In the last post, I mentioned that Illinois had had its credit rating downgraded to a point lower than that of all the other states.
The Wall Street Journal comments on this:
Though too few noticed, this month Moody’s downgraded Illinois state debt to A2 from A1, the lowest among the 50 states. That’s worse even than California. The state’s cost of borrowing for $800 million of new 10-year general obligation bonds rose to 3.1%—which is 110 basis points higher than the 2% on top-rated 10-year bonds of more financially secure states.
This wasn’t supposed to happen. Only a year ago, Governor Pat Quinn and his fellow Democrats raised individual income taxes by 67% and the corporate tax rate by 46%. They did it to raise $7 billion in revenue, as the Governor put it, to “get Illinois back on fiscal sound footing” and improve the state’s credit rating.
So much for that. In its downgrade statement, Moody’s panned Illinois lawmakers for “a legislative session in which the state took no steps to implement lasting solutions to its severe pension underfunding or to its chronic bill payment delays.” An analysis by Bloomberg finds that the assets in the pension fund will only cover “45% of projected liabilities, the least of any state.” And—no surprise—in part because the tax increases have caused companies to leave Illinois, the state budget office confesses that as of this month the state still has $6.8 billion in unpaid bills and unaddressed obligations.
Worse than California? That’s gotta burn.
But let’s think on those unpaid bills, shall we?
I noted Illinois’ deadbeat status last year in June. At that moment in time, Illinois had $4 billion (yes, with a B) in outstanding bills to vendors, and some had been considering not providing goods or services until they could be made current. Some cut off being suppliers at all.
As WBBM Newsradio’s Regine Schlesinger reports, the state officially has a backlog of more than $4.25 billion in unpaid bills.
Oh, an increase of only a quarter billion in a few months—mere chump change, eh?
But wait—what’s this?
Illinois State Comptroller Judy Baar Topinka says when one factors in other bills, the figure is closer to around $8.5 billion.
Those other outstanding bills include tax refunds, employee health insurance, and bills that have not yet reached her desk.
To be fair, if the bills have not yet made it to her, can you blame them for being unpaid?
Let’s see the Comptroller put cause and effect together:
“After the largest tax hike in our history, the state continues to be in this precarious fiscal position with persistent payment delays, and frankly, the situation is unlikely to significantly improve in the near term,” she said.
Some state officials say the solution is more borrowing to pay the bills, but Topinka says the solution is to cut spending.
(You should check out the comments on the piece. Seems the taxpayers of Illinois are rather peeved by this state of affairs.)
Mind you, Topinka is not referring to pension contributions. Much of these arrears consist of operational expenses: you know, the stuff you’re supposed to be paying year-to-year to keep things going (whatever the spending plan was).
So if the regular year-to-year expenses are not being paid—again, why do public employees think they’ll be getting their checks for years to come?
Don’t tell me that “it’s unconstitutional to stop paying the pensions!”
Well, it’s probably a little legally iffy for the state to not pay for goods and services it’s already received. And yet, here we are. When the money runs out, it’s gone.
And then, “oh, but we can raise taxes!”
It’s difficult to raise taxes on people (and companies) who aren’t there:
Chicago will lose the headquarters of one of its biggest and most high-profile companies later this year when Aon Corp. moves its home office from its namesake skyscraper to London, partly to lower its tax burden.
But Aon decided that the good outweighed the bad, pointing out that its global effective tax rate would be significantly reduced. According to company filings, Aon’s tax rate could fall to 26 percent from an expected 30 percent for 2011.
“A reduction in our global tax rate over the long-term would allow Aon to remain competitive,” Aon said.
It also said the move would give it access to $300 million of excess cash abroad. If Aon moved the cash here, it would be subject to U.S. taxes.
When cash flow situations change, corporations know they have to move, or they could die.
Governments can die, too, of course. They can’t move so easily, so they need to look to other changes to survive.
There has been a lot of denial over this, but given the reality playing out over in Europe, I think people see that this stuff has to be dealt with, and better sooner, rather than later.