Illinois residents may feel some solidarity with the likes of Puerto Rico and Detroit.
A financial crunch is spiraling into a serious problem for Illinois lawmakers, prompting some observers to wonder if the state might make history by becoming the first to go bankrupt. At the moment, it’s impossible for a state to file for bankruptcy protection, which is only afforded to counties and municipalities like Detroit.
Chapter 9 bankruptcy protection could be extended to states if Congress took up the issue, although Stanford Law School professor Michael McConnell noted in an article last year that he believed the precedents are iffy for extending the option to states. Nevertheless, Illinois is in a serious financial pickle, which is why radical options such as bankruptcy are being floated as potential solutions.
Ratings agency Moody’s Investor Service earlier this month downgraded Illinois’ general obligation bonds to its lowest investment grade rating, citing the state’s growing pile of unpaid bills and its mounting pension deficit. Illinois, by the way, has the lowest credit rating of any state. Lower ratings mean higher borrowing costs, since lenders view such borrowers as riskier bets.
“Legislative gridlock has sidetracked efforts not only to address pension needs but also to achieve fiscal balance, allowing a backlog of bills to approach $15 billion, or about 40 percent of the state’s operating budget,” the agency noted.
As noted by the Fiscal Times, Illinois is the only state that’s been operating without a balanced and complete budget for almost two years.
“We’re like a banana republic. We can’t manage our money,” Gov. Bruce Rauner said after the Illinois Legislature failed to produce a full 2017 budget earlier this month.
The situation has prompted comparisons with Puerto Rico, which earlier this yearof some of its $70 billion in debt through courts after negotiations with bondholders failed.
Like Puerto Rico, Illinois has a massive pension crisis. Its unfunded pension liability for the state’s five major plans grew 25 percent alone in one year, reaching $251 billion, according to Moody’s. On a per-household basis, the state’s pension debt burden stands at $27,000, according to the conservative-leaning Illinois Policy Institute.
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