Illinois Smash-Up
Have you ever been in debt, deeply in debt? Knowing you’re charging things to your credit cards that you can’t pay? Every month, the bills coming in are more and more scary. You can’t take your problem to your family or they’ll be angry. So, to stave off panic, you begin drawing cash advances from one of the more lenient credit-card companies, and that enables you to pay some of your obligations in time. But soon even that isn’t enough: the credit-card people realize you’re in way over your head, and they jack up your rates. The interest on your balances spikes. Your minimum monthly payments go higher and higher. By now your debt is consuming your salary, you begin to miss payments, and when you finally run out of cash, you will be bankrupt.
This more or less describes the state of the finances of Illinois.
Our legislature has so mismanaged the state’s finances that Illinois is spiraling toward a terrible debt crisis. The state’s accumulated unfunded debt obligations for the coming year total some $13 billion. Its unfunded pension obligations are ballooning. Not surprisingly, Illinois’s credit rating has been dropping. Experts now regard it as the least creditworthy state in the Union, along with California. This means that we will all be collectively assuming more and more debt and interest just to keep going. Illinois’s cheap fix has been to issue bonds whenever it can’t manage to balance its budget, but it’s a fix that will become increasingly punishing.
Every time the state borrows, it conceals from you the fact that your tax burden–our collective financial indebtedness–just got bigger. Resorting to bond offerings has been popular with the governor and legislature because the alternative is to have to change the nature of the state or evoke the wrath of Illinois taxpayers. Recently, Illinois’ political leaders have been selling state assets and engaging in other desperate measures to stave off the day of reckoning: the day when business as usual cannot go on. For when the state has exhausted all these short-term expediencies, we, the taxpayers, will be left to shoulder all the accumulated liabilities. On that day, the Illinois smash-up will become ours.
RELATED:
The Pension Standoff in Illinois, Our Polity, June 22, 2012.
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Susan–I agree that the management of state finances has been appalling. The previous governor should be going to prison for his role in this process, never mind the corruption. The idea of giving free bus rides to seniors is almost criminal. Let’s subsidize, at the expense of working-age people, both in terms of cost and convenience, not to mention the jobs lost because of less revenue, the richest segment of the population!
But the $13 billion in debt, while bad for the reasons that it was run up–no infrastructure improvements for example–is manageable; it works out to about $1,000 per person in Illinois. By comparison the national debt is 1,000 times larger even though the country is only about 25 times larger than the state of Illinois. I notice that the state recently sold a tax-free bond for 3.9% or about 60 basis points above the typical rate of 3.3% for high-grade tax-free paper. So, yes, we taxpayers are paying a price for OUR sins. But these rates are on 30-year bonds. I might be wrong but off the top of my head this $13-billion debt can be paid off over 30 years with an annual payment of about $750 million. NOT great, but, at about 5% of the state’s non-capital budget, manageable. The pension problems i must admit that i have not followed!
Bob–Thank goodness you have the smarts to bring to bear on some of these details. Have you been reading some of the dire forecasts regarding our unfunded pension obligations being put out by the Civic Federation or the Chicago Tribune? Here is a detailed Trib article, with a very good graphic (in the left sidebar):
http://www.chicagotribune.com/news/watchdog/ct-met-pension-code-20111216,0,7785082.story?page=2
And here is a related story from the Civic Federation re. per capita pension liabilities:
http://www.civicfed.org/civic-federation/blog/unfunded-public-pension-liabilities-chicagoan-14897
I’m curious to know what you think.