state's services and support will go away, schools or jails?  From the WSJ:

Illinois Comptroller Daniel Hynes said in his April report that the state's cash position for the quarter ending June 30 "looks exceedingly difficult." By June 10, Illinois must repay $1.75 billion, plus interest, in short-term borrowing. 
Meanwhile, the state still owes billions of dollars to hospitals, universities, social-service providers and others. Mr. Hynes said the state's backlog of unpaid bills probably will exceed $5.5 billion at the end of June.
"Eventually, many providers of essential state services may be unable to continue their operations at current levels, and those vulnerable segments of the population to whom they provide services will suffer the consequences," he wrote.
Many had hoped that the "recovery" that the US seems to be undergoing would help drag States out of this quagmire, but it doesn't seem to be working.
Illinois disclosed that revenue for April —when most citizens pay taxes—fell more than 15% from the same month a year ago, or $501 million, in part because of a $345 million drop in federal aid. Gross personal income-tax receipts, a major revenue source, dropped $103 million, or 8.1%.
Many states are likely to report similar disappointments. California officials said this week that April personal income tax-collections lagged projections by 30%. Federal estimates don't bode well for states, either.
As of April 30, federal non-withheld income taxes for April fell 17.6% from the same month a year earlier, said a report Tuesday from the Nelson A. Rockefeller Institute of Government at the State University of New York.
So rather than getting better, things are getting much worse.  Much worse!  That means that drastic measures should be taken; that the problems of over-spending will only increase.  For States like California and Illinois there are no simple choices.  What does Illinois propose?
Mr. Quinn (the Governor) presented a budget in March that would still leave the state with a $10.6 billion deficit. His plan projected a deficit of $4.7 billion for the coming fiscal year beginning July 1—which he planned to cover through borrowing—and a $5.9 billion deficit carried over from the current budget.
The governor also proposed cutting expenses by $1.5 billion and raising the state income tax 1.5 percentage points, to 4.5% from 3%. He said the tax hike would be used to avert tens of thousands of teacher layoffs. A different proposal to raise income-tax rates passed the state Senate last year but has stalled in the House.
Illinois lawmakers have little appetite for drastic spending cuts. An income-tax increase proposed by Democratic Gov. Pat Quinn is going nowhere. Even temporary steps, such as borrowing to make pension payments, have stalled. Illinois is months late on many of its bills and has no plan for catching up.
Can we indefinitely kick the can down the road? At what point will a State no longer be able to borrow; and, then, what happens?

No comments:

Post a Comment