-By Glen Brown
Even though the State’s liabilities continue to increase and the State of Illinois has a cash-flow problem (and we know the reasons why), bankruptcy is not an option. Why? Because bankruptcy would destroy the State of Illinois’ credit rating completely and its ability to borrow at affordable interest rates; the State’s budgets would be slashed; bond sales would plunge, and the bond market would destabilize. Most importantly, the U.S. Constitution prohibits any state from declaring bankruptcy or “impairing the obligation of contracts” (Article 1, Sec. 10).
As stated by the Center on Budget and Policy Priorities: “Various pundits [who suggest] enacting federal legislation that would allow states to declare bankruptcy, potentially enabling them to default on their bonds, pay their vendors less than they owed, and abrogate or modify union contracts [are idiots]. Such a provision could do considerable damage, and the necessity for it has not been proven.
“States suffer from ‘structural deficits’ or the failure of revenues to grow as quickly as the cost of services… Structural deficits stem largely from out-of-date tax systems, coupled with costs that rise faster than the economy in areas such as health care. Fixing these structural problems would help states and localities balance their operating budgets without resorting to [desperate measures]… It is far more constructive to focus on fixing these basics of state and local finance than to proclaim a crisis based on exaggerations of imminent threats.
“It is unwise to encourage states to abrogate their responsibilities by enacting a bankruptcy statute. States have adequate tools and means to meet their obligations… Confusion between short-term cyclical deficits and debt, pensions and retiree insurance – and the overstatement of the magnitude of the latter set of problems – draw attention away from the need to modernize state and local budget and revenue systems and address structural problems that have built up over time in these systems.”