Illinois has been shackled with a reputation of political sleaze from Chicago Wards and dishonest Aldermen to the bipartisan corruption of Springfield State Capital. The pattern of crooked government is a given. What is often ignored is the negative impact and toll that such fiscal mismanagement takes on small business. Back in 2014 Illinois was already at the bottom of the barrel. “Business friendly” may not describe the Land of Lincoln after it ranks second from last in a new study. The Chicago-based research group, American Economic Development Institute, ranked Illinois the 49th worst state for business just ahead of California. While facilitating an environment that encourages small business is important, sound budgetary policies and pragmatic governmental debt ratios are essential.
In order to appreciate just how broken the finances are a short review of The history of Illinois’ fiscal crisis, according to Ted Dabrowski and John Klingner, is valuable.
“The state’s fiscal collapse is the culmination of years, even decades, of budget gimmicks papered over Illinois’ structural spending problems, along with misplaced spending priorities that favor special interests over the people.
State politicians have used all sorts of loopholes, from pension ramps to issuing pension obligation bonds to temporary tax hikes to help “balance” the budget without reforms. And they’ve helped politicians from both parties preserve the status quo. Keeping the budget “balanced” meant lawmakers could spend more on their misplaced priorities.
Today, politicians have run out of ways to avoid reforms and paper over the crisis.
It’s become too hard to pass tax hikes because Illinoisans don’t want and can’t afford them. Borrowing is too difficult because the rating agencies are watching. And everybody is onto the gimmicks. All the while, Illinoisans are leaving in record numbers.
The only real and sustainable fix is structural reforms. A real budget – one that balances Illinois’ budget with structural reforms instead of tax hikes – is the solution Illinois needs.”
Add to this tragic description of failure, Messrs Dabrowski and Klingner continues with the frightening results which have plagued the citizens of Illinois from the despicable political class that has ruined the business climate, 5 CONSEQUENCES OF ILLINOIS’ BAD BUDGET DEALS.
1) A credit downgrade to junk. Credit rating agencies have warned they’ll downgrade the state’s credit – possibly down to junk status. A downgrade will cause all kinds of pain for Illinoisans, the most immediate being the diversion of more of the budget from core services to pay for much higher borrowing costs. But the bigger cost will be, notwithstanding Illinois’ already low reputation. No state has ever been rated junk before.
2) Unpaid bills will skyrocket. Illinois currently has nearly $12 billion in unpaid bills, which, under the current impasse, are expected to total nearly $25 billion by early 2019.
With that staggering pile of unpaid bills, there will be very little choice for the General Assembly but to pay them off by borrowing money. The state’s total long-term debt could nearly double to $53 billion if that happens. That will drive up borrowing costs to unprecedented levels.
3) Illinois’ borrowing costs will soar even higher. With dramatically more debt and a junk bond rating, Illinois’ borrowing rate would continue to rise compared with AAA-rated states. Neighboring Indiana, Iowa and Missouri are AAA-rated. Today, Illinois borrows money at a 5 percent rate, compared with just 3 percent for states with AAA ratings. That 2-percentage-point penalty already costs Illinois $20 million dollars extra each year for every billion dollars the state borrows – valuable resources that could go toward core government services. With more downgrades potentially on the way, expect that penalty rate to jump and Illinois to divert even more of its budget toward interest costs.
4) More social programs and other services will be cut. The interest costs alone on $25 billion in new borrowing to pay down the state’s unpaid bills will total $1.25 billion, assuming today’s borrowing rates. That money won’t go to help Illinois’ most vulnerable residents or shore up struggling social services. Instead, that massive amount will go to Wall Street. To understand how big that annual interest payment would be, consider the fact that the Pay Now Illinois coalition of approximately 100 different social and human service groups is suing the state for payment on $161 million of its unpaid bills. That $161 million is just a fraction compared with what Illinois would pay on just the interest on its borrowing by 2019.
5) Pension costs will continue to grow out of control. Illinois owes $130 billion in state pension debt, up nearly $100 billion from a decade ago. Without real reforms, that crisis will continue to grow.
The power of government unions is notorious especially in Chicago. The day of dumping the obligations of pension upon the taxpayers has come to an end. Since SMALL BUSINESSES PROVIDE MORE THAN 75 PERCENT OF NEW JOBS IN ILLINOIS, the exodus of productive residents leaving the state is an inevitable outcome of excessive taxation and borrowing. “Small businesses are not only an important part of local culture in Illinois, they’re also the largest job creators in the state,” said Orphe Divounguy, chief economist at the Illinois Policy Institute. “Unfortunately, small businesses are also the most vulnerable to bad policy decisions, such as income tax hikes, burdensome regulations, and some of the highest property taxes in the nation.”
The black financial hole was caused by a political outfit that the racketeers would be proud to do business with. Extortion comes from different sources. A crime syndicate shakes down vulnerable businesses, but state government theft from the wealth creators is much more hideous.
As long as the underclass leeches and civil servant sycophants demand their government check, the economic prospects for Illinois will never improve. Prosperity is based upon mutually beneficial transactions in the exchange of goods or services. When state or local municipalities become caustic partners through extreme taxation, fruitful business activity ceases. Blue State economics is a sure formula for bankruptcy.