One of the greatest problems of national importance—and literally of national security concern—is the ever-growing level of U.S. debt. It's the looming problem, the proverbial "elephant in the room," that never gets addressed. Our policymakers simply kick the can down the road on the debt issue every time.
However, even more than eight years after the financial crisis hit, the problem of overwhelming debt is now manifesting on the state level.
Although it's an increasingly alarming issue for several U.S. states, the poster child is undoubtedly Illinois.
Illinois has not been able to pass a proper budget in nearly two years' time. In its place, lawmakers have been forced to squeeze through creative stopgap spending bills that at least keep the lights on, so to speak. The impasse is the result of a political stalemate between the legislature (controlled by a Democratic majority) and the governor's office (controlled by the GOP). This is often the case in state budget battles, but Illinois' woes go well beyond "politics as usual."
The quagmire of Illinois' debt predates the current governor's administration, but the problem has worsened since he's been in office. The $5 billion debt the governor inherited has ballooned to $16 billion in just four years. The state's deficit stands at $6 billion, and there are still a staggering $250 billion in unfunded pension liabilities that are at the heart of Illinois' political squabbles. If the issue cannot be resolved in some fashion soon, it could trigger a downgrade of Illinois bonds to junk status, which has never happened to a state in American history.
Illinois is not alone. At least nine other states have also failed to pass an annual budget yet, and the fiscal year for most states just ended on July 1st. Continued budget problems in Illinois could have a ripple effect across state lines even though some states have had no problem managing their finances and balancing their books. We tend to forget that Illinois is the fifth-most populous state in the Union, with Chicago as the nation's third-most populous city. There are many other states and municipalities vulnerable to the same kind of fiasco in the future.
Now, a multitude of on-the-ground problems for citizens of Illinois are starting to crop up as a consequence of a dysfunctional budget process. It's starting to affect public services: non-essential state services have been forced to shut down while so much funding remains in limbo. It's estimated that some 700 road construction projects—worth $2.3 billion and employing 20,000 workers collectively—will stop if no resolution can be found.
Perhaps most telling, Illinois has been forced to join several other states in closing its state beaches and state parks to the public this Independence Day. Because some state governments can't figure out a way to meet their debt obligations, their residents won't be able to enjoy the public parks and other facilities that their tax dollars pay for on the 4th of July holiday, of all days.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.