Illinois Is Facing a Severe Financial Crisis
The Midwestern state of Illinois has been operating without a budget for over two years, and it is now on the verge of bankruptcy. State-issued bonds are at risk of facing a drop in their credit rating to junk-bond level. Government agencies now fear that their state-funded programs are in jeopardy. Likewise, government employees face the risk of losing their jobs.
For the last 700 days, Illinois has been the only American state whose government agencies have been functioning without a complete budget. In the wake of this financial turmoil, the credit rating of the state’s general obligation bonds has been pushed down to the lowest investment grade level, which is the worst rating that any U.S. state has ever seen.
A stalemate between Illinois’ Republican Governor and Democratic legislature is the reason that the state has failed to present a complete budget. Republican Governor Bruce Rauner and Democratic lawmakers have repeatedly failed to agree on a budget plan. The Democrats are pushing for more government spending, consequently proposing a budget deficit of nearly $7.0 billion. In contrast, Rauner is seeking a balanced budget by cutting spending and raising taxes.
The state’s financial crisis is said to have been exposed under the former Democratic Governor Pat Quinn, when the Illinois legislature decided to impose hefty taxes in order to finance a massive budget deficit. The severe budget crisis led to the political downfall of Quinn, who was replaced by the current Republican governor.
The last time a U.S. state went through bankruptcy proceedings was in 1933, when Arkansas defaulted on its obligations during the Great Depression. Under the current laws, a state cannot file for federal bankruptcy protection.
Municipalities and counties, however, can seek bankruptcy protection, as Detroit did in 2013.
As of late, the state’s unpaid bills amount to over $14.7 billion.
Experts say that if Illinois is not allowed to seek federal bankruptcy protection, the state will have no choice but to turn to the taxpayers to bail it out. In that case, the state’s employee benefit programs like health insurance and pension plans will be at risk of losing all their funds.
“Illinois is facing bankruptcy and a junk-bond level credit rating crisis,” Business Insider, June 13, 2017.