December 30, 2012

While Its Prudent Midwestern Neighbors Get Negative Press, Nearly Insolvent Illinois Virtually Skates

During the past two years, Republican governors and lawmakers in Wisconsin, Ohio, Indiana and Michigan have been the targets of a great deal of negative attention from the establishment press, particularly on TV, as a result of taking necessary actions to get their states’ fiscal houses in order and to become more economically competitive. Meanwhile, the Midwest’s largest and Democrat-dominated state careens toward bankruptcy, and it’s barely news.

In early 2011, Illinois enacted massive personal and corporate income-tax increases of 67% and 46%, respectively. The tax hikes were advertised as required to address the state’s huge backlog of unpaid bills to vendors and other service providers, and to shore up its badly underfunded pension funds. Almost two years later, as two separate Associated Press reports this weekend demonstrate, the state still has a huge and possibly even larger stack of unpaid invoices, and its pension situation has worsened.

In the first primarily about the fiscal cliff’s potential impact on the state, Illinois Comptroller Judy Baar Topinka revealed the almost incomprehensible sum the state owes (bolds are mine throughout this post):

Illinois Comptroller Judy Baar Topinka estimates a $1 billion impact on the state budget if Congress and President Barack Obama don’t strike a deal before Monday’s deadline to stop the scheduled federal spending cuts and tax increases.

“Illinois is already spiraling in a mix of unpaid bills, unfunded liabilities, interest costs and credit downgrades,” Topinka said Friday in a news release. “By going over the fiscal cliff, the federal government will essentially be wrapping an anchor around our ankle — and the consequences will be devastating.”

Topinka said Social Security and income tax increases would lower Illinois tax revenues by up to $500 million, and fallout from the fiscal cliff threatens to push the state into a recession.

Topinka also said a planned 2 percent increase in Social Security payroll taxes could cost Illinoisans up to $6 billion in take-home pay.

Illinois has a $9 billion backlog of bills owed to vendors and a worst-in-the-nation pension program deficit, which Gov. Pat Quinn has vowed to make his top priority when lawmakers reconvene next week in Springfield.

The Saturday morning AP report is unbylined and not carried nationally, based on a search on Topinka’s last name which yielded no results.

It would appear that the unpaid bill problem is worse than it was a year ago. In October 2011, I quoted an AP item which indicated that the amount involved was more like $7 billion:

As of early last month, the state owed on 166,000 unpaid bills worth a breathtaking $5 billion, with nearly half of that amount more than a month overdue and hundreds of bills dating back to 2010, according to an Associated Press analysis of state documents.

The true backlog is even higher because some bills have not yet been approved for payment and officially added to the tally. This includes the Illinois health care agency, which says it is sitting on about $1.9 billion in bills from Medicaid providers because there’s no money to pay it.

But apparently because there are no leftist street demonstrations on behalf of those who aren’t being paid, the state’s systematic stiffing of its vendors isn’t worthy of anything beyond cursory attention.

In the second AP item, which is currently on the national wire and focuses solely on the state’s pension mess, reporter Sara Burnett repeats an unfunded liability statistic also contained in the first:

ILLINOIS DRAGGING ITS FEET ON HUGE PENSION PROBLEM

Lawmakers will convene again the first week in January in hopes of fixing the nation’s worst case of underfunding state employees’ pensions, a problem approaching $100 billion and mounting by $17 million per day. On the table are solutions that other states adopted as long as five years ago.

A January 2011 dispatch at the Christian Science Monitor carried an unfunded liabilities estimate of $77.8 billion, “according to the state’s Commission on Government Forecasting and Accountability,” giving Illinois the dubious distinction of having “the largest underfunded pension system in the United States.” This means that even with the ginormous tax increases, unfunded liabilities “approaching $100 billion” per AP, have really been growing at a rate of over $10 billion per year, which more like $27 million per day. That’s about $10 million, or 37 percent, more than AP claimed.

I would suggest that one of the reasons why national press coverage of Illinois has been so sparse is that it has been a test case for the proposition that a state can tax its way out of its fiscal problems, with results showing that the state’s strategy has clearly failed that test.

Cross-posted at NewsBusters.org.

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