'Rendezvous with reality'

Quinn promises pension reform

Wednesday, January 11, 2012

Illinois plans to go to market Wednesday to sell $800 million in bonds for capital projects. Taxpayers, brace for a drubbing. This is going to be ugly.

You are going to pay a lot to borrow this money because investors are worried that your state might not make good on its obligations.

•Last week, Moody's Investors Service slapped Illinois with the lowest credit rating of any state in the nation — even worse than California, which is staring at a $13 billion deficit. Moody's cited "weak management practices" for the Illinois downgrade and pointed out that lawmakers did nothing last year to shore up the state's finances.

•Standard & Poor's and Fitch Ratings didn't downgrade Illinois, but they still have us near the bottom of the pack, and S&P; put the state on alert for a downgrade.

•The sorry result: when it sells these bonds, Illinois may face borrowing costs more than four times as high as the average it has paid over the last 10 years, according to Bloomberg. It is expected to pay 1.82 percentage points more than what top-rated states pay for comparable bonds, Bloomberg said. That would translate into millions of dollars in extra costs.

How many warnings do we need? This is an embarrassment. An expensive embarrassment. Taxpayers will be paying off this expensive debt for many years.

Yet Illinois keeps on borrowing. This time it's for infrastructure, roads and schools. But we suspect some Democratic leaders will push again this year to borrow even more to pay down the state's backlog of bills. The credit-rating agencies have explicitly warned against borrowing to pay for operations.

Fitch noted that Illinois is expected to end its fiscal year in June with an operating deficit of more than half a billion dollars.

"Moody's made it clear that it would view further borrowing to pay current obligations as a negative act that would cause another downgrade," said state Comptroller Judy Baar Topinka. "The only way out of this mess is to keep cutting spending, provide for a better business climate and, for once, let growth outpace spending." Amen.

Gov. Pat Quinn says he's on the case. He at least seems to acknowledge now that Illinois' gaping pension obligations make it impossible to fund education and health care and public safety and everything else a state is expected to provide. Every dime that goes to soaring pension costs is a dime that doesn't go for direct services. Dimes? Did we say dimes? Illinois is tens of billions of dollars behind on its pension obligations and billions of dollars behind in paying its everyday bills.

At least key Democrats are moving past the disastrous idea that the pensions of current employees can't be part of the necessary fix. Quinn on Tuesday promised "a rendezvous with pension reality."

"It is important that we take this year, 2012, and do some hard things when it comes to the finances of Illinois, and that begins with pension reform … this is a major mountain to climb this year and I'm willing to lead the expedition." Quinn made it clear that the pension plans of current state employees will be part of the cure.

That's awfully good to hear, even if the governor provided no details on how to do it. At least he's pushing now for a change.

So let's get on with it. This has to be done this year.
And in the meantime, no more borrowing.