Illinois Death Watch Continues...

Authored by John Rubino via,

It’s been a long time coming, but Illinois’ slow-mo financial disaster is now front page news. A few recent examples:

Roadwork Could Shut Down Across Illinois Due To Budget Impasse

(Chicagoist) – Roadwork across Illinois may grind to a halt at the end of June due to the continued state budget impasse, a representative for the Illinois Department of Transportation (IDOT) announced Wednesday. IDOT will be unable to pay contractors on July 1, unless the state passes a stopgap funding measure.


IDOT has told contractors that “all construction work is to shut down on June 30,” according to a statement. “Contractors will be advised to secure work zones to ensure their safety during any potential shutdown.”


Illinois has gone almost two full years without a state budget, which has hit education funding throughout the state and generated more than $14 billion in unpaid bills.14


Summer is both a high-volume construction season and a vaguely ominous time to cease road repairs; just last week, IDOT released a statement warning that the heat could lead to pavement “buckling or blowing out.”


Powerball, Mega Millions to Halt Illinois Lottery Due to State’s Inability to Pay Winners

(Mish) – Both Powerball and Mega Millions Lotteries Will Pull Out of Illinois on June 30 due to the budget impasse.


Without a budget in place, the state is not authorized to make payments to the association or Mega Millions.


Lottery proceeds are about 2% of state revenue. Speaking of revenue corporate income tax collection is down 41.3%. Sales taxes are flat. How is this supposed to work?


Could Illinois be the first state to file for bankruptcy?

(CBS) – Illinois residents may feel some solidarity with the likes of Puerto Rico and Detroit.


A financial crunch is spiraling into a serious problem for Illinois lawmakers, prompting some observers to wonder if the state might make history by becoming the first to go bankrupt. At the moment, it’s impossible for a state to file for bankruptcy protection, which is only afforded to counties and municipalities like Detroit.


Chapter 9 bankruptcy protection could be extended to states if Congress took up the issue, although Stanford Law School professor Michael McConnell noted in an article last year that he believed the precedents are iffy for extending the option to states. Nevertheless, Illinois is in a serious financial pickle, which is why radical options such as bankruptcy are being floated as potential solutions.


Ratings agency Moody’s Investor Service earlier this month downgraded Illinois’ general obligation bonds to its lowest investment grade rating, citing the state’s growing pile of unpaid bills and its mounting pension deficit. Illinois, by the way, has the lowest credit rating of any state. Lower ratings mean higher borrowing costs, since lenders view such borrowers as riskier bets.


“Legislative gridlock has sidetracked efforts not only to address pension needs but also to achieve fiscal balance, allowing a backlog of bills to approach $15 billion, or about 40 percent of the state’s operating budget,” the agency noted.


As noted by the Fiscal Times, Illinois is the only state that’s been operating without a balanced and complete budget for almost two years.


“We’re like a banana republic. We can’t manage our money,” Gov. Bruce Rauner said after the Illinois Legislature failed to produce a full 2017 budget earlier this month.

Two Big Questions

Based on the immensity of its pension obligations, the legal barriers to simply cutting benefits, and falling tax revenues, Illinois is a lock to default on some or all of its obligations in the next few years. That’s a problem for pensioners, state contractors and pretty much anyone who cares about local public services. In other words, life is going to get a lot harder for people living in the state, and especially for those living in double-bankrupt Chicago.

But the real impact will be felt farther afield, when everyone with money at risk starts asking who’s next – and finding a long list of likely suspects.

If Illinois defaults, how far behind can New Jersey, Kentucky, or Connecticut be? Not far, according to current trends. And if those states follow Illinois, what are Italian bonds worth? Not much.


The second big question is: How will stronger governments respond to the implosion of weaker ones? If the failed states are bailed out by the still-solvent, what does that do to the latters’ balance sheets? In some cases it decimates them.

The dilemma? Allowing failed states to default will rock the global banking system, but bailing them out replaces a debt bust with a currency crisis. In a priced-for-perfection world, either will lead to global asset repricing — in other words an epic bear market.


MalteseFalcon pupton Mon, 06/19/2017 - 16:45 Permalink

If IL needs a bailout, then IL should be put under federal control as was done to the South during Reconstruction.State officers should be appointed by the Feds.A tribunal should be convened to investigate and prosecute state and local officials, as indicated.IL constitution should be rewritten.The budget is to be balanced every year.IL should not be allowed to participate in the electoral college during reconstruction.IL should be referred to as the IL reconstruction district and not as a state of the union.Just like after the "Civil War" reconstruction should be expected to last 10 years.

In reply to by pupton

ResistTemptation Mr.BlingBling Mon, 06/19/2017 - 11:22 Permalink

Do I still have time to buy another box of 30/30 for my "if I only could take one?"Really great article ... really nice projections for a bad situation. Missed the one about how the people that planned their whole lives around having a pension are making lists of who did what. When the doctor says you got cancer ... well ... you know nobody likes to go alone.

In reply to by Mr.BlingBling

The Ram ResistTemptation Mon, 06/19/2017 - 13:01 Permalink

Ah, this is the million dollar question for America.  What will the sheeple do when they find the US and state governments have flushed their savings and pension plans.  I am not sure, but I am very sure they will not sing 'Kum Baiai'.  I would buy that box of 30/30, but 30/30 is too much fire power for what you want.  You are not going to be killing deer.....unless you are hunting for food.  22 long rifle hollow points are all you need.  Not a lot of stopping power, but a head shot will be very effective and when the stuff starts, their will not be enough neuro surgeons practicing to extract 22 slinters from someone's cranium.

In reply to by ResistTemptation

Omen IV Haus-Targaryen Mon, 06/19/2017 - 11:04 Permalink

The solution is the state constitutional change via referendum - clearly the taxes go to the moon without fundamental change - referendum to allow the pensions to be paid at 30 cents of whatever the original formula was setup or cancelled - usually the last three years compensation was rigged to get the pension payment up anyway or a special state tax on pensions at 65%.this pension  overhang everywhere has no future for any state's viability as a place to live, if you own property or have an income - too easy to move the business if it is revenue related out of state why would anyone vote to pay for government pensions out of their own pocket?

In reply to by Haus-Targaryen