Illinois and California are on track to be the first states to be forced into bankruptcy.  They inevitably will follow the path of Detroit Mi. that was the first major city to do so.  Why?

Well, in Illinois it’s mainly driven by the huge pension mandates due to public employees.  These pension programs are dated and are far too generous for today’s economy.  20 years ago when you could easily get a return of 6 to 8 percent on your investments and you had many more contributors, these pension programs were financially healthy.  The last 10 years returns are in the 3 to 5 percent range and you have many people drawing their pensions and fewer paying in.  This has led to a financial crisis in Illinois. This link gives a more thorough explanation of how Illinois has gotten where it is.…/cfl365-pdf.pdf

The Illinois Republican Governor Bruce Rauner faces a Democratic controlled state legislature that wants to hang on to the past.  Unfortunately, the can that has been kicked for the last 20 years has reached the end of the road.  The state is now in a crisis.  If they can borrow money, it will be at junk bond rates which are extremely high.  The state has reached the point where it cannot pay its mandatory bills.

To add insult to injury the state is facing an exodus of people.  Illinois is losing people due to high taxes and a loss of manufacturing jobs.  Pensioners are rightfully nervous about their future payments.  Some very tough choices face Illinois. The state legislatures need to make some tough votes so pensioners will not lose everything.  The state must do something quickly to attract businesses, increase job potential, and stop the outflow of its tax base.

California is another case entirely.  It is run by socialist who want to provide everything to everybody and continuously increase the tax burden on all that can pay.  This state represents the ultimate example of redistribution of wealth by the government.  The problem for California is that people and businesses are still free to re-locate and they are at a record pace.  People and businesses that can relocate are doing so.  Wealth is leaving the state and decreasing the tax base at an alarming rate.     Wealth and businesses are leaving because of the aggressive tax policies of the socialist government that is in place.  People in California see no hope for a change in the current path the state is heading.  Socialism only works when the government has money to redistribute, and when the money is gone, socialism fails.  If you want an example, just look at Venezuela.  California has huge problems but you don’t hear about it much because the socialist media doesn’t cover it.  Coming to a theater near you soon is a huge financial crisis for California that will so big the media will not be able to cover it up.

One can only hope that the political leaders of these states will make the tough choices and get their financial houses in order.  If they fail to do so, common people will pay the price.  Politicians and the rich will leave office and the state.  What’s left will be devastation and hardship.  Always remember this:  In socialism the leaders are good at taking and spending your money while they shelter and move theirs to safety.