Debt levels now so great in the U.S. that both the Federal government and two states can’t pass budgets
Because of too many promises politicians couldn’t keep, nearly every state in some capacity has fiscal problems that make it more difficult each year to pass a responsible budget. ¬†But for two states, along with the Federal government itself, they have reached the point where they can’t even pass a budget at all.
We have written extensively about the state of Illinois’ inability to deal with its underfunded pensions, its increasing debt load, and its failure to even pay off vendors, but we now add a second state to the mix as the Governor of Connecticut on June 30 has issued an Executive Order taking over the monetary responsibilities from their legislature due to their failure in passing a new budget.
With Maine looking like it will be the first state to shut down heading into the new fiscal year on Saturday morning and perhaps beating Illinois to the punch, moments ago Connecticut, as previewed last night, will also enter the new fiscal year without a budget, inviting rating agencies to downgrade it to Illinois’ “barely junk” rating or perhaps making CT the first US junk-rated state.
Lawmakers and the governor had been unable to reach an agreement on a two-year budget that will cover a projected $5 billion deficit for months, and not even the threat of the new year prompted them to move as we expected.
Meanwhile, Governor Malloy signed an executive order taking over the state’s spending authority which will cut most services but at least keeps the government open. From Reuters:
- CONNECTICUT GOVERNOR SIGNS EXECUTIVE ORDER TO TAKE CONTROL OF STATE SPENDING AFTER FAILURE TO PASS FY 2018/19 BIENNIAL BUDGET
- CONNECTICUT EMERGENCY SPENDING PLAN KEEPS STATE GOVERNMENT OPEN BUT CUTS SERVICES
As a result of the failure to pass a budget, AP reports that nonprofit social service agencies that rely on state funds are preparing for deep cuts. Democratic Gov. Dannel P. Malloy, who wanted the General Assembly to at least pass a proposed three-month mini-budget, is expected to reluctantly sign an executive order that maintains only essential state services. – Zerohedge
Most of Connecticut’s problems stem from a declining economy and the continuing loss of hedge fund managers and corporations moving out of state to more lenient tax havens. ¬†And since Connecticut relied so much on taxing the rich over equitable taxation of their entire citizenry, this hemorrhaging has brought the state to the brink of bankruptcy.
Illinois and Connecticut are just the start of what could be a massive default across the country in one or more sectors of each state’s obligations. ¬†And with the national economy already in or about to go into recession, there is little hope of generating the necessary income to for them to either tread water, or to even survive what their kicking the can down the road inevitably brings.
Kenneth Schortgen Jr¬†is¬†a writer for The Daily Economist, Secretsofthefed.com,¬†Roguemoney.net, and Viral Liberty, and hosts¬†the popular youtube podcast on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.