Debt-Riddled Illinois Is A Subprime Borrower

Illinois credit rating sucks, which is unfortunate for the Sucker State, because it needs to borrow millions of dollars to pay its bills. This means that the state is paying a premium for the loans, which are going to be used to improve roads, bridges and schools. As a product of Illinois’ public schools, I can honestly say that the $900 million in new bonds it is issuing will not be enough. Whether this is because we are too poorly educated to figure out how much money is actually needed, or because it really isn’t, no one can say.

From the Chicago Tribune:

The latest bond issue is only a fraction of what could add up to $9.3 billion in long-term borrowing this fiscal year, on top of $8.9 billion in such borrowing last year. Those sums are topped only by borrowing in fiscal 2003, when then- Gov. Rod Blagojevich pushed through a record $10 billion bond sale to prop up the state employee pension funds.

“Every time Illinois comes to market, the premium they have to pay gets higher because the market experiences Illinois debt fatigue,” said Brian Battle, a director at Performance Trust Capital Partners LLC, a Chicago-based fixed-income investment adviser.

“These are costs Illinois will be paying for decades to come,” said Josh Barro, a senior fellow at the Manhattan Institute, a free-market think tank.

Illinois: Our very own Greece? [CNN]
Illinois paying for its big debt [Chicago Tribune]

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  1. nova3930 says:

    Hmm, perhaps its time to prioritize things and reallocate funds from less critical line items to more critical line items. Nahh, fuck it, just slap another $10 billion onto the debt till you default. Why should gov’t be any more responsible with its finances than individuals…

  2. Torchwood says:

    The NY Times had a similar article on July 3rd (http://www.nytimes.com/2010/07/03/business/economy/03illinois.html?_r=1). This makes the California financial situation look slightly better. Just slightly.

    Say, wasn’t Barak a US Senator from Illinois for three years? And a Illinois State Senator before that? Makes you want to go Hmmmm….

    • ARP says:

      So you’re saying that a single Illinois Senator who Served until 2004 is responsible for the state deficit years later. By that logic, isn’t Bush responsible for all our problems.

      Also, are you sure that Democrats controlled both houses during this time?

      Your tinfoil hat it too tight.

      • Taliskan says:

        And you are a bit quick on the defense for Barack.

        He’s just saying that this wasn’t really mention when Barack decided to run for president. The man is after change, why couldn’t he change Illinois?

        In essence, you could blame the anicents for all the world’s problems today. How dare they not have foresight?

        • ktetch says:

          “He’s just saying that this wasn’t really mention when Barack decided to run for president. The man is after change, why couldn’t he change Illinois?”

          Ah, so just ignorant about how government works then

          • costanza007 says:

            But that is exactly the same logic used to say “Bush caused Katrina, economic slowdown, sour milk, scratched CDs, divorce, etc…”

            • pz says:

              You could very well argue that Bush did cause the Katrina _debacle_ by appointing a person with absolutely no EMA service (he was a breeder of horses, that’s it) to be the head of FEMA.

              Nobody says Bush caused the economic collapse — people say the _Republicans_ did.

              And sour milk is great if it’s turned into cheese, so there.

        • ARP says:

          He was a senator at the time. Are you suggesting that he had more power than the 58 other senators in office? No, he had the same voting power as all the other senators.

    • Gish says:

      That good sir shows you don’t know the first thing about the Illinois legislature. If you aren’t one of the ranking members of the house or senate which is just 4 people then you have ZERO influence on anything in those bodies.

      But no you’re right, let’s cast dispersions on Obama without knowing squat about the situation.

      • Torchwood says:

        The problems of Illinois (and California for that matter) did not occur overnight, but accumulated over many years. What gets me curious is that Barak is from Illinois, was part of the Illinois Senate for several years prior to serving three years in the US Senate (that’s years, not terms). The question I am raising is: What techniques and part of doing business that now is getting Illinois in trouble is Barak now using in his current position?

        • Conformist138 says:

          “High profile from Illinois” != “Responsible for all problems in Illinois”

          Why do you think that coming from a certain place or having a certain job automatically means you agree with and will implement anything/everything you learned from that place/job?

          I, for one, know that my company is shit. They’re sexist and don’t give a crap about the employees. They lie and they don’t provide workers with even a living wage, let alone affordable benefits. So, when I finally find a job out of this hell hole, should my new employer assume I’m a sexist fuck-up? I’ve worked here three years, shouldn’t all the problems be my fault?

          Should I assume my friend who was raised in Illinois is a total moron because he dared to come from Illinois?

          Um, no, being a Senator doesn’t give you superpowers to change whatever you want and make life perfect. For one, he was not the only Senator in Illinois, and second, Senators are not the only politicians or officials making decisions. Obama happened to come from Illinois, that’s really all you got besides pure speculation. Remember, the national (and global) economic issues did not just magically appear because Obama was voted in, these things can swirl unseen by the masses for years. It’s only when the problems burst and get all over Joe Citizen that anyone sits up and notices. Just don’t impulsively blame the first person you see after the collapse.

    • SacraBos says:

      There’s plenty of other Chicago politics to worry about than his short term as a State Senator. From what has been published, he doesn’t have much of a voting record in the State or Fed Senate of any distinction. Voting “Present” isn’t really a leadership quality.

  3. smo0 says:

    Well… liquor and ciggarette tax? Seems to be the new trend for regaining losses.

  4. ktetch says:

    Maybe we should start electing people that know what they’re doing. After all, being able to spend millions on an advertising campaign is a REALLY good example of fiscal responsibility.

    The two biggest parties have gotten so used to money flowing out their backsides, they’re killing the country.

    People, look at ALL your candidates, not just the ones from the party you think you should support.

    • cozynite says:

      [Maybe we should start electing people that know what they’re doing.]

      That’s kind of the problem. One, most of the politicians running haven’t got a clue as to what works beyond getting some sort of kickback. And two, there are so many people that don’t vote to begin with. I am an election judge in a Chicago suburb. In my precinct, we are lucky to get an average of 30% turnout. 30%! And that is usually for the presidential election. For this past primary, we had an 18% turnout. It’s sad.

  5. wrjohnston91283 says:

    The state had the worst funded pension plans in the country a few years back – I don’t know if it’s improved.

    A lot of the states didn’t contribute money to their pension plans in years when the stock market was really good – rationalized it by saying “well our actuarial assumptions were based on 8% growth, so we don’t need to put in as much money if it grew 16% last year. Of course, if it grew less than 8% they didn’t put in any extra, just what the actuary said was needed.

  6. dreamfish says:

    The article referred to overspending but only mentioned pensions. Is that the main cause or has the state in general just been profligate?

    BTW I gather some states have constitutional rules stating they must have a balanced budget. Are they in a better situation or have they either had to borrow in such a way as to avoid calling it debt (or consequently have poorly funded public services)

    • ARP says:

      Yes, our constitution requires a balanced budget, so they sell bonds as a form of deficit spending.

      Our constituion also requires a flat income tax. So, we tend to have higher than normal property taxes and sales taxes to make up the difference of not having a progressive income tax. Property taxes are the primary source of school funding, so wealthy areas tend to have much better schoold than poorer areas (this is common, but its more pronounced here).

      • TuxthePenguin says:

        I hate to break it to you – rich areas will almost always be better off than poor areas… no matter the tax scheme.

      • grapedog says:

        I thought all schools were covered by property taxes, or the vast majority of them, in all states…?

        • Powerlurker says:

          School funding doesn’t have much of an effect on school quality above a certain threshold. If you look at the districts in the US that spend the most on students, you find the list filled by places like Detroit, Washington DC, and Newark NJ. That having been said, actually measuring school quality is extremely difficult in the first place as much of the perceived differences come from selection effects. Good students tend to make good schools, not the other way around.

  7. Geekybiker says:

    I really need to move out of this state…

    • weathergirl says:

      Agreed, I’m outta here as soon as my bf and I finish school at UIUC.

      • partofme says:

        Heh. I unfortunately just got pulled here last year for grad school. Why did they put such a good school in such a terrible state?

  8. Split Cents says:

    Can anybody else hear the sound of bankruptcy lawyers flipping to Chapter 9? Retirees better start checking their portfolio’s for those Illinois Muni Bonds–they might be getting some notices in the mail soon!

    • Skrpune says:

      I’m actually terrified for what my future holds…my husband has a state pension, but I’m pretty sure it’s going to be long gone before he retires. The state is already dipping into it now. Yikes. Time to make other retirement plans!

  9. FatLynn says:

    Meg, certainly you know that there are excellent public schools (some of the best in the nation) in some areas of Illinois. All those fancy suburban schools have things the city kids can only dream of, like social studies.

  10. cornstalker says:

    Isn’t it ironic that the states with the highest taxes always seem to be the most broke?

    • ARP says:

      We’re lower in income taxes, but higher in property and sales taxes. Our fees vary, but are on average, well, average. We’re a “fair tax” dream!

    • Eyebrows McGee (now with double the baby!) says:

      Illinois’s total tax burden is ranked in the bottom half of states. (30th, specifically.) It’s very, very low for such a democratic-leaning state … and, obviously, too low for the level of services the state is trying to provide.

      http://www.taxfoundation.org/research/topic/26.html

  11. ranainsana says:

    why does this make the news but last months issues with an outrageous cds of 313bp not?

  12. coren says:

    I can honestly say that the $900 million in new bonds it is issuing will not be enough. Whether this is because we are too poorly educated to figure out how much money is actually needed, or because it really isn’t, no one can say.

    Huh? Does this mean “it may not be enough because it’s not enough?”

    • ranainsana says:

      they know its not enough, but it would even worse to over saturate the market with the required amount to balance the budget and get things moving. $300m in June from IL, $900m from IL today, Tomorrow $1.5B from LA Community Colleges. Even though These GO debt will be issued as BABs (the taxable market is much larger than the tax-exempt market) demand is not unlimited.

      Also political pressure is growing, No state senator or rep wants to raise taxes before elections, but we all know its will/has to happen. its just going to be a year of delay while politicians worry about getting elected more than they do about the fiscal needs of the state.
      Im on the inside.

      also, todays 325bp spread over 30yr Tbill not as bad as expected

  13. dg says:

    Personally I have a solution for pension plans. Just stop funding them altogether. Stop offering them to employees.

    Let everyone save for their own damn retirement. If you want money – put it away. Otherwise, starve.

    But this “oh sure, you want some money? Sure… we’ll fund that. No problem. Just get this project done now OK?”, then they blow off the obligation because they can’t fund it now, but figure they’ll be able to do it later. Then later comes (which is today in some cases), and they say “ummm, let’s borrow it and give it to joe blow!”

    Screw that. They ripped those people off. The fools who did it ought to get sued PERSONALLY for doing so. No reason for the tax payers to have to dig into their pockets for cash.

    Vote all the incumbents out. Every single one of them needs to go. Politics is supposed to be a TEMPORARY civil service. You do you job for a few years, then go back to your life. It’s not supposed to be a “career”…

    • ARP says:

      I disagree that pensions should be removed. I think they serve an important incentive for civil service workers, who generally get lower pay than the private sector.

      However, I think there should be a law that says that pensions must be fully funded, period. If we get lucky and the pension makes extra money due to a strong economy and good investments, great. Put that back into the general fund (or even cut taxes if it makes sense).

      Part of the problem of politics is its temporary nature. So long as governments can run huge deficits (or sell bonds), and then leave it for the next group to clean up, there will be this problem. IMO- what’s really needed is a balanced budget amendment with pay-go rules. You want to start a war? Fine, pay for it right away but increasing taxes or cutting spendign to pay for it. You want to cut taxes? Fine, pay for right away by cutting spending. You want to increase spending? Fine pay for it right away by increasing taxes or reducing spending elsewhere. Just make sure that bonds, t-bills, etc. are factored, so you can’t sell billions or trillions in bonds to artificially balance a budget.

      • dg says:

        I don’t actually have a problem with pensions for people making under $50K/year. You’re giving up earning power to do a public service, so we’ll reward you with some money in your old age. BUT, over $50K, fund it yourself.

        And don’t get me going on the local teachers – base salary is about $80K, we have gym teachers making $160K, and those clowns are getting fully funded pensions by us, fully funded health insurance, and some even get an additional annuity on top of their salary… It’s obscene and it’s gotta stop.

        I agree about the fully funded deal too – if they don’t have the money, they shouldn’t be spending it. Part of of the problem is that everyone wants to get re-elected, so no one does a damn thing that needs to be done. If we had term limits, then re-election wouldn’t matter, so they could actually do what’s right instead of what’s politically right… In the meantime, all we can do is VOTE EM ALL OUT…

    • ghostfire says:

      If you remove pension plans, it’s not like employers will actually raise wages to allow people to save for themselves.

  14. quirkyrachel says:

    That’s ok! We’ve got one hell of a community organizer in the White House now helping to bring the same financial planning to everyone. :)

    • elganador says:

      And an excellently failed half-governor doing the same! She’s just using a PAC to get around any “rules” or “regulations”.

  15. Yoko Broke Up The Beatles says:

    Can we somehow spin this to include Steve Bartman in the blame game?

    Anywho, on the positive side – open road tolling saves time!

  16. Eyebrows McGee (now with double the baby!) says:

    I am on a local school board in Illinois; currently, the state currently owes us $10 million just in General State Aid. (And a few other million in grants for this and that, including special ed dollars.) At the current rate of state payments, we anticipate not being able to make payroll in April. We’ve cut 10% of our teaching corps (and higher percentages from non-classroom positions), raised class sizes, closed buildings, and cut programs. There’s not much left to cut unless we just quit teaching.

    • Eyebrows McGee (now with double the baby!) says:

      “currently, the state currently owes us “

      Clearly, I supervise a fine system. (In their defense, I wasn’t edumucated here.)

      Oh, and the $10 million is around 12% of our education fund.

    • dg says:

      If you don’t get the money, don’t provide the service that the State is supposedly paying for. If the State wants to mandate special ed, or gym class, or some courses – they can pay for it. Otherwise, screw it. Give them what they pay for.

      If you have to close early in the year because the money’s run out – do it.

  17. Memtex784 says:

    Isn’t the money made from the toll roads supposed to help with road maintenance?

    • dg says:

      hahahahahahahahhaha…. you’re not from Illinois are you?

      Tollway money was supposed to go to retire the bonds originally issued to build those money sucking roadways, pay for some salaries, and pay for upkeep… If they had any brains, they would have funded an annuity or something to pay them some interest to keep the funds flowing so they could continue to maintain things after the bonds expired and the roads were to become free, but instead of that, Illinois:

      * Issued new bonds so they could remain indebted

      * Started screwing with perfectly good roads to “expand” them – this is a never ending ordeal…

      * Installed a privacy-invading joke called EzPass, and screwed over people who want to, or need to, pay cash… There’s few lanes, long lines, and they’re staffed by the typical toll booth imbecile…

      * Some of the money gets diverted to other uses as well… Just like the State Lottery – the majority of the $$$ was to go to education, so ummm, guess what happened here in Illinois?

  18. energynotsaved says:

    For years, we’ve heard about miracle ways to drop our excess weight. Alas, most of us discovered to drop those unwanted pounds, we had to eat less and exercise more. Finances work the same way. Spend less. Pay off debt. Save more. Use the “no” word. We have to do it and we have to elect adults with backbone to do the same for our cities, states and nation. (Well, and from the looks of things, the world.)

    America can’t spend itself out of this mess. Cut spending. Use those same words my parents, may they rest in peace, use to say, “No. We can’t afford it. Besides, you don’t need it.”

  19. OldSchool says:

    The pension plans ar far from the only things that aren’t being payed for.

    Hospitals and doctors waiting for 9 months or more to be paid.

    Tax Refunds delayed almost indefinately. Yes if you overpay you unwise in many ways and this did not impact me but people that I know have been.

    Me personally waiting for college funds to be paid from grants for both the spring 2010 and fall 2010 semesters. My contact with them revealed that my priority is a 9 on a scale of 1-10 , ie who knows when or even if you will ever get this money. This is money needed to put my 2 children through college, not for myself personally.

    The list goes on and on and on ……….

  20. OldSchool says:

    The pension plans ar far from the only things that aren’t being payed for.

    Hospitals and doctors waiting for 9 months or more to be paid.

    Tax Refunds delayed almost indefinately. Yes if you overpay you unwise in many ways and this did not impact me but people that I know have been.

    Me personally waiting for college funds to be paid from grants for both the spring 2010 and fall 2010 semesters. My contact with them revealed that my priority is a 9 on a scale of 1-10 , ie who knows when or even if you will ever get this money. This is money needed to put my 2 children through college, not for myself personally.

    The list goes on and on and on ……….