Reeder: Deadbeat Illinois is circling the drain
By Scott Reeder firstname.lastname@example.org January 30, 2013 8:50PM
Updated: March 2, 2013 11:52AM
I remember my consumer education teacher at Galesburg High School explaining how to achieve a good credit rating.
We learned that the worse your credit rating, the harder it is to borrow. And when people with bad credit do borrow, they pay a higher interest rate.
Here were my teacher’s tips on having good credit: Pay your bills on time. Don’t spend more than you earn. Don’t borrow too much. Don’t make financial promises you can’t keep.
If only our current state leaders could have sat through that class 30 years ago. They might have learned something, and we’d all be better for it.
Standard and Poor’s became the latest major bond-rating agency to drop Illinois’ rating, this time to A- from A. There is not another state in the union with a rating as lousy as ours. We are now worse off than California, which had been below us previously.
The downgrade by Standard and Poor’s led state budget officials to postpone this week’s planned $500 million bond issue for a statewide public works program, citing an “unsettled” market because of the lower ratings.
The state got in this predicament the same way that a person with bad credit would.
Just consider: Illinois doesn’t pay its bills on time. Last year, the state spent $738 million more than it took in. The state is dripping with debt. Under new accounting rules, the state’s unfunded pension liability exceeds $200 billion.
Since Gov. Pat Quinn took office in 2009, the three major bond-rating agencies have downgraded the state’s creditworthiness 11 times.
Because of this, Illinois now pays an interest rate 1.45 percentage points higher than the nation’s top-rated states on 10-year bonds. That might not sound like much, but when you’re borrowing $500 million it amounts to big money.
“It’s really important to remember that we have had 20 downgrades in the entire history of the state, and 11 of them have been under Pat Quinn,” Senate Minority Leader Christine Radogno (R-Lemont) said. “We have seen a period of time here that we have been woefully lacking in leadership and the ability to get something done. I think that has led to the downgrade.”
It’s easy to dismiss percentage points and terms like “junk-bond status” as Wall Street concerns of little importance to the rest of us.
But paying a higher interest rate for bond sales means less money available for schools and social services, fewer state troopers patrolling highways and even longer lines when you renew your driver’s license.
More important, the feedback from the rating agencies provides an independent voice giving a prognosis on our state’s financial health.
And that prognosis is clear. Illinois is CTD — circling the drain.
In trying to explain their record of delay and lack of accomplishment on major pressing issues, Illinois lawmakers and their leaders like to trot out familiar bromides such as “there are no easy solutions.”
There may not be, but it’s worth noting that 49 states have found better ways to manage their finances than has Illinois.
Places such as Kansas are actually considering eliminating the state income tax. Illinois lawmakers, on the other hand, jacked up our tax rate two years ago from 3 percent to 5 percent. Rhode Island, for example, has embraced public pension reform while Illinois has dithered.
And before we start hearing that Illinois needs to raise the income tax again to improve its credit standing, please note that the state is taking in more tax revenue now than it has at any time in its 195-year history.
Yeah, you read that right.
We are taking in money at a record clip but still plunging toward bankruptcy.
Illinois’ financial problems are on the spending front.
The credit rating agencies know it, and you should, too.
Scott Reeder is a veteran statehouse reporter and the journalist-in-residence at the Illinois Policy Institute, a nonprofit research group that supports the free market and limited government.