Illinois is in Deep Trouble

In Line to Leave Illinois?

The title of the post is the headline of an article in a recent Wall Street Journal. It is one of a series on the financial situation of Illinois.

So what does this mean for ordinary mortals like you and I? Well, for one thing, if you are a contractor, service provider or even a utility for the state, you can expect a long wait to get paid for your work. Illinois is now has about $14.6 Billion in unpaid bills. Illinois also has $25 billion in outstanding general obligation debt.

Here's a question posed on the article:
"Is Illinois on its way to becoming the next Puerto Rico? Analysts say no, noting that Illinois’s problems are largely political. Unlike Puerto Rico, which is in the midst of a court-supervised restructuring, Illinois has a strong underlying economy and annual revenues that are about 10 times its yearly debt service payments. Puerto Rico, on the other hand, has endured more than a decade of economic distress. “There’s no risk of Illinois losing market access,” said Matt Fabian, a partner at Municipal Market Analytics."

It has been noted that this financial problem is largely political. That's true, but it has been growing for nearly 20 years, and it does pose problems. Citizens can expect higher taxes and further service cuts. Why is that? Because as the article noted "State officials have said those payments [to bondholders] are their No. 1 priority." However, the state also has $250 Billion in unfunded pension liabilities.

Paying the bondholders is important because the day the state fails to do so, the money will dry up. It will be very, very difficult to sell Illinois Bonds. The politicians know this, so they are slowly squeezing the taxpayers in order to pay others.

How serious is the overall debt? Slightly more than $21,000 for every resident of the state. In other words, the politicians we elected mortgaged our future and we gladly allowed them to. I assume that some expect to leave the state before the bill comes due, just as occurred at BLMH before the "Great Recession" of 2008 occurred.

What does this mean for residents of BLMH? Not much, as long as one can afford the increasing tax burden of living in Illinois. Those who can't or won't simply leave the state. I have no idea how many left BLMH because of the state's financial woes. Perhaps no one.  However, Illinois had 12.86 million residents in 2015 and 44,388 have left the state since then. That's about 0.34%. Meanwhile, the states adjacent to Illinois including Indiana and Wisconsin have seen their populations grow.

https://www.wsj.com/articles/illinois-is-in-deep-trouble-what-investors-need-to-know-1498728601