Add Investors Business Daily to the list of media outlets comparing Illinois’ fiscal crisis to that of Puerto Rico’s.
The respected financial news outlet blamed decades of bad government for the deep financial problems both are facing.
“On the surface, Illinois and Puerto Rico would seem to have next to nothing in common. But in fact there’s quite a lot, especially when you look at the recent dire economic, fiscal and population trends for both,” the June 2 column opens. “Both the Midwestern state and the U.S. island commonwealth are hemorrhaging citizens, with thousands leaving. Perhaps not surprisingly, both also have troubled economies, are deeply in debt and have few prospects for fixing their self-inflicted fiscal problems.”
Puerto Rico, a U.S. territory in the eastern Caribbean, declared a form of bankruptcy last month after being given legal permission by U.S. Congress.
As in Illinois, Puerto Rico’s financial problems were caused by decades of government mismanagement and poor policy decisions. Because of weak financial planning and over-promising benefits to its public employees, the commonwealth’s debt grew to more than $70 billion and its pension liabilities increased to $50 billion.
At the same time, Puerto Rico is bleeding residents through outmigration. It has lost about 2 percent of its population each of the past three years. Its current population of 3.4 million is 400,000 fewer than in 2007.
Of course, fewer people on the island means fewer taxpayers remain to help pay off Puerto Rico’s restructured debt.
Although Puerto Rico’s recovery plan continues to be devised in the courts, Illinois has no plan at all.
Lawmakers in our state’s General Assembly adjourned last week without approving a balanced budget. Senate Democrats passed a budget bill that calls for $37.4 billion in spending in the fiscal year that begins July 1. That’s despite the fact that the state expects to bring in something shy of $31 billion in revenue this fiscal year. To fill that gap, the Senate, with no Republican support, also approved $5.4 billion in tax increases, even though Illinoisans already shoulder the highest state and local tax burdens in the country and have said time and time again they can’t take anymore. The Senate plan never was called to the House floor for debate, but it could return during extended session sometime this month.
In the meantime, Illinois’ backlog of bills has climbed to more than $14 billion and its unfunded pension liability has ballooned to about $140 billion. In a March story, the New York Times compared Illinois’ pension system with that of Puerto Rico’s, which is expected to run out of money next year. And, in a column for Forbes on Monday, Jeffrey Dorfman, a professor of economics at the University of Georgia, wrote that Illinois’ example is proof that public pensions are unsustainable.
How can a state with revenue of less than $31 billion pay off $140 billion in pension debt?
As in Puerto Rico, Illinoisans are fleeing the state in record numbers. According to the U.S. Census, Illinois’ population has shrunk each of the past three years. During that time, it’s lost more people than any other U.S. state. Those fleeing Illinois cite high taxes and government mismanagement as reasons for moving elsewhere.
Illinois’ Commission on Government Forecasting and Accountability (COGFA) also reports that Illinois’ tax revenue is shrinking right along with its population. With one month remaining in its fiscal year, the state’s revenue was down from last year by $955 million, a drop of 3.5 percent.
And the day after lawmakers adjourned last week without a spending plan, S&P Global Ratings lowered Illinois’ rating on its general obligation bonds to one step above junk status, the lowest for a U.S. state ever. One more downgrade and the state’s bonds would be considered at much higher risk of default, meaning taxpayers would have to cough up significantly more in interest payments on new state loans. That downgrade is likely to happen if a budget deal isn’t reached by the start of the new fiscal year July 1.
As in Puerto Rico, Illinois is in a fiscal death spiral because of decades of poor government.
“So, in the end, both chilly Illinois and tropical Puerto Rico have one really major thing in common — bad government,” the Investors Business Daily column concludes. “Both over-promised on welfare services, pensions and other government spending, then tried to raise taxes to pay for it. And both have been grossly mismanaged by people operating under the delusion that big government solves everything.”
Could bankruptcy be Illinois’ only hope? As in Puerto Rico, it would take an act of Congress for that to be an option. But, as far as the state has fallen, the remaining options for a fiscal recovery are limited.
Dan McCaleb is news director of Illinois News Network and the digital hub ILNews.org. He welcomes your comments. Contact Dan at [email protected]