This Inevitable Crisis Just Became Imminent
This Inevitable Crisis Just Became Imminent by Justin Spittler – Casey Research
It’s about to become the first U.S. state with a “junk” credit rating.
It’s broke…and running out of time. It doesn’t have enough money to fix its roads. It can’t feed its prisoners. It can’t even pay its lottery winners.
I’m talking about Illinois.
Two weeks ago, I told you how the state was on the edge of a major debt crisis. Since then, state politicians have scrambled to keep the situation from spiraling out of control.
In fact, they just passed their first budget in over two years. It raised personal income taxes by 32% and the corporate tax rate by 33%.
Those are huge tax increases. Surely this fixes the problem, right?
The budget will raise just $5 billion. That will barely put a dent in the state’s $15 billion deficit.
In short, it won’t fix anything. At best, it buys Illinois some time.
Bruce Rauner, the governor of Illinois, agrees:
This is a two-by-four smacked across the foreheads of the people of Illinois… This tax hike will solve none of our problems and in fact, long run, it’ll just make our problems worse.
Moody’s sees major “shortcomings” in the budget, too. The credit rating agency is especially worried about a lack of “broad bipartisan support.”
Because of this, Moody’s may cut Illinois’ credit rating to “junk” status. Standard & Poor’s, another major credit rating agency, has threatened to do the same.
If this happens, Illinois’ borrowing costs will skyrocket.
• And that’s the last thing Illinois can afford right now…
After all, it’s already $15 billion behind on its bills. And that doesn’t even include the state’s biggest liability: its broken public pension system.
A public pension, as you may know, is a state-run retirement fund. Teachers, firemen, and police officers finance these funds out of their paychecks.
For decades, government employees in Illinois could count on their pensions. But not anymore.
Today, Illinois’ pension system owes $250 billion more than it has. That’s more than the combined market value of four major Illinois-based corporations: Boeing (BA), Caterpillar (CAT), United Continental (UAL) and Allstate (ALL).
At this point, the pension system is bleeding so much cash that it’s bankrupting the state.
But Illinois isn’t the only state with this problem…