Here's One Record Illinois Doesn't Want to Attain: QuickTake Q&A
Illinois may soon become the first state on record to have its bond rating cut to junk. Behind that financial trouble is an intractable political impasse and drama that’s been building for more than two years as Republican Governor Bruce Rauner and the Democrat-led legislature battle over how to close the state’s chronic budget deficits. Illinois over the past fiscal year spent over $6 billion more than it brought in, and public universities are reeling from the loss of state aid. S&P Global Ratings warned that the loss of its investment-grade rating is likely unless action came around the start of the new budget cycle on July 1.At the same time the largest city in Illinois is on the brink of financial collapse and can't even produce its records on time, inspiring our heroes to go in search of Chicago's Annual Financial Report:
1. Can Illinois go bankrupt?
No. States aren’t eligible to petition U.S. courts to escape from their debts, the way cities such as Detroit have. While Congress amended the law to allow for Puerto Rico to do so, any effort to extend that to states is extremely unlikely, would face intense opposition and may not pass constitutional muster. When the idea was raised in Congress after the last big recession, it was roundly opposed by governors and U.S. lawmakers from both parties who said it would rattle the bond market and punish even financially prudent governments. Some saw it as a tool to gut the pensions of public employees.
2. Is Illinois the next Puerto Rico?
Its fiscal squeeze isn’t nearly as bad as the one gripping Puerto Rico, which in May agreed to use bankruptcy-like proceedings to slash its debt. A U.S. territory, Puerto Rico is contending with a shrinking economy, years of deficit borrowing and a declining population. It owes more than twice as much to investors as Illinois, a state with a larger, wealthier pool of residents and an expanding economy that’s vastly bigger. While Illinois’s financial challenges are significant, the crisis is largely politically self-inflicted.
3. What are the politicians fighting about?
Rauner and Democrats who control the legislature can’t agree on how to eliminate budget shortfalls that persisted after a temporary tax hike expired in January 2015, just as the governor took office. Rauner has pushed for any fiscal fix to include key elements of his agenda, such as property-tax curbs, an overhaul of the workers’ compensation insurance system to cut costs and legislative term limits. Democrats say they’ve passed compromise measures that incorporate some of his goals, but Rauner says they don’t go far enough to enact real change.
4. What will happen once Illinois is cut to junk?
The downgrade will likely force Illinois to pay higher interest rates whenever it needs to raise money in the financial markets. Mutual funds that are only allowed to own investment-grade securities would be unable to purchase its bonds, leaving it potentially more dependent on non-traditional buyers such as high-yield and hedge funds. That’s what happened after Puerto Rico was cut to junk in 2014. The stigma could also scare off some individual investors, who hold more than 40 percent of all municipal securities directly in their portfolios. Individual investors are sometimes prone to react to negative news reports, a phenomena municipal analysts refer to as “headline risk.”...MUCH MORE
HT: Economic Policy Jounral
And the producer of the video, Chicago's Truth in Accounting NGO puts together a list of what's up in city government/finances:
Financial State of the Cities
January 11, 2017
We analyzed the finances of the 50 largest US cities. The ranking is based on taxpayer burden, or each taxpayer's share of unfunded city debt.
See our city database here.
From best to worst:There has to be a short idea or two in here somewhere, right?
- Long Beach
- Arlington, TX
- Oklahoma City
- Las Vegas
- Washington, DC
- Colorado Springs
- San Diego
- San Antonio
- El Paso
- Virginia Beach
- Los Angeles
- San Jose
- Kansas City, MO
- Fort Worth
- San Francisco
- New Orleans
- New York City