Wednesday, October 18, 2017

Welcome To Venezuela North AKA Illinois

Venezuela north, AKA Illinois is now at the next stage all bankrupt entities go through...simply ignoring bills and failing to pay them.

The AP and several other outlets reported that as of the end of June, 2017, over $7.5 billion worth of unpaid bills — over half the total due — hadn't been sent to the official who writes the checks. That would be the woman pictured above, Illinois Comptroller Susana Mendoza.

While a number of the bills have been finally paid, they've been replaced by a new flood of $16 billion in past due bills over the last three months that haven't even been sent to the Comptroller's office yet. And that doesn't include $9 billion worth of checks that are at the office but are not being sent out for a very good reason. The state of Illinois simply hasn't got the money to pay them!

You may recall my previous look at this ongoing farce. While it was exacerbated by a deadlock between Republican Governor Bruce Bauer and the Democrats who control the General Assembly it certainly didn't start there.

For years the state government has been controlled by the Democrats, who engaged in the typical Blue State economics we now see coming to their inevitable conclusion in various Democrat run cities and states; spend like crazy to bribe the public employee unions for their support and promote various dubious programs and 'benefits'. Spend money on projects that benefit the cronies and political supporters of those in power. And of course, raise taxes and increase the cost of basic services and permits whenever you need a chunk of other people's money.

Republican Governor Bruce Bauer won election in a Democrat dominated state by promising fiscal responsibility and convincing people he wasn't going to end up in jail like some of his predecessors. Unfortunately, the Illinois General assembly is controlled by Democrats led by House Speaker Michael Madigan, who made it their business to torpedo any attempt at fiscal sanity. So Illinois hasn't had a budget in 3 years while the unpaid bills piled up.

 Bauer finally called an emergency meeting of the Assembly and demanded they submit a budget. So they did. And it called for a huge $5 billion tax increase,and a lot more spending. Especially for public employee union benefits, public schools, universities, and other projects aimed to reward a lot of Democrat financial backers and select special interest groups. When Governor Bauer vetoed it, the Assembly simply overrode him and passed it anyway.

The results won't surprise anyone who's ever had to deal with debts well beyond their means to repay.

First off, people become very reluctant about loaning you any money at all. And those that will want repayment  at exorbitant terms.

Moody’s recently downgraded the state's credit rating to its lowest investment grade rating, the lowest of any state.Standard and Poor's rates Illinois bonds - just barely  - at BBB- it's lowest investment grade and just above 'junk.' That means that those investors who aren't scared away will demand premium interest rates to buy the state's debt if they buy at all.

When you don't pay your bills on time, another thing happens. Vendors, contractors and people you do business with start questioning whether it's worth it to continue doing business and providing services to you if they have to end up carrying you for 90, 120, even 180 days. Certainly, their vendors, suppliers and employees on the payroll aren't going to wait that long to get paid!  What happens is exactly what you'd expect. Either they cut off supplies and services if they're able to contractually until they get paid their past due balance, or they only supply these things when payment is rendered in full at the time they perform the service or upon delivery. No more credit or net 30 billing.

Another problem you run into is that a lot of these bills sitting in limbo have late fees and penalty charges. According to the terms the state negotiated, a lot of the unpaid bills that are 90 days or older incur a 1 percent-per-month late-payment fee. That's about $5.5 billion of the current $15.9 billion backlog. Doesn't seem like much? Well not if it's other people's money. Comptroller Mendoza estimates the taxpayers of Illinois will ultimately get stuck for $900 million - almost a billion dollars- in late-payment fees on just the existing pile of unpaid bills.

And we haven't even mentioned an additional whammy; $251 billion in unfunded pension obligations.

For instance, if the Illinois Teachers Retirement Service (TRS) had to pay out all of its pensions today, it could only afford to give its members 40 cents on the dollar.

Yet  the number of six-figure pensions TRS has been doling out has increased 24 percent this year compared to last, with about 6,000 retired educators collecting more than $100,000 annually. And I'm sure it isn't just the TRS. The other public employee unions can't be far behind.

What happens when the money runs out? Once the payments end to the public employee unions, aside from violent demonstrations, strikes and unrest, the unions will sue and win, especially in a place like Chicago. It doesn't matter that the state of Illinois can't cover the payments because it simply does not have the money. The judge will rule that Illinois MUST pay.

Which of course is when things will get interesting.

Property taxes, state income taxes, corporate taxes, sales taxes and fees for things like building permits and vehicle registration are already sky high. And Illinois is surrounded by fiscally healthy states like Indiana, Iowa, and Wisconsin, all of them with far lower taxes, a much healthier business climate, lots of jobs and far more reasonable housing costs and cost of living. Of course, a lot of the Other People as well as a lot of businesses in Illinois whose money has been financing this orgy of greed and malfeasance have already made that decision and left in record numbers. They're essentially voting with their feet

Somewhere, the ghost of Margaret Thatcher is laughing out loud.

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So that's the state of affairs in Venezuela North AKA Illinois. While municipalities can go bankrupt, states can't, at least not yet. There are some close competitors to see who's first to try it...New Jersey, Connecticut, Maine, Maryland and of course California among others.

But I'd put my money on our own Venezuela North, AKA Illinois to win and come in first. They're practically there already.

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