Monday, January 10, 2011

Illinois On The Brink.

Will the Illinois State Legislature approve a 75% increase in the state income tax to forestall defaulting on its obligations? The clock is ticking. This is a story that will have a real impact on the market for state and municipal bonds.

To give you some idea of where things stand in Illinois at the moment, consider this from today's Chicago Tribune:

As a measure of how desperate state government's finances are, Cullerton said the state would use the income-tax hike to borrow $12.2 billion. Of that, $8.5 billion would pay overdue bills and $3.7 billion would cover a government worker pension payment lawmakers skipped when putting together the current budget, he said.

"I think it's the right time to do it because we are in desperate need of paying our bills," Cullerton said. "Just think about how we're going to be after we pass this. We would have all our bills, all those people that are owed money, $8 billion would go back into the economy. People will be paid on time. Our credit rating will be dramatically improved."

They aren't raising revenue to pay bills. They're raising revenue to borrow money to pay bills.