Illinois Is Technically Insolvent
Illinois is technically insolvent…
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. Private companies in similar circumstances often shut down or file for bankruptcy protection.
"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." […]
[…] While Illinois doesn’t have the option of shutting its doors or shedding debts in a bankruptcy reorganization, it seems powerless to avert the practical equivalent. 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.
As a result, fiscal paralysis is spreading through state government. 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.
Without quick corrective action or a sharp economic upturn, Illinois is headed toward a governmental collapse. At some point, unpaid vendors will stop bidding on state contracts, investors will refuse to buy Illinois bonds and state employees will get paid in scrip, as California did last year.
"The crisis will come when you see state institutions shutting down because they can’t pay their employees," says David Merriman, head of the economics department at the University of Illinois at Chicago.
A record $5.1 billion in state bills was past due at yearend, almost doubling to 92 days from 48 days a year earlier the average amount of time it takes the state to pay vendors such as doctors, hospitals, non-profit service providers and other contractors. (source: Chicago Business)
What happens when state budgets are broke? Only one of two things can happen, cut services and employees or raise taxes. Anyone care to guess which way Illinois will go?
In my own state of New Jersey, Governor Christie takes over the helm from Governor Corzine tomorrow. First order of business will be the budget. New Jersey has serious problems as well and expectations are for deep cuts across the board. But I won’t rule out tax hikes down the road either.
Stay tuned, the budget problems facing the states is just beginning.
State of Illinois Is Broke
When individuals don’t pay their bills for 3 months creditors will put the screws to you in any way they can. When state and local governments don’t pay the bills for 3 months it just goes into a ‘this is the new normal’ and no punishment is given to the state and local governments. Besides, you can’t fight City Hall as the old saying goes.
You do realize that one day the “full faith of the United States Government” will no longer mean anything when it comes to making good on its debt.
(CBS News) The State of Illinois’ pile of unpaid bills has grown to a record-breaking $3 billion. Comptroller Dan Hynes said Tuesday it’s never before been this bad at this point in any previous fiscal year. CBS 2 Political Editor Mike Flannery reports that some social service agencies that rely heavily on state reimbursement warn they will soon be forced out of business.
Hynes said that things are likely to get worse before the state’s bleak revenue picture begins to improve.
The comptroller reported corporate income tax receipts down $77 million for July through September; sales tax receipts, down $244 million; personal income tax receipts, down $251 million.
One result: the typical creditor must now wait three months to be paid by the state, compared to a two-month wait at this time last year.
It’s all very discouraging to the physician who runs Family Home Service.
Dr. Norman James said he does not have enough cash to pay his 250 employees this Friday. He said he may have to close the doors, leaving more than 450 clients without the support they need to stay in their own homes and out of expensive nursing homes.
Dr. James said his bank had tripled the size of his line of credit, but that money is now all gone. Dr. James said Illinois owes his agency $900,000, about $700,000 of it past due by up to five months.
Evelyn Gonzalez, a Family Home Service supervisor, said she can’t afford to miss a pay check.
“It’s nerve-wracking. Because I have bills to pay just like everybody else,” Gonzalez said.
A Chicago Meals on Wheels and nutrition center can’t purchase food and is facing eviction,” Hynes said. “A large Lake County disabled program can’t make insurance or mortgage payments.”
Hynes said he’s now getting 2,600 calls a week from creditors desperate to be paid by the state.
While the General Assembly is scheduled to reconvene next week in Springfield, no one’s even pretending to offer a comprehensive solution to the unprecedented budget disaster. Democrats and Republicans, the governor and legislative leaders all insist that must wait until next year.
Late Tuesday, Mayor Daley described Chicago’s revenue situation as “very serious.”
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