Make no mistake: the splat will be painful–very painful.
And it will be felt by everyday folks across the state.
It is likely to start after the Independence Day break, when we enter the third fiscal year without a state budget–or the revenues to meet current expenses.
The bond agencies that rate states, municipalities, and corporations are likely to respond by downgrading Illinois’ debt to junk-bond status, the first time that has happened to a state in modern US history.
That low-credit-rating raises borrowing costs significantly.
At the same time, the failure to pass a balanced budget means the state cannot meet current expenses.
Taken together, the credit downgrade and failure to pass a budget mean Illinois cannot fully fund current outlays out of current income and it cannot borrow without paying through the nose. For sketchy borrowers like Illinois, lenders demand a risk-premium; otherwise, they would be better off lending to more creditworthy clients. That is the happy position Illinois and Wisconsin are in, thanks to prudent fiscal managewment.
What happens, starting in July?
Road repair and construction will stop immediately.
Schools across the state, including Chicago’s massive system, won’t have the money to open in August since local districts depend on state contributions.
Out-of-state vendors have already stopped doing business with the state for fear they won’t be paid. That includes the multi-state lottery, Powerball.
In-state vendors, whose payments have been delayed for years, are thinking about stopping sales to the state.
Social services for the poor, sick, and elderly, already cut to the bone, will be cut further.
Day-to-day, there is already too little revenue to pay state bills so the comptroller has been prioritizing.
But there are limits to what she can do, and those may be further constrained by federal court cases, demanding the state pay for certain required services. If the state paid for those requirements first, there would be no money left for anything else.
There are no federal provisions for states taking bankruptcy, where creditors take a haircut and there are orderly work-out procedures, so we are moving into uncharted waters.
As some early-modern maps said: Cave! hic sunt dragones
Warning, there are dragons here.
There are, indeed, dragons lurking–and they are hungry.