How many other states are insolvent?
The State Budget Crisis Commission has released a new report on Illinois in which it chronicles the long descent of the state into fiscal chaos. As the report points out, reiterating what we've been saying for some time now, Illinois has used so many gimmicks to push off its problems over the years that even before the financial crisis hit, the state was essentially insolvent. How many other states are in the same predicament?
One could argue that Jersey is insolvent, too. The state's governor created a furor when he said the state was bankrupt back more than a year ago. Unlike Illinois, which borrowed to put money into its pension funds, Jersey has simply skipped paying that bill for more than a decade. It still comes up about $2.5 billion a year short. That's almost 10 percent of the taxes the state collects. Plus the state still owes the feds about $1 billion after having swiped clean its unemployment trust fund to spend on other programs back when joblessness was low.
How about California? It has a $9 budget deficit which Jerry Brown wants to solve with new taxes on the ballot in November. Without those increases Brown promises very painful spending cuts. But David Crane, A Democrat who advised Arnold Schwarzenegger on economic issues, says that even with a tax hike the state can't possibly stop services from deteriorating and legitimately balance its budget because California's costs, including its pension costs, are rising so quickly. He estimates that the state's woefully underfunded teacher's pension fund alone will eat up half of any tax increase. When you pile on top of that rising Medicaid costs, deteriorating infrastructure, the worsening condition of California municipalities and the lousy shape of other pension funds in the state, the problems are enormous and need to be fixed by cutting spending and initiating reform, first.
Plenty of other states have used some of the fiscal gimmicks employed by these three outliers and so have a long-road back to fiscal stability. Rhode Island and Connecticut come to mind, for instance. New York's courts saved it from the deep pension underfunding of other states by requiring annual contributions, but otherwise New York's budget is another taxonomy of fiscal tricks. Illinois is proof that this stuff catches up to states, eventually.
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