Financial Situation Facing Illinois

The state of Illinois has received much attention lately for its budgetary shortfalls and recently enacted personal and corporate income tax increases.  A January 13 Wall Street Journal article titled “Illinois Braces for Tax Increases” provides a summary of the current budgetary situation.

I was quite surprised to see state Comptroller Judy Baar Topinka declare on a recent news broadcast that the state’s current amount of unpaid bills is $9 billion, as  several well-respected news sources, including the aforementioned Wall Street Journal article, have been quoting a figure of $6 billion.  I find this difference, as well as several other facets of the Illinois financial situation, to be disconcerting.

I believe that there are a variety of factors that up until now have allowed Illinois to avoid facing the enormity of its situation, given the current budget deficits and substantial long-term liabilities.  Perhaps foremost among these factors is that the markets appear to believe that should a state require a “bailout”, such a “bailout” would be exercised by the federal government.

Illinois finds itself in a precarious situation; that of increasing taxes during a less-than-strong economy.   I’ve previously commented upon various complex facets of this situation in posts of February 23, 2010  (“Tax Increases And Our Economic Situation – Follow Up“) as well as the “America’s Trojan Horse” article.

As I wrote in the August 25 post,

By “sweeping (financial) problems under the rug” instead of truly solving the deficit problems, it almost seems as if states are inherently betting (in a big way) that current economic hardship is transitory, and that better future economic conditions will “save the day.”  In effect, there is little need to solve structural budget/financial problems because a strengthening economy will alleviate or eliminate such issues.

For many states, this “better future economic situation” has failed to materialize, and now the markets appear to be increasing their scrutiny of the states’ financial conditions.  For a variety of reasons, this situation deserves close monitoring.


A Special Note concerning our economic situation is found here

SPX at 1295.02 as this post is written