Budget deadlines in our state and another provide a healthy perspective on North Carolina’s finances — and a warning about what could happen.
In the Old North State, the legislature has passed a budget for the next biennium; as of this moment, we are waiting to hear if Gov. Cooper will sign or veto the bill. Still, the budget process is still moving along ahead of the June 30 end of the fiscal year.
Things are not going quite so well in my home state, Illinois.
“Illinois is one week away from going where no state has ever gone — into the ignominy of ‘junk bond’ status,” a Chicago newspaper reports.
Unless Illinois can pass a balanced budget by June 30, the rating agencies are threatening to drop its bonds into the lowest ratings, and understandably so. Illinois hasn’t passed a real budget in three years. It has $15 billion in unpaid bills. The state’s credit rating is so bad that both state and local governments have to pay higher interest rates, which is already costing the state nearly $1 billion a year.
Going to junk status will mean even higher interest rates, and maybe a further downward spiral in the state’s finances. And who pays that one way or another? That’s right, the people of Illinois.
On one hand, that highlights the progress North Carolina has made in setting its own finances in order.
As North Carolina House Speaker Tom Moore recently said: “When Republicans took over in 2011, the state had about $2 billion in debt,” Moore said in a press conference Thursday. “Now, we’ve saved a record $1.8 billion in savings reserves. That’s a $4 billion swing from where we were.” Taxes have been cut, the state economy keeps growing, and the state is even raking in revenue surpluses.
Republican legislative leaders have good reason to crow over this success. But Illinois, and other fiscally troubled states, still are a warning. North Carolina is a long way away from Illinois’ plight, but our state is not immune to big financial problems, especially when we look down the road.
At our Conservative Leadership Conference earlier this month, NC Treasurer Dale Folwell pointed out that the state still had billions of dollars in unfunded liabilities for the state retirement plan and the state health plan. North Carolina is relatively better off than Illinois, but, he said, “Our pensioners can’t pay their power bill with relativity. They have to pay it with cash.”
As with a character in a novel by Ernest Hemingway, Illinois went broke slowly and then suddenly. It will require great discipline for North Carolina to stay on a sound fiscal path. And dealing with the long-term risks posed by the state’s fiscal liabilities may well require stronger measures than our leaders have yet dared to try.