The "do nothing" option

February 18, 2014

The "do nothing" option

Authors

The state of Illinois has been on a perilous fiscal course, plagued by annual deficits with no end in sight. Most observers believe that reforms are necessary, but some suggest that the state can continue on the same path without major changes.

The state does have the option to do nothing, or “muddle through.” In the past, the state has used a number of short-term expedients to manage the structural deficit including speeding up revenue collections, slowing payments to state contractors, the diversion of non-general funds to bolster the general fund, pension underfunding, and one-time revenues from asset sales and leasebacks.

But the do nothing option comes with great risk and long-term consequences. First, barely avoiding insolvency is not a mark of success, since chronic fiscal problems contribute to Illinois’ underperforming economy. Second, financial problems may grow slowly for a time, but they can escalate out of control quickly and unexpectedly. Finally, the uncertainty created by a muddle-through strategy is in itself counterproductive. At best, a muddle-through approach may allow the state to continue its activities for a fairly long period, but with a continuing and deepening pernicious impact on the state economy. At worst, and likely at some point, it can lead to sudden and disastrous consequences.


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Research Area: Economic Policy

Policy Initiative: none

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