The Frightening Ghost of Illinois Future
Financial Sense ^ | 12 May 2017
Posted on 5/14/2017, 9:16:03 PM by Lorianne
When the US territory of Puerto Rico filed for bankruptcy last week, we took the opportunity to identify the most likely candidates among US states to follow the new legal precedents that are now being set by its example. The editorial board of a leading newspaper in one of those states, Illinois, argues that Puerto Rico’s bankruptcy filing represents the “frightening ghost” of that state’s debt-laden future.
Here are some excerpts from the Chicago Tribune‘s editorial. They first set the stage:
Puerto Rico is the terrifying Ghost of Illinois Future: a worst-case example of what happens when a government no longer can pay its bills.The island, an American territory, is weighed down by $123 billion in bond and pension debt it cannot afford. Illinois, meanwhile, has about $130 billion in unfunded pension obligations alone, plus billions more in retiree health care and other liabilities. The circumstances are different, but no government can function properly—indefinitely—under ever-rising debt. Eventually something gives.
The day of reckoning for Puerto Rico came Wednesday when the island filed for a form of bankruptcy court protection—an emergency action unprecedented for a US state or territory.
Puerto Rico is what a debt-fueled nightmare looks like. Total indebtedness includes $74 billion in bond debt and $49 billion in unfunded pension obligations. The road to ruin traces back to a 2006 recession that never ended. To make up for budget shortfalls, the government borrowed ... and borrowed. As Puerto Rican joblessness increased, tens of thousands of residents left for the mainland, further eroding the economy. “People sometimes just leave the key in the house or the car in the airport and just go,” a resident told The Wall Street Journal. Last March, the struggling power company temporarily shut off electricity to a hospital that couldn’t pay its bills. Talk about a Dickensian scene.
Let’s see: vast government borrowing, and outmigration removing taxpayers from the workforce. Sound familiar?
SNIP |
