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June 2012
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STUNNING Fixing Illinois' finances becomes stuff of fantasy


We continue to be perplexed by the seeming indifference in the media and elsewhere to the unraveling of a sovereign state. It is all-the-more astonishing when one considers that state is our nation's fourth-most-populous. We speak of course of our neighbor to the north, Illinois.

There is a group in Chicago called the Civic Federation. It dates to 1894 and bills itself as "an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois."

The Civic Federation is primarily funded by businesses and professional groups. Several days ago it put out a report on just what it will take to get Illinois out of its current fiscal mess. We find it jaw-dropping.

Illinois has not had a budget, or a functioning government, really, since 2015. Republican Gov. Bruce Rauner, who was elected in January 2015, and the heavily Democratic Legislature have been unable to agree on much of anything.

So Illinois has operated for years now with no budget, spending more than it takes in and routinely stiffing its creditors. The state's backlog of unpaid bills stood at $10.9 billion at the end of 2016. Almost $4 billion of that is unpaid state group health insurance claims, some of which are nearly two years old. If nothing is done the state's unpaid bills will grow to $14.5 billion by the end of fiscal 2017.

The Civic Federation says it would take 40 percent of the state's projected 2018 revenues to pay off the past due bills. To balance the 2018 Illinois budget through cuts alone, the state would have to reduce spending by 26 percent from current levels.

Think about the latter for a second. How does one do that? Do you close every fourth school, college and government office? Do you lay off one-fourth of the state's workers? Or turn them all into part-timers perhaps, by only opening schools and state offices four days a week?

Obviously those aren't real options. We're not sure the proposals put forth by the Civic Federation are either, but for purpose of illustration, here is some of what the group says it would take to get Illinois in the black:

â ¢ State spending growth would be limited to 1.7 percent through 2024.

â ¢ Individual income taxes would have to be raised from the current 3.75 percent to 5.25 percent; corporate taxes would rise from 5.25 percent to 7 percent.

â ¢ Retirement income (pensions, etc.), presently exempt, would be taxed. Only Social Security would be excluded.

â ¢ The sales tax would be extended to services. The rate would be lowered, but people would ultimately pay more for their consumption of goods and services.

â ¢ Tax breaks for retailers, ethanol users, domestic producers and others would be capped or eliminated.

Oh, and that backlog of unpaid bills? Illinois still couldn't pay that off. It would have to borrow the money and sell bonds to finance it.

The politician has probably not been born who could get all of this done, which is why we find this scenario so scary. And this is just a point in time. The disaster, largely fueled by a $130 billion state employee pension deficit, grows in scale with each passing day. The longer it goes, the more unrealistic a cure becomes.

We don't see how this ends in anything short of financial collapse. Why there is no national alarm about it is beyond us. We just hope Kentucky, which has its own massive pension problem, doesn't join the party.

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