PI Original Angela Caputo Monday January 18th, 2010, 1:03pm

You Can Just Call Us "California East"

While Illinois certainly isn't the only state grappling with a major deficit, the state's budget hole has quickly become one of the nation's largest.

While Illinois certainly isn't the only state grappling with a major deficit, the state's budget hole has quickly become one of the nation's largest. Some new data compiled by the Center for Budget and Policy Priorities ranked the Prairie State second only to California for the size of its deficit -- pegged at $12.8 billion and growing.  But that data only tells half the story. While California's net budget hole may be bigger, the managing director and chief research officer at McDonnell Investment Management LLC tells Crain's that when negative net worth (which includes pension debt) and other expenses are factored in, Illinois ranks dead last.

As staggering as the debt is, Andrew Reschovsky -- an economist at the University of Wisconsin-Madison -- tells Fortune that "political leaders don't seem to be taking seriously the magnitude of the problems." Nowhere is that truer than here in Illinois, where a majority of lawmakers continue to twiddle their thumbs as patients are being turned away from medical care, human service agencies are discontinuing programs and laying off workers, and a growing number of even the best-run school districts are inching towards a "cliff " as reimbursements continue to lag.

So here's a term that might catch their attention: "collapse."  More from Crain's:

[F]iscal paralysis is spreading through state government [...]

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.

Meanwhile, there's no indication that Illinois' finances have even the slimmest chance of rebounding anytime soon. As we recently reported, tax revenues continue to slide. At the same time, a downgraded bond rating is making it increasingly expensive to borrow against future revenues. What's crystal clear is that a tax increase is Illinois' only option for fixing the budget mess. As the Pantagraph editorial board pointed out today, the looming election is "no excuse for shirking duties":

This situation shows a total lack of leadership on behalf of both parties. How else do you explain lawmakers meeting briefly for a couple of days this week then going off to campaign?

Welcome to "California East."

Image used under a Creative Commons license by Flickr user -nathan.

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