Comments on the Illinois Plan for Fiscal Rehabilitation

Last week, TheFundamentals posted an essay on the alternative routes available to insolvent public entities such as the state of Illinois. Three alternatives were reviewed: tax increases, rationalization (cost or expenditure reductions) and bankruptcy. TheFundamentals argued in this essay that many private concerns used rationalization successfully to cut costs, cut employees and rebuild a strong competitive product/service offering for future growth. The reason this salvation can occur is due to the discipline of the marketplace in overseeing the private rationalization exercise. No such discipline exists with public entities. Therefore, those who choose the rationalization route for public entities are literally “kicking the can down the road” unless there is the added discipline of debt limits and debt repayment requirements. Debt has proven to be the undoing of the fiscal responsibility required for the sustainability of a democratic representative government. Every insolvent public entity, from Greece to Portugal to California to Illinois has ended up with an excess of liabilities over assets or an inability to meet current obligations with available resources (the classic definitions of insolvency) because of debt.  Now, to the Illinois plan.

Tax increases. The plan presented by the Civic Federation requires huge tax increases. Any call for any tax increases presumes a need to raise funds to pay for existing and future government spending programs, personnel and activities. Think about this aspect of the Plan in terms of a failed business such as General Motors. The only way General Motors can raise revenues is to sell more cars or charge more for the cars they do sell. They cannot sell more cars when the market is in decline and/or their share of the market is in decline. So, if they rely on “raising revenue” to solve their insolvency situation they have to raise prices on the cars they sell. The markets will then turn away from their cars and go to lower priced competitors. This move will expedite the failure of the company. GM will and should go out of business. And so it is if Illinois raises revenue. Illinois will become even less competitive with the other 49 states and Illinois will become a moribund political entity such as the state of Michigan. Tax increases are not the answer.

So, what does this lead TheFundamentals to conclude about the Civic Federation’s Plan? It is more of the same. An attempt to placate bureaucrats and special interests by making a few cost cuts now and causing some small pain to government employees while relying on more taxes from an already overtaxed, less competitive work force. It will only kick the can down the road which is and has been the approach of the imbedded politicians and their padded bureaucracies and benefitting special interest groups.

No state, no city, no country can compete with the burdensome costs placed on the private economic wealth creating activities by the current American established political, special interest dominated government scene. The characteristics of this scene are huge tax requirements, huge penetration by government in every commercial, societal and cultural activity and an out of control litigation burden on any human activity. There is no tax increase that can fix it. There is no cost cutting scheme that will sustain it. There is only one route for Illinois and its fellow traveler states to follow and that it the Federal Bankruptcy courts. The cabal of government intrusion in the form of law, rules, regulation, bureaucracy and costs and unions, lawyers and special interests must be destroyed.  Do not pass GO. Do not collect $200.00. Go directly to Court!