Deficit beyond D.C.

CHICAGO-While much of the national press follows Washington deficits, the red ink is spilling over in this blue state in America's heartland. Illinois State Comptroller Judy Baar Topinka has repeatedly sounded warnings about the state's constantly shifting shortfall, as unpaid bills reached about $8 billion at the end of 2011.

Deficit spending ballooned under former Gov. Rod Blagojevich, the state's second governor in a row to be sentenced to prison for corruption. Since he left office, Illinois has not seriously grappled with the left-over spending problem, which includes a thorny pension obligation.

Instead, Democratic Gov. Pat Quinn signed a large tax hike bill. "We've taken $7 billion out of the pockets of the private sector and put it in government," said state Sen. Kyle McCarter, an opponent of the tax measure. "[Families] lost a week's pay. That's a lot of groceries." Ted Dabrowski of the Illinois Policy Institute says the state's political leaders "knowingly haven't cut costs."

McCarter, a Republican, acknowledges that Illinois has no easy path back to fiscal responsibility. Republican senators have a proposal that attacks the spending side, rather than turning repeatedly to raising taxes. But both houses of the legislature are controlled by Democrats, and he says they prefer a "waiting game," hoping the economy will improve and revenue will increase.

Quinn and Democratic leaders of the state legislature have made some efforts to improve the business climate, but they amount to "tweaks," says Kim Maisch, State Director of the National Federation of Independent Business. Any such efforts are outweighed by the tax hike, both its scope and timing. Just when small businesses were feeling the worst might be over, the state raised taxes, while neighboring states were working to attract business.

"The pension problem alone is devastating," Maisch says. GOP Rep. Tom Cross has pushed for pension reform, but it's a tough issue to turn into a political winner. The state simply has pension liabilities far beyond the funds, totaling tens of billions over the next three decades. Leaders of both parties publicly say reform is a priority.

The state's fiscal house of cards caused U.S. Sen. Mark Kirk to release last November a 32-page policy paper detailing some of the worst practices of the debt he called "unsustainable." It relies in part on reports from State Treasurer Dan Rutherford noting the state's debt and low credit rating causes a yearly interest cost for taxpayers of $1.28 billion.

What's the reaction of business leaders? Richard Siemer began working when young in his family's 130-year-old business doing odd jobs. He is now president of the family- and employee-owned Siemer Milling in Teutopolis, Ill. He touts some natural advantages to being an Illinois company: centrally located, good transportation routes, and near the wheat they mill. But, he says, "What concerns me most is that the government of Illinois, broadly speaking, seems incompetent."