If there was ever a candidate for state bankruptcy, Illinois would be it. The state is the only state in the union that has operated without a complete and balanced budget for the past 700 days. The state operates based on a court-ordered spending and stop-gap measure that does not stop mounting massive deficits from accumulating. As recent as last week, the state reported unpaid bills totaling $14.7 billion dollars. There is growing anxiety among local agencies dependent on state aide. Other programs like the education budget have failed to be approved.
Credit ratings such as Moody’s and S&P driven down the credit ratings of Illinois. This will only increase the cost of borrowing for the struggling state. The state is the first state to have bonds rated junk status. A composite picture of the state’s financial paints a dire image with unfunded pension liabilities soaring at $138,390,000. All of these signs point to the overwhelming conclusion that the state has little chance of getting its fiscal house in order without drastic steps- Making the struggling state a serious candidate for bankruptcy.
While cities and county governments can file bankruptcy, states cannot legally do so. Despite such a measure granting it the power to shed debt by imposing court ordered losses on creditors. The last state to file bankruptcy was Arkansas in 1933. It occurred during the great depression when the state defaulted on its debts. Illinois could greatly benefit from the freedom to force its credits to write down its debt and renegotiate contracts with government employees. The cost to operate the Illinois government is not sustainable and cuts are necessary. The current governor of Illinois, Bruce Rauner, seems to be open to such cuts and/or drastic measures but the combative Democratic legislature do not appear so inclined. Evidence by the inability to pass an operating budget, the last House-passed budget measure contained a $7 billion revenue shortfall that Gov. Rauner vowed to veto.
Will IL make history with the first State Bankruptcy? We will find out soon.