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Move over California, Illinois is broke as well

From The New York Times

Viw of Chicago Even by the standards of this deficit-ridden state, Illinois’s comptroller, Daniel W. Hynes, faces an ugly balance sheet. Precisely how ugly becomes clear when he beckons you into his office to examine his daily briefing memo.

He picks the papers off his desk and points to a figure in red: $5.01 billion.

“This is what the state owes right now to schools, rehabilitation centers, child care, the state university — and it’s getting worse every single day,” he says in his downtown office.

Mr. Hynes shakes his head. “This is not some esoteric budget issue; we are not paying bills for absolutely essential services,” he says. “That is obscene.”

For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession.

Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state’s bills and refuses to take the painful steps — cuts and tax increases — to close a deficit of at least $12 billion, equal to nearly half the state’s budget.

Of course the impact is more than on just Illinois

The federal dollars are nearly spent. Last month, local governments nationwide shed more than 20,000 jobs. Should the largest struggling states — like California, New York or Illinois — lay off tens of thousands more in coming months, or default on payments, the reverberations could badly damage a weakened economy and push housing prices down still further.

“You’re not seeing these states bounce back, and that could be a big drag on the national economy,” said Susan K. Urahn of the Pew Center on the States. “It could be a very tough decade.”

Here is what it looks like in real terms

The Community Counseling Centers of Chicago is another of those workaday groups that are like the stitches on a baseball, holding together poor and working-class neighborhoods. With an annual budget of $16 million, the agency tends to families torn by crime and violence as well as people who are psychologically stressed and abusing drugs.

On any given Monday morning, the agency’s chief administrative officer, John J. Troy, 61, has no idea how he is going to keep its doors open until Friday. He said the state had not come through with an expected $2.2 million, which is about six months of arrears. He has laid off and recalled employees three times in the last two years.

“Two weeks ago, I had days to meet my $420,000 payroll and all I was looking at was a $200,000 line of credit from a bank,” recalled Mr. Troy. “I drove down to Springfield and said, ‘Hey, you owe us $3 million.’ They said: ‘Oh, that’s nothing. We owe another agency $10 million.’ ”

“The fact of the matter is,” he added, “I don’t sleep much these days.”

I know that several current and former politicians across the country read this blog but I can’t think of a Canadian equivalent.  In reading about the second Devine government in Saskatchewan the province was pretty much broke but from what I recall, bills were being paid.  While the Ontario government had Rae Days, I am pretty sure the bills got paid.  Actually outside of the 1930s, I can’t think of a time when a Canadian government didn’t pay it’s bills.  Anyone have an example?

9 Comments

  1. libhomo says:

    These state deficits easily could be converted to surpluses by making the rich pay their fair share in taxes.

  2. Deficits could be converted into surpluses if taxes were cut, it has been proven throughout history. After you have confiscated everything from the “rich” and have taken away all incentives to achieve, then where will government get money from. In the U.S., not only are California and Illinois broke, through in Michigan, Nevada, New York, the list goes on. Increased taxation is a “downward spiral”. With so many U.S. states going broke, the effect will radiate into the Provinces, starting with Ontario…

  3. In Saskatchewan (and across Canada) when faced with record deficits in the 1990s, most jurisdictions raised taxes (GST and PST). The GST used to be 9% while the PST in Saskatchewan was that high as well. Over time both taxes were lowered to 5% and 5% as we started to get ahead. This was not a big tax grab on the rich (consumption taxes hit all of us) and didn’t really hurt the economy (it replaced other taxes). Tax increases do work as well as long as they are done intelligently and also are met with spending cuts.

  4. I have been thinking about it, I prefer sales taxes and would rather have them instead of income taxes… Also I think in the long run, they are a better option than raising royalty rates on things like oil (sensitive topic in places like Alberta and Saskatchewan).

  5. Bert Lang says:

    Alberta was so broke at one point, they printed their own currency: depression dollars. The required a stamp every few days to remain valid; this was to encourage circulation because no one wanted to have the money when revalidation was due. The currency was used primarily to pay civil servants

  6. Wasn’t that the “Social Credit”?

    1. Bert Lang says:

      It was the policy of ‘Bible Bill’ William Aberhart, premier from about 1937. The currency was called Prosperity Certificates and needed a penny stamp every week. Bill was first Social Credit premier in AB

  7. Even though I hate the word “tax”, and loathe VAT Taxes, I do agree with you Jordon that a sales tax is much more preferred than an income tax. It definitely does not target those who prosper by hard work.

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