Fiscal expert fears Illinois could follow in Puerto Rico's financial missteps
Cato Institute fellow Ike Brannon fears Illinois could be one bad recession away from turning into the Puerto Rico of the Midwest.
Brannon, a fiscal policy and tax reform expert, sees parallels in the government mismanagement that has crippled the U.S. territory and the spiraling pension problem that has largely brought Illinois to its knees.
“Puerto Rico’s biggest problem is leaders have not been putting aside enough money, and Illinois has the same situation,” Brannon told the Sangamon Sun. “The two places could be just one U.S. recession away from replicating one another.”
After declaring bankruptcy as the island's debt ballooned to $73 billion, Puerto Rican officials are now pushing to reduce payments to creditors, at least partly so that the government doesn't have to implement spending or pension cuts.
If the measure proves successful, Brannon fears that Illinois might fall in step, seeing bankruptcy protection as a way to continue borrowing massive amounts to fund a runaway government that’s in desperate need of reforms.
“With that, municipal bondholders in Illinois will rationalize that their investments are far more risky,” he said. “With that comes a higher rate at a time when businesses are already not flocking to the state, and keeping the ones that are here has become as challenging as ever.”
As for a recession, Brannon warns that history suggests it could come soon.
“The cycle suggests that every few years we encounter a recession on some level, and we’re almost to that point,” he said.
The only practical way forward is to push a plan of tax and pension reform and hope that a Republican holds onto the governor's seat in 2018, Brannon said.
“We have to implement a plan of growing smartly and attracting more business,” he said. “The Dems have controlled the budget in the state since 2002, and that still hasn’t happened.”