Illinois on the Cusp: Will It Be the First State to Go Bankrupt?

The governor of Illinois, Bruce Rauner, a Republican, has been verbally jousting with the Democrat-led General Assembly for two years now, attempting to get them to give up a bit of their “gimme, gimme, gimme” attitude and face facts that the state is in dire financial straits that will not be cured by ignoring the problem.

Ever since Rauner defeated Democrat Incumbent Pat Quinn for the governorship two years ago, state Democrats have been anything but cordial in their dealings with the Republican governor.  His message was simple:  We must live within our means and this generous pension program that we have is not sustainable and is already draining our coffers month after month.  Back in the good old days, when states were giving out some of the most generous pensions available to their government workers, the money was rolling in to the state treasury in sufficient amounts to offset them.  But now that the tax base has been steadily shrinking due to both residents and industry parting ways with the state, Illinois has become a hot mess financially.  Even the lottery appears to be on the chopping block after June 30th.

Rauner is not the first governor to deal with this type of crisis.  If you recall, Wisconsin Governor Scott Walker faced a similar situation when he took over the daunting task of fixing that state’s financial crisis, also due in large part to its over-generous pension systems.  He was derided, jeered and threatened by a zealous Democrat legislature that wanted him out at all costs instead of cutting their bankrupting pensions.  They called a special election, twice, to have him ousted, even bussing in people from different states to influence the vote.  It didn’t work.  Walker beat back the recalls twice and won, proving that the people, despite being Democrats in large part, were tired of all the backbreaking taxes to pay for these unfunded liabilities of the state.  Today, the state of Wisconsin still lags behind many of the other states in finances, but it is still a ton stronger than it was when Walker first took office.

Comparatively, Illinois is on the opposite path, trending down and it appears that Rauner has no way of forcing the Democrats to the table.  Fox News had more:

“We’re like a banana republic,” 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. 

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.”

U.S. Sens. Dick Durbin and Tammy Duckworth, both Democrats from Illinois, declined to respond to Fox News’ request for comment on whether they would consider getting involved in introducing a measure allowing state bankruptcy.

“Illinois is the fiscal model of what not to do,” Rep. Peter Roskam, R-Ill., told Fox News, while not commenting on the bankruptcy question. “This avoidance in behavior toward dealing with our challenges is what leads to the devastating impacts we are seeing today.”

It appears that bankruptcy might be the only way out if the Democrats of the General Assembly refuse to make concessions.  The biggest problem with this scenario is that a bankruptcy would require a vote in Congress and seeing that both Democrat senators are unwilling to address the problem as well, may be an indication that they believe that the state will be fine if they just ignore the financial crisis.  It makes you wonder how fast the Democrat senators and the General Assembly would address the situation if they were not going to be paid for the next few months.  Hmmm…

CBS Money Watch went further into detail on the bankruptcy:

Bankruptcy is often seen as a last-ditch effort, but it also can help struggling cities or companies reinvent themselves on a stronger financial footing. Detroit serves an example of how a reorganization can help, at least in the near-term. The city is now paying its bills and is keeping up with maintenance, although it still has a looming pension payment that could spell trouble in just a few years, according to the Detroit Free-Press. 

As Michigan Treasurer Nick Khouri told the publication, “We certainly know many people were hurt during the bankruptcy, but what would have been the alternative and how would they have been hurt under the alternative?” 

As for Illinois, Rauner on Thursday called state legislators to a 10-day special session starting next week to hammer out a budget deal and end an unprecedented impasse that could soon enter a third year.

The Republican announced the news in a Facebook video and statement, accusing majority Democrats of “ignoring” his recommendations.

“We have tough, urgent choices to make, and the Legislature must be present to make them,” he said.

Lawmakers adjourned last month without a deal before a critical May 31 deadline, triggering the need for a three-fifths majority vote instead of a majority on a budget agreement. The new fiscal year begins July 1. Rauner has called for a special session running from June 21 to July 30.

With Rauner not up for reelection until 2020, he still has some time to make a difference in the finances of Illinois, but only if the senators, representatives and assembly members are willing to come to the table and work within their narrow budget constraints.  If not, bankruptcy seems to be the only way to go.

Source:  CBS Money Watch / Fox News