by Bill McBride on 1/18/2010 04:00:00 PM
Monday, January 18, 2010
From Crain's ChicagoBusiness: Illinois enters a state of insolvency (ht Walt)
While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it's not generating enough cash to pay its bills. ... "I would describe bankruptcy as the inability to pay one's bills," says Jim Nowlan, senior fellow at the University of Illinois' Institute of Government and Public Affairs. "We're close to de facto bankruptcy, if not de jure bankruptcy."There is much more in the article, including a discussion of how pension payments are rising sharply.
Despite a budget shortfall estimated to be as high as $5.7 billion, state officials haven't shown the political will to either raise taxes or cut spending sufficiently to close the gap.
... Unpaid bills to suppliers are piling up. State employees, even legislators, are forced to pay their medical bills upfront because some doctors are tired of waiting to be paid by the state. The University of Illinois, owed $400 million, recently instituted furloughs, and there are fears it may not make payroll in March if the shortfall continues.
For more on the problems of states, see the recent Rockefeller Institute report: Recession or No Recession, State Tax Revenues Remain Negative
The first three quarters of 2009 were the worst on record for states in terms of the decline in overall state tax collections, as well as the change in personal income and sales tax collections. The Great Recession hit virtually every single source of tax revenue and pushed a number of states to revise revenue forecasts numerous times throughout fiscal 2009 and 2010, with significant impacts on services.
Preliminary data for the October-December quarter suggest that fiscal conditions remain weak. ... While December data could change this troubling picture, there is little reason to expect reported revenues for that month to be strong. Continued weakness in revenues, along with continued if more moderate growth in expenditures, make further mid-year budget revisions and spending cuts highly likely.
According to the National Conference of State Legislatures (NCSL), new budget gaps have opened in at least 31 states since FY 2010 began. ... The continued weakening of state tax revenues in fiscal 2010 will force states to take further drastic measures.
Posted by Bill McBride on 1/18/2010 04:00:00 PM