by Mitch Kokai
Senior Political Analyst, John Locke Foundation
As a coronavirus-driven cash crunch collides with nearly two decades of unbalanced budgets and exorbitant pension spending, insolvency is on the horizon in Illinois.
The state’s Democratic lawmakers have sounded the alarm, telling their federal counterparts that an unavoidable budget shortfall requires a $40 billion bailout. But state Republicans have blanched at the idea of a bailout that does not fix underlying structural issues that they say would guarantee another ask when the next crisis hits.
The dispute has become a headscratcher for members of Congress, who are already negotiating another round of coronavirus relief spending. Democrats, who torpedoed other coronavirus money over state funding, have promised that this latest wave will include provisions to make Illinois and other states whole. Republicans, meanwhile, have been more wary, questioning whether the federal taxpayer should pick up such a large tab without strings attached.
Illinois, which has among the highest tax burdens and worst-funded pension systems in the country, is likely to be used by both sides as a key example in the ensuing back-and-forth. Grappling with the Prairie State’s dire straits, however, will also force federal lawmakers to deal with bigger questions: whether to bail out other similarly underfunded states—including Sen. Mitch McConnell’s (R.) own state of Kentucky—and what, if any, policy concessions they can reasonably extract in the process. …
… State governments are leading the fight against the novel coronavirus but are simultaneously facing massive budget shortfalls, up to 25 percent in the next fiscal year. Sales tax revenues have dried up while state income taxes have largely been postponed. States also lack the borrowing power of the federal government, resulting in an even bigger cash crunch just as they most need it.
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