Illinois downgraded again
“The Greece next door,” as Illinois is sometimes called, just got hit with a credit downgrade from Standard & Poor’s. The state dropped from A to A+, which puts it just above bottom-ranked California on the S&P scale, and Illinois has a “negative outlook” auguring further downgrades to boot. Moody’s already has Illinois ranked worst of the fifty states… and is also thinking about downgrading it further.
The S&P downgrade was issued as a result of “weak pension funding levels and lack of action on reform measures,” which means “Illinois is bankrupt, and the public unions aren’t going to budge an inch on their pension demands.” The state government is completely deadlocked. They recently had a one-day special emergency legislative session in which they accomplished literally nothing. Other sessions have turned into shouting matches.
Democrat governor Pat Quinn is dangling the promise of approving more casinos as an incentive to squeeze out a pension compromise, which is just plain shameful. There is increasing tension between the state government and Illinois’ bewildering maze of local pension boards, as the state considers dumping more funding liability onto local governments – which created much of the problem by writing crazy retirement packages for decades.
The state deficit is about $44 billion. (California’s government, also locked in a full-blown budget crisis, is only $16 billion in the hole.) But the Illinois pension crisis is building into an uncontrollable monstrosity. The Chicago Tribune reports that unfunded pension liabilities “could hit $93 billion by next summer if nothing is done.” And with Illinois’ credit rating plummeting, the costs of financing its immense debt will surely grow… making it even harder to balance the books. An article in Bloomberg Businessweek estimates an extra $15 million per year lost to interest paid on municipal bonds, thanks to the downgrade that just occurred. The same thing will happen to the federal government soon enough.
Illinois residents and businesses are already taxed to the hilt, with major employers openly threatening capital flight if their burden is made heavier. A massive “temporary” tax increase – 67 percent on individuals, 46 percent on employers – is scheduled to expire in 2014, but the Chicago Tribune worries that it’s starting to look awfully permanent. That possibility is not exactly enticing vitally-needed business investment into the state.
This is what happens when yesterday’s pension commitments turn into today’s intractable fiscal crisis. “Political leaders in Illinois kicked the can down the road. Now, they’re realizing the consequence of their actions,” observed someone who successfully dealt with a similar crisis: Republican Governor Scott Walker of Wisconsin. The state government of Illinois is degenerating into a massive, bankrupt retirement program with a vestigial police force and occasional road construction as a pastime. Everyone is “entitled,” but nobody has anything left to give; no one will bend, so soon everything will break.