Yet again the corrupt and incompetent Illinois legislature has failed to enact a budget. Each day that they delay puts the state’s bonds that much closer to a junk rating which, since some institutions are not allowed to hold instruments that are not investment grade, will narrow the pool of possible investors. At some point no one will buy the state’s bonds and the state will be unable to re-finance its debt. Will that point be reached this week? Feel lucky, punk?
At the Chicago Tribune Jeffrey Collins leaps to the legislators’ defense:
The states without a budget on July 1 are Connecticut, Delaware, Illinois, Maine, Massachusetts, New Jersey, Oregon, Rhode Island, and Wisconsin, while in Pennsylvania and Michigan the budget has passed the Legislature and is on the governor’s desk.
There are major differences between those other states’ situation and Illinois’s. Illinois’s credit rating is the lowest of any state. And Illinois is the only one of those states that has not enacted a budget in three years.
Furthermore, of the states that have failed to enact a budget only Connecticut and Illinois are actually losing population. A declining population means a declining tax base while a falling credit rating means greater demands on what revenues the state is able to drum up. Unlike most of those states median house prices in Illinois still haven’t recovered to their pre-2007 level. Most of Illinois’s counties have not recovered from the Great Recession.
I don’t know what sort of fool’s paradise the Illinois legislature is living in.
Update
The Illinois House has approved a more than 30% increase in the state’s personal income tax. The Chicago Tribune reports:
The Illinois House on Sunday approved a major income tax increase as several Republicans broke ranks with Gov. Bruce Rauner amid the intense pressure of a budget impasse that’s entered its third year.
Rauner immediately vowed to veto the measure should the Illinois Senate approve it.
“Under Speaker Madigan’s direction, legislators chose to double down on higher taxes while protecting the special interests and refusing to reform the status quo. It’s a repeat of the failed policies that created this financial crisis and caused jobs and taxpayers to flee” Rauner said in a statement.
“Illinois families don’t deserve to have more of the hard-earned money taken from them when the legislature has done little to restore confidence in government or grow jobs. Illinois families deserve more jobs, property tax relief and term limits. But tonight they got more of the same.”
The measure, which needed 71 votes to pass and got 72, is designed to start digging the state out of a morass left by the lengthy stalemate. Pressure to act had built up amid the stalemate between the Republican governor and Democratic House Speaker Michael Madigan, as public universities and social services languished and the threat of road construction workers being laid off after the holiday weekend loomed.
It is likely to pass the Illinois Senate.
That should be enough to pacify the ratings agencies for a while. They don’t really care about the long term impact on the state’s economy; their only concern is that there’s money for making the state’s interest payments and they’ll get that.
Make no mistake. What has happened is that the Illinois House Republicans have folded and thrown Rauner under the bus. I guess they were satisfied that the tax increase was limited to a third more.
The next step will be to see what happens when Gov. Rauner vetoes the bill as I expect he will.
I cannot imagine many other Americans being inclined to offer any sort of bailout on the federal level to Illinois. Significant moral hazard is involved. NY and CA would expect the same treatment when their turn came. And I can’t imagine a bailout taking place under a Trump Administration.
What both Illinois and Chicago need is not a bailout but a legal way to adjust their contracts that doesn’t require a 2/3s vote. They’re presently barred from that by the state constitution.
The Mish Shedlock article has a tone that Rauner is going along with it. That surprises me; I hope not.