FedUpUSA

Archive for the ‘State Tax Revenues’ Category

Private citizens have had enough of overpaid, underworked, public employees with benefits most private workers can only dream about.

Unfortunately, President Obama has not gotten the message (and likely won’t until he is kicked out of office). Time and time again, president Obama has proven that he is beholden to public unions no matter how unjustified the cost.

Now President Obama is asking for $50 billion more taxpayer dollars, your dollars, to dole out to the states, in an effort to buy votes or simply because he is economically illiterate. Most likely, it is a combination of both.

Please consider this letter from Obama to Speaker of the House Nancy Pelosi and the Senate leaders of both parties.

The president whines about losing 84,000 government jobs at the state and local level. I consider that a 5% down payment on what needs to happen.

Obama Begs for More of Your Money

The Washington Post sums up the situation nicely in Obama pleads for $50 billion in state, local aid

President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid “massive layoffs of teachers, police and firefighters” and to support the still-fragile economic recovery.

In a letter to congressional leaders, Obama defended last year’s huge economic stimulus package, saying it helped break the economy’s free fall, but argued that more spending is urgent and unavoidable. “We must take these emergency measures,” he wrote in an appeal aimed primarily at members of his own party.

“I think there is spending fatigue,” House Majority Leader Steny H. Hoyer (D-Md.) said recently. “It’s tough in both houses to get votes.”

Democrats, particularly in the House, have voted for politically costly initiatives at Obama’s insistence, most notably health-care and climate change legislation. But faced with an electorate widely viewed as angry and hostile to incumbents, many are increasingly reluctant to take politically unpopular positions.

The House last month stripped Obama’s request for $24 billion in state aid from a bill that would extend emergency benefits for jobless workers. Senate Majority Leader Harry M. Reid (D-Nev.) hopes to restore that funding but with debate in that chamber set to resume this week, he acknowledges that he has yet to assemble the votes for final passage. Obama’s request for $23 billion to avert the layoffs of as many as 300,000 public school teachers has not won support in either chamber.

Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.), called the letter full of “contradictions.”

“He’s calling on Congress to pass a [jobless] bill that will add about $80 billion to the deficit, but then calls for fiscal discipline; he says these measures need to be targeted and temporary, but then calls for extending programs passed in the stimulus more than a year ago,” Stewart said in an e-mail.

Overpaid Unions Workers Need To Share The pain

If President Obama has any sense of fiscal responsibility he would be calling on public unions to share the pain. Government works almost entirely escaped the pain most in the private sector have gone through.

We lost 8 million private sector jobs in the recession, and a few hundred thousand public sector jobs are now at stake. Instead of asking overpaid, underworked public union workers to share in the pain, Obama want to tax to death everyone else to pay for it.

Send a Message

It is time to send a message and the way to do it is to vote against any incumbent from either party who just cannot say no to this fiscal madness.

What You Can Do

Please call your legislative representative and tell them the problem is too much government spending, unions are wrecking the country, and if they vote for more taxpayer sponsored bailouts of public union workers or more state aid, then you will vote them out of office.

Tell your representatives you are against spending $50 billion more on states and that it is long overdue for government workers share the pain and that it’s time for states to fix their budget messes without more Federal handouts and taxpayer dollars.

Here is a directory sorted by state of all the Senators of the 111th Congress.

You can also look up the phone numbers in the Online Directory For The 111th Congress

Bear in mind, not a single job is really at stake. All the unions have to do to keep every jobs is lower pay scales or reduce benefits. Instead, they want everyone else to pitch in to pay for their bloated salaries and their bloated pensions.

Enough is enough.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The Revolt of the States

By Alan Caruba

President Obama, his weird circle of advisors (czars), and the ideologues within the Democrat Party led by Speaker Nancy Pelosi and Majority Leader Harry Reid only have a few months left to completely destroy the separation of powers between the States and the federal government.

A major battle is looming over the Tenth Amendment which declares that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

Almost everywhere one looks today, the States are in rebellion to the overreaching of the federal government. The process involved is called nullification, a legal theory that a U.S. State has the right to nullify, i.e., invalidate, any federal law deemed unconstitutional. Since the Supreme Court moves at a glacial pace, the States through their legislatures have taken the lead in many cases.

Nullification is not secession as in the case of the Civil War, but there is a history of nullification that includes the Kentucky and Virginia Resolutions against the Alien and Sedition Acts. Thomas Jefferson and James Madison both argued that the States are the ultimate interpreters of the Constitution, arguing that the States could “interpose” themselves to protect their citizens from unconstitutional national laws.

Much of the discord in the nation today has its roots in the vital difference between a conservative attachment to traditional values and a liberal ideology that would impose a One World Government on our sovereign nation.

The great philosopher of American conservatism, Russell Kirk, wrote “True conservatism is the antithesis of ideology. It is the negation of ideology. For conservative is grounded in the past. Its principles are derived from the Constitution, experience, history, tradition, custom, and the wisdom of those who have gone before us—‘the best that has been thought and said.’ It does not purport to know the future. It is about preserving the true, the good, the beautiful. Conservatism views all ideologies with skepticism, and the more zealous and fanatic with hostility.”

A case in point is the way that State after State has lined up to oppose through the courts and by individual legal action the imposition of the president’s healthcare legislation, passed on strict party lines by the Democrat Party and only after the most vile revelations of bribery and backroom deals. It is a bill whose content Speaker Pelosi said Americans should supinely consider only after it was passed.

There has been a rapidly growing awareness and rejection of the assertion that the federal government can “own” General Motors or that the government should be in the business of buying and selling mortgages.

Pending financial reform legislation would permit the federal take over any company to install its own board of directors and thus control the economy. The failure to exercise existing regulation of the financial sector hardly calls for more regulation. It calls for stronger enforcement of existing laws.

The increasing awareness and rejection of the false “theory of global warming” is being rejected on the basis of the widely perceived cooling of the earth during this decade and the wild projections of warming 25, 50, a hundred or more years into the unknown future. More and more Americans now know it is based on feeble and deliberately false “computer models”.

That is why the Cap-and-Trade bill, a huge tax on energy use, awaiting action in the Senate, even if imposed in the same fashion as the healthcare bill, will be rejected by the States. There is no need to regulate carbon dioxide, a natural gas that has nothing to do with “warming”, but a rogue government agency, the Environmental Protection Agency, is set to assert this falsehood through massive regulation that will destroy the nation’s economic base.

With increasing pace, the States are demanding that the Second Amendment protecting the right to own and bear arms be respected and asserting their right to pass laws permitting gun ownership, including the right to carry concealed arms for self defense. States that have enacted such laws have seen a dramatic decrease in crime.

The assertion of unconstitutional federal powers lies at the heart of the State’s rejection of these efforts. Unfunded federal mandates are bankrupting the States and they want an end to them. The rapacious taking of State lands is crippling theirs and the nation’s ability to access our natural resources.

A growing spectrum of federal laws intruding upon the sovereignty of individual States is being challenged and this is a good thing. We should all take heart from these challenges as well as the spontaneous occurrence of the Tea Party movement that is a dramatic demonstration that the spirit of individual liberty and of States rights is alive and well in America.

A new generation of Americans is learning that the Constitution was designed to ensure a small and limited federal government and that the States, like the Union, are individual republics.

The battle has been joined.

State and Local Budget Crisis Black Swan – California paying out $100 Million per Day in Unemployment Insurance. Detroit’s Shrinking Population Crushes Revenues. The Employment Situation at a Micro Level.

Posted by mybudget360

One stunning statistic that hit this week regards California’s unemployment insurance claims being paid out.  California is paying out some $100 million per day in unemployment benefits.  I’m not sure if I would call it a “benefit” but more as a buffer to get by.  In reality if we really want to get a pulse on what Americans are facing in terms of the recession unemployment claims and benefits are a good place to start.  The unemployment rate as we all know can be fudged in many ways.  If you work 10 hours at Wal-Mart but want full-time work then you are counted as employed in terms of the headline rate.  This isn’t a big deal when a small part of the country is working part-time for economic reasons but this group is enormous (9 million to be exact).  The headline rate is 9.7 percent but add in this group and we are up to 16.9 percent.  And people seeking unemployment rarely fudge numbers because they need the money and they have to report their status every two weeks to continue receiving claims.

If we look at California for example, the numbers show anything but a recovery:

Source:  California EDD

Even with 99 weeks of unemployment insurance between federal and state, extensions, and other emergency support programs we have a sizeable number of people reaching the end of their rope.  This shows how pervasive and deep this economic crisis has hit average Americans.  I tend to look at unemployment insurance payouts as a good measure to see how quickly the economy actually recovers.  After all, if after two weeks you find a job, you would expect that less would be coming out of the fund when it comes to renewing your benefits.  So it is very sensitive to market changes in the employment market.  We have so many market indicators from consumer confidence to home sales but in terms of employment, I’d be following the unemployment insurance payouts very closely to see when things actually take a turn.

And one unique aspect (there are many) about this recession is the length of time people have been out of work:

Of the 15 million officially unemployed people, nearly 7 million have been unemployed for 27 weeks or more.  The problem when people remain without work this long is that they typically will be shifting into other industries.  Think of a mortgage broker that now needs to retool for another industry that is hiring (i.e., health care).  Congress is currently debating whether to extend unemployment benefits but the fact that we are even having this debate with 99 weeks of unemployment insurance in some states is troubling in itself.

In many places like Los Angeles and Detroit, you are seeing massive deficits in their budget but for different reasons.  California relied heavily on the housing bubble.  States that really built an entire tax collecting expectation around real estate are being harmed deeply:

The Real Estate Foursome

California

Nevada

Arizona

Florida

The private sector responded quicker.  Massive layoffs and crashing home values.  Yet state and local governments are still expecting revenues at higher levels.  Even if they don’t expect it, they haven’t done anything to the level necessary of balancing their budgets.  Many middle class Americans will probably be shocked to see their local tax rates blossom even as they see their wages cut.

The other side of the budget issue has ex-manufacturing states like Michigan and Ohio that are struggling from the economic downturn but for other reasons.  People forget that Detroit for example has had a crashing housing market for over 15 years.  This has to do with the dismantling of our manufacturing base but also people leaving the city:

Once the fifth largest city in the U.S. Detroit has lost half its population in 60 years.  This has caused deep ramifications in budgets but also in how the city deals with problems.  For example, there is an effort to bulldoze parts of the city to reflect the actual services available and the new population dynamics.  Drastic measures indeed but this is what is happening.

So dwindling revenues are another important aspect of the budget crisis.  Looking at local governments because many depend on tax collections for revenues, things are still in bad shape.  So if revenues are not up to par, then it is merely a reflection of the weak economy.  These are indicators that prove to be better at giving the “feel” of the recession because simply looking at Wall Street, you would think that we would all be partying with a 70+ percent stock market rally.  But Wall Street does not reflect Main Street and they only care about the worker on the street when it comes to taking their money for bailouts of their horrible business decisions of the past decade.

Governor Christie Calls Unions “Crass Bullies of State Street”; Says Unions Have a Choice “Givebacks or Layoffs”

Every time I listen to New Jersey Governor Chris Christie I want to stand up and salute. Today is no different. Here is a series of article by the Star-Ledger for your consideration.

This is the Moment to Fix It

Chris Christie:’This is the moment’ to fix state finances

Blunt and unapologetic about the consequences of his cuts, Gov. Chris Christie hit the road Wednesday to peddle his first state budget.

In a Bayonne firehouse, a series of television interviews and a meeting with The Star-Ledger editorial board, Christie made his case for immediate and dramatic changes to the size and cost of government and the pay and benefits of public employees.

He said an $820 million reduction in aid to school districts will force them to choose between “givebacks or layoffs” for teachers and other employees. He took on their union with relish, saying the “800-pound gorilla” New Jersey Education Association will also face a choice: “Do they want to lose members or do they want to reopen contracts?”

“This is it. We’re in the middle of a crisis, I’ve got everyone’s attention, this is the moment to fix it,” the governor said. “My view is, I’m a Republican who’s been elected in New Jersey. If I play along the margins and don’t try to fix these problems, then I didn’t deserve to be elected in the first place … I’m going to fix it or I’m going down trying.”

A day after proposing a $29.3 billion budget balanced with widespread cuts instead of tax increases, Christie predicted the final budget lawmakers must agree to by July 1 will be “very close” to his plan. But he stressed he will not raise taxes on the wealthy or businesses to offset about $1 billion in other cuts that ruling Democratic legislators say unfairly hit the poor and middle class.

“I don’t care. I don’t care about this rhetoric. They send it to my desk, it’s coming back,” Christie said.

Day of Reckoning

Gov. Chris Christie speaks to Star-Ledger’s editorial board about “day of reckoning” budget cuts

A fired-up Gov. Chris Christie visited The Star-Ledger editorial board today to make his case for a proposed state budget that he believes will be the first step in solving New Jersey’s financial problems.

The governor made no apologies for his plan to slash school aid, property tax rebate checks, municipal aid and dozens of state programs and departments. He said he is prepared to fight to get the budget through the state Legislature, even if it costs him re-election.

Christie saved his biggest criticism for the state teachers unions, including the New Jersey Education Association. Teachers may have to give up pay raises and contribute more to their health care plans if school districts can’t make ends meet after the proposed state aid cuts.

“The teachers union has a choice here: Do they want to lose members? Or do they want to reopen contracts?” Christie said.

Christie said he suspects the leaders of the NJEA are “crass union bosses” who have little interest in compromising with Trenton lawmakers.

“Those people have been the bullies of State Street . . . and they’re not going to bully me,” Christie said.

Please click on the preceding link for 4 video clips.

Excerpts from governor’s visit to Star-Ledger

Gov. Chris Christie’s budget storm: Excerpts from governor’s visit to Star-Ledger editorial board

Reaction to his budget address

I’ve said what I wanted to say, the way I wanted to say it, and I feel like the reaction so far has been good . . . Even for people that are concerned about some of the particular cuts, all of them kind of prefaced their comments with, “We understand what you have to do.” And I think there is a real recognition out there that the state’s a mess, and we have to do this. ….

Negotiating the budget with the Legislature

At the end, a budget’s got to get passed. That’s why I think it will be very close to what I proposed . . . There are very limited choices here. We’ve been very transparent with them. I think we’re the first administration where the treasurer’s been sharing daily cash reports with OLS (Office of Legislative Services). . . . So we all know what the scope of the problem is and with a problem of that scope, there are very limited fixes that you can do. …

Ending surtax on incomes over $400,000

(If Democrats wanted to renew it) they should have done it. It expired Dec. 31 — it didn’t expire on my watch. Jon Corzine said he would sign it . . .
And now, all of a sudden, because I’ve said I don’t want it, now all of a sudden it’s a big issue. Now they want it. They don’t want it. If they wanted it, they would have passed it. So I don’t want to hear from them about this idea of raising the surcharge, because my response to them is going to be “You had your chance. You had your chance.” . . .

Do we really want to have a top 11 percent marginal income tax rate permanently? Because if we do, that’s fine, but we’ll have unemployment that will be crippling in this state going forward. I just don’t buy it.

The prospect of layoffs at public schools

The school boards are going to have to be willing to do something that nobody’s been willing to do, up until yesterday, which is to publicly stand up to the teachers union. Now, the teachers union has a choice to make here — do they want to lose members, or do they want to reopen contracts? Now, this is going to be a key determining factor in telling you whether they’re for their members or for their big building on West State Street. Because the logical thing to do, that other unions have done, has been to reopen contracts, take lesser salary increases, contribute more to health benefits to maintain members and maintain jobs. But when you get $730 dollars a year from your 185,000 full-time members — so you’ve got over $100 million budget every year — what’s the priority then? I could feel when I started talking about the teachers union, you know how they say, y’know, dogs can smell fear? You could feel the air come out of that room. Those people have been the bullies of State Street. They have bullied every administration, Democrat and Republican. And they’re not going to bully me. So now the question’s going to be, what do they want to do?

Are teacher salaries too high?

I think in some respects they are. I think that when you’re looking at 4 percent and 5 percent salary increases, just like they gave out in Marlboro this year, in this economic environment, I think teachers should step up to the plate and say “I’m not taking an increase.” Because I’ll tell you, I don’t know who in the private sector is getting increases. . . .

I don’t think the (salary) base is a big problem. I think the increases, as we continue to go on and on, and continue to pile these increases up on top of each other, without any regard to the economic conditions around us, is the problem. And the benefits is an enormous problem.

On capping sick-leave payouts for public workers at $15,000

Well listen, my preference would be go to zero. I come from the federal system, where we can’t cash out sick leave. Now, why is one class of public employees different than another? . . .

On restraining local spending and capping property taxes

We can’t afford to pay for the over-excesses of the locals anymore. Look at what the state budget is all about. It’s about aid to school districts, and aid to municipalities. And Medicaid. You take those three, and that’s a huge percentage of the budget. . . . What we’ve been doing at the state level is papering over the excess of the locals. And I put it out there in the speech yesterday: In 2009, when we lose 121,000 private sector jobs, we add 11,300 jobs at the municipal and school board level. It’s unconscionable.

The future of the state pension funds

The end game is to do two things: to bend the benefit curve . . . (and) we’ve got to look at how much employees contribute to it. . . . Remember this: if the state made every dollar of its contributions over the last ten years, we would be funded today at 74 percent. We’re funded today at 64 percent. So, with all this talk about the state’s contribution, it would only raise us 10 percentage points. So where’s the 26 percent gone? Well, some of it’s because of the stock market decline, and some of the bad decisions that were made by the investment council. But some of it is about benefits being too rich, and employees not making the correct level of contribution . .

This is not radical, it’s common sense

You’re talking about real change. There’s nothing radical about it — what’s radical is what we’ve done. It’s not even real conservative change — it’s real common sense change. I mean, how are we going to pay for this? We’ve got the highest property taxes in America, we’ve got the second-highest income tax rate in America, the second-highest sales tax rate in America, and the sixth-highest corporate tax rate in America. Where are we going?

There are many more clips in the link. Every one of them is worth reading, believing, acting.

Governor calls for ‘real change’ at the local level
Here’s a video clip for the road.

Uncommon Sense

If that does not make you want to stand up and salute, you are either a union clown or lacking in common sense.

Governor Christie says “This is not radical, it’s common sense.” The sad state of affairs is that in a world of union and government termites and pestilence, Common Sense Is Radical.

Indeed Governor Christie is a paragon of leadership and “Uncommon Sense”. If only Congress and the other governors would listen.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

States to Senate: Send More Federal Aid

NEW YORK (CNNMoney.com) — States are looking to the federal government for more help balancing their budgets, but the Senate is not heeding their call.

Federal aid to the states was among the top priorities in an early Senate job creation bill, as well as in a $154 billion measure passed by the House in December. But it has fallen off the list as Senate Democrats look to craft legislation that will attract bipartisan support.

Senate Majority Leader Harry Reid, D-Nev., on Thursday unveiled a jobs bill that does not contain state aid. A Senate Democratic aide said Reid hopes to back a state aid measure in the future. Republican support, however, remains questionable.

Experts and state officials say they need to know now whether they’ll get more funds. Governors are currently crafting their budgets and, for many, it will be their third year of contending with massive deficits due to declining tax revenues.

States are looking at a total budget gap of $180 billion for fiscal 2011, which for most of them begins July 1. These cuts could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody’s Economy.com.

“State and local government spending is a very important driver of the national economy, especially when the private sector is faltering,” said Jon Shure, deputy director of the Center on Budget and Policy Priorities’ State Fiscal Project.

To close this gap, governors and lawmakers will be forced to lay off state employees, cut services and postpone capital projects, said Michael Bird, federal affairs counsel for the National Conference of State Legislators.

The cutbacks will all work against an economic recovery.

Already, states laid off 44,000 workers in the 12 months ending in January, according to federal labor statistics.

In California, for instance, Gov. Arnold Schwarzenegger is proposing deep cuts to health care, education, the state workforce and social services programs. The governor is looking to Washington D.C. for $6.9 billion for its fiscal 2011 budget, on top of the $6 billion in stimulus funds it is using.

“We believe that providing funds to states will provide the flexibility critical to jumpstart our economy and create jobs,” said Eric Alborg, communications director of the California Recovery Task Force.

Oh really, Mr. Schwarzenegger?  The only places you can find to cut are the ones that will hurt people the most?  Perhaps you could explain justification for this list of city employees?  Keep in mind, that this list is from 2008 and the salaries of these workers have gone up nearly 50%.   Unfortunately, this is not limited to just California; they are merely one example.  This is going on in all states to one degree or another and within local municipalities.  These municipalities are all using the same scare tactics in order to make excuses and justification for raising taxes on citizens.  The REAL truth of the matter is that they merely want to line their own pockets with exorbitant salaries.  Why do you think the unions are always supporting the so-called ‘budget cuts’?  Because they don’t apply to them. 

Massachusetts, meanwhile, is counting on $600 million in federal Medicaid funds that have yet to be approved by the Senate. The state needs the money to close a $3 billion budget gap for fiscal 2011, which comes on top of the $9 billion deficit it has closed over the past two years.

Without that money, “everything has to be on the table,” said Cyndi Roy, budget spokeswoman for Gov. Deval Patrick.

While many Democratic lawmakers on Capitol Hill back another federal bailout of the states, Republicans have said they don’t think it’s the best way to create jobs.

A recent Congressional Budget Office report showed that sending money to the states for needs other than infrastructure does spur hiring, but not as much as increasing aid to the unemployed or cutting employers’ payroll taxes.

Still, CBO Director Douglas Elmendorf said in testimony Friday that providing aid promptly would probably have a significant effect on employment and economic output.

“Without further aid from the federal government, many states would have to raise taxes or cut spending by more than they would if aid was provided,” Elmendorf said. “Such actions would dampen spending by those government and by households in those states, and more state and private jobs would be lost.”

Not only would state workers be impacted, but government contractors and suppliers would be too, Shure said. If the states curtain their spending, the companies that do business with them will likely downsize too.

Though the most recent version of the Senate jobs bill does not contain state aid, House Speaker Nancy Pelosi, D-Calif., on Friday urged her peers on Capitol Hill to take up the issue.

“We will work to ensure that critical pieces of the House-passed Jobs for Main Street Act are enacted into law — including investments in our roads, bridges, and public transit systems, support for job training initiatives, and funding to keep police and firefighters on the streets and teachers in the classroom,” Pelosi said.

Illinois enters a state of insolvency

By: Paul Merrion, Greg Hinz and Steven R. Strahler

As Illinois’ fiscal crisis deepens, the word “bankruptcy” is creeping more and more into the public discourse.

“We would like all the stakeholders of Illinois to recognize how close the state is to bankruptcy or insolvency,” says Laurence Msall, president of the Civic Federation, a fiscal watchdog in Chicago.

“Bankruptcy is the reality that looms out there,” Republican gubernatorial candidate Andrew McKenna Jr. says.

While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it’s not generating enough cash to pay its bills. Private companies in similar circumstances often shut down or file for bankruptcy protection.”I would describe bankruptcy as the inability to pay one’s bills,” says Jim Nowlan, senior fellow at the University of Illinois’ Institute of Government and Public Affairs. “We’re close to de facto bankruptcy, if not de jure bankruptcy.”

Legal experts say the protections of the federal bankruptcy code are available to cities and counties but not states.

While Illinois doesn’t have the option of shutting its doors or shedding debts in a bankruptcy reorganization, it seems powerless to avert the practical equivalent. Despite a budget shortfall estimated to be as high as $5.7 billion, state officials haven’t shown the political will to either raise taxes or cut spending sufficiently to close the gap.

As a result, fiscal paralysis is spreading through state government. Unpaid bills to suppliers are piling up. State employees, even legislators, are forced to pay their medical bills upfront because some doctors are tired of waiting to be paid by the state. The University of Illinois, owed $400 million, recently instituted furloughs, and there are fears it may not make payroll in March if the shortfall continues.

Without quick corrective action or a sharp economic upturn, Illinois is headed toward a governmental collapse. At some point, unpaid vendors will stop bidding on state contracts, investors will refuse to buy Illinois bonds and state employees will get paid in scrip, as California did last year.”The crisis will come when you see state institutions shutting down because they can’t pay their employees,” says David Merriman, head of the economics department at the University of Illinois at Chicago.

A record $5.1 billion in state bills was past due at yearend, almost doubling to 92 days from 48 days a year earlier the average amount of time it takes the state to pay vendors such as doctors, hospitals, non-profit service providers and other contractors.

“I don’t see any light at the end of the tunnel,” says Dan Strick, CEO of SouthStar Services, a Chicago Heights non-profit that helps people with developmental disabilities. “It seems to be getting worse and worse, and the delays longer and longer.” SouthStar hasn’t been paid since July, forcing him to borrow to keep afloat.

State tax receipts from July through December last year were running more than $1 billion behind 2008, including a $460-million plunge in sales taxes and a $349-million drop in personal income taxes. Even with a 22% increase in money from the federal government, thanks largely to the stimulus program, total state revenues were down 2.1%, or $284 million, from the previous year.

While new spending is down nearly 2% in the six months ended in December, the state started the fiscal year $3.9 billion in the hole from the previous year’s unpaid bills, which means actual spending was up 2.2%, according to the Illinois comptroller’s most recent report.

The resulting $5.1-billion backlog of unpaid bills doesn’t include $1.4 billion in Medicaid and group health bills that haven’t been processed, plus $2.25 billion in short-term borrowing that must be repaid soon.

Illinois is living hand to mouth, paying bills as revenues come in each day, building up cash when special payments are coming due. Cash on hand varies from day to day, sometimes dipping below $1 million, says a spokeswoman for Illinois Comptroller Dan Hynes.

The state’s credit rating has been steadily worsening since 1997, with three downgrades in the past 13 months. “The absence of recurring solutions in the next year to deal with the current budget challenges and begin to stabilize liquidity will likely result in a further downgrade of Illinois,” Standard & Poor’s said last month.

As credit ratings dropped, the state has to pay more to borrow. The state also has to pay interest on bills unpaid after 90 days, adding further to its costs.

The real fear is that the state could eventually be unable to plug its budget gaps with short-term borrowing. Illinois is still a long way from Arkansas during the Great Depression, believed to be the only instance in the past century when a state defaulted on its debt. But California was forced to seek a federal guarantee for its borrowing last year when credit dried up. It didn’t get the guarantee, and state officials are now seeking a $6.9-billion federal bailout.

While California has an even bigger budget hole to fill, Illinois ranks dead last among the states in terms of negative net worth compared with total expenditures. The state’s liabilities, including future pension payments, exceed its unrestricted assets by $39 billion, more than 72% of its total expenditures as of mid-2008, according to Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management LLC, an Oak Brook money manager that invests in bonds. “It’s probably higher now,” he adds.

Investors like Mr. Ciccarone already are starting to wonder if Illinois’ shaky finances and rising debt are a threat to the regular, on-time payments bond investors expect. “You really can’t just look at default risk,” he says. “For an investor looking for stable performance, Illinois leaves you waiting. There are tremendous unresolved issues.”

In addition to its day-to-day budget, Illinois faces rising pension expenses in coming years. Lawmakers have skimped on required contributions to employee pension funds and even borrowed to make those smaller payments. Unfunded liabilities and pension debt are projected to reach $95 billion by June 30. The state must contribute $5.4 billion to the pension funds next year, and more than $10 billion a year in the future. Required contributions will soon start increasing dramatically because the state has repeatedly pushed back a payment schedule enacted in 1995 to set aside enough to cover 90% of its pension obligations by 2045, up from 43% today, one of the worst unfunded liabilities in the nation.

The sharp rise in pension payments is the biggest factor pushing Illinois toward what a legislative task force last November called “a ‘tipping point’ beyond which it will be impossible to reverse the fiscal slide into bankruptcy.” The little-noticed report on the state’s pension problems warned that “the radical cost-cutting and huge tax increases necessary to pay all the deferred costs from the past would become so large that many businesses and individuals would be driven out of Illinois, thereby magnifying the vicious cycle of contracting state services, increasing taxes, and loss of the state’s tax base.”

While the Illinois Constitution protects vested pension benefits, that promise, like all the state’s obligations, is only as good as its ability to pay. The Civic Federation warned lawmakers last fall that “there is mounting evidence that a judge could find the state is already insolvent. If the state is found to be insolvent under the classical cash-flow definition of insolvency, which is ‘the inability to pay debts as they come due,’ it is not only the pension rights of non-vested employees that will be in jeopardy. All the obligations of the state, whether vested or not, will be competing for funding with the other essential responsibilities of state government. Even vested pension rights are jeopardized when a government is insolvent.”

Stephanie comment:  And to think, the senator from this state is now running the country.  Doesn’t it make you feel all warm and fuzzy?