NBC Chicago

Why Illinois' Bond Rating Is Worse Than it Seems

Thursday, June 24, 2010

Based on raw numbers, other states have more serious financial problems than Illinois.

Nevada and Michigan, for example, both have unemployment rates close to 15 percent. California has a $19 billion budget deficit.

But does any state have a government less serious about solving its financial problems?

“We view the failure to enact significant new recurring fiscal measures as a troublesome indicator with respect to Illinois’ governance and management profile,” Moody’s Investors Service wrote when it downgraded Illinois’ bond rating this month.

The bond rating dip came after the state refused to do anything about the $13 billion budget deficit. In other words, if Illinois were a corporation, they’d want to see a new CEO and board of directors before buying its stock.

All over the U.S., as property values and tax revenues crash, and federal stimulus money disappears, states are beginning to realize they can’t continue supporting their residents in the manner to which they’ve become accustomed. Some states – states in bigger trouble than Illinois – are coming to terms with that. In close-to-bankrput New Jersey, Republican Gov. Chris Christie is proposing cutting his state’s budget by 25 percent. In Michigan, Democratic Gov. Jennifer Granholm is merging her state’s 18 departments to eight and pushing out highly-paid veteran school teachers.

"Accustomed to the ups and downs of the ordinary economic cycle, elected officials and budget planners are facing something none of them have experienced before: year after year of shortfalls, steadily compounding,” Time magazine wrote in an article on state budget crises.

Trenton and Lansing may not be in denial, but Springfield is. Illinois’ expected budget shortfall of $13 billion is 36.1 percent of its budget – the third-highest percentage in the nation, after New Jersey and Nevada, which has seen severe declines in property values.

So far, the legislature’s solution has been to hand off the problem to Gov. Quinn, by giving him emergency budget-cutting powers. But instead of cutting the budget, Quinn wants to borrow $3.7 billion to pay the state’s pension obligations. That’s going to put us deeper into the hole, when the interest comes due.

The state did raise the retirement age and reduce pension obligations to new employees, but we won’t see the benefits of that for 25 or 30 years. But the governor and the legislature are afraid to do more, because 2010 is an election year. If they don’t do anything, it’ll be the last election year a lot of them have to worry about. This is a bad time to be running any state – but it’s an even worse time to have leaders who refuse to run a state.