* 60 minutes aired a story last night about state budgets. It wasn’t pretty stuff…
The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.
“The most alarming thing about the state issue is the level of complacency,” Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft
Whitney made her reputation by warning that the big banks were in big trouble long before the 2008 collapse. Now, she’s warning about a financial meltdown in state and local governments.
“It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy,” she told Kroft.
Asked why people aren’t paying attention, Whitney said, “‘Cause they don’t pay attention until they have to.” […]
And nowhere has the reckoning been as bad as it is in Illinois, a state that spends twice much as it collects in taxes and is unable to pay its bills.
Comptroller Dan Hynes is then interviewed. His stories are familiar to readers by now.
Ms. Whitney also said she believed that while states will find a way to pay off their debts, they will likely pass the fiscal burden onto local municipalities. She predicted “50 to 100 sizable defaults” or more in the near future. Here’s the complete video…
* Meanwhile, the Freeport newspaper editorialized in favor of allowing states to declare bankruptcy…
Under the federal bankruptcy code, states are not allowed to file for relief under Chapter 9, like municipalities, counties and other subsidiary governmental entities can already do. States also enjoy the right of sovereign immunity, a judicial doctrine that prevents the government or its political subdivisions, departments, and agencies from being sued without its consent. That immunity prevents a vendor, or other private sector interests, from compelling payment of a debt, which might force a state to collapse its assets to meet its financial obligations.
But in the face of $80 billion in unfunded pension benefits, a state budget deficit somewhere more than $13 billion, and a six-month, $6 billion, backlog of overdue payables to state vendors, Illinois certainly fits the criteria for bankruptcy.
A study by The Center on Budget and Policy Priorities revealed that 41 states were facing severe budget shortfalls in 2009. Some states were worse off than others, with California ($31.7 billion) and Illinois leading the deficit pack. In all, the 41 states were facing a $71.9 billion budget shortfall in 2009 and the projection for 2010 put that deficit at more than $200 billion.
Amending the Federal Bankruptcy Code to allow states to file for relief might present a viable solution to the financial crisis that confronts Illinois, and 40 other states in the Union.
* 60 minutes “extra” video: The next financial meltdown
* State pension systems still selling assets to pay benefits: With Illinois government’s fiscal year nearly half over, the five state-funded pension systems have received little to no money from the state and have sold billions of dollars worth of assets to pay out benefits.
* Sale shows how bad situation is: In the wake of an executive order by Gov. Pat Quinn calling on state agencies to purge all surplus items in hopes of making a quick buck, officials with the cash-strapped state are now poised to review whether unused property around the state’s fleet of prisons might somehow bring in added revenue.
* Taxpayer group says government employees should fund their own retirements: “In Illinois, if each current state pension fund employee were required to contribute an additional 10 percent to his or her pension, taxpayers would save over $150 billion over the next 35 years,” Tobin said.
* Broken Benefits: Baby steps toward pension reform
* Tea party to protest Quinn’s tax plans
* Par-A-Dice dealing with economy, smoking ban better than most
* Broken budget awaits next Chicago mayor - Whoever seizes the crown may be left holding the bag