TOM GEORGE SOUNDS ALARM ON FISCAL SITUATION
Citing Illinois example, George warns Michigan to change course
Candidate for Governor Tom George, M.D. (State Senate-20th District, R-Kalamazoo) addressed his colleagues today calling attention to the State of Illinois’ precarious fiscal situation, raising awareness of the possibility that Michigan would follow their lead into insolvency. On the campaign trail, George has repeatedly sounded the alarm of fiscal insolvency stating a case for Michigan to reform state funded health care programs before enacting tax cuts and spending increases. Tom George, alone in the republican primary, vows to reform social programs and will not promise billion dollar cuts or additional spending.
Below are excerpted remarks delivered on the Senate floor:
“… I rise to discuss the precarious fiscal situation of our Southern neighbor, the State of Illinois, which holds lessons for us. Like Michigan, Illinois is facing a serious fiscal crisis. Illinois does not have enough revenue to pay expenses.
Now, we have laws to determine what happens when an individual, corporation, or local government can no longer pay its bills. There is a bankruptcy process which spells out an exact sequence of events. But what happens if a state becomes insolvent and cannot pay its bills?
We only need to look to Illinois to find out. First, there is no special court to wipe the slate clean. No emergency financial manager from on high to fix things. No federal bailout. What happens when a state cannot pay its bills is simply that the bills go unpaid. California demonstrated this when it issued IOUs instead of tax refunds last year.
Illinois which currently carries a negative general fund balance, owes its hospitals, schools and universities, for five months of service. It is currently 5 billion dollars behind on paying its bills. It owes its public schools 1 billion dollars and the hole is growing deeper every day. Last week Illinois sold $900 million of junk bonds to finance completion of ongoing road construction projects. Illinois bond rating is now the same as Portugal’s and other industrial states like Michigan are not far behind.
Think it couldn’t happen here? It already has. In 1850, following a series of failed attempts to build railroads and canals, Michigan defaulted on investment bonds. It later sold the rights to the railroads for 20 cents on the dollar. In 1933 Arkansas defaulted on bonds. Road construction projects were halted and left unfinished for sixteen years.
So, when state government’s bills go unpaid what happens? Eventually the work stops. Hospitals, schools, and universities lay off employees, or close. Road and construction projects go unfinished. Class size balloons as teachers are let go. The Chicago school board recently voted to allow thirty four students per class. Vendors become impatient when they have not been paid for several months and they seek work elsewhere. The state’s credibility is shot and government stops to work. Once that happens the road back is very difficult.
Colleagues, we can avoid the fate of Illinois only by cutting spending. This has to happen in order to remain solvent. Proposals to eliminate taxes or to increase spending put our credit at risk. Fixing our budget’s structural problem is now our single biggest challenge if we are to keep Michigan open for business."
For additional reading:
Washington Post- Illinois “Fiscal Malpractice Widens Yield in $900 Million Issue, July 14, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/14/AR2010071400176.html
New York Times- Illinois Stops Paying Its Bills, but Can’t Stop Digging Hole, July 2, 2010
http://www.nytimes.com/2010/07/03/business/economy/03illinois.html
State Senator TOM GEORGE is a Republican candidate for Governor of Michigan. He currently represents District 20 in the Michigan Senate, comprised of Kalamazoo County and part of Van Buren County (Paw Paw and Antwerp Townships). He chairs the Senate Health Policy Committee and serves on the Appropriations Committee. Tom served one term in the State House (District 61) from 2001-2002 prior to election to the Senate. He is an M.D. and continues to practice medicine part-time. Tom also served as medical director of Hospice of Greater Kalamazoo from 1996 to 2001.
Posted: 7/21/2010