The politicians in Springfield have dug themselves, and us, a hole so deep they have no idea how to get out of it. Illinois has the biggest pile of unfunded pension liabilities of any state in the union. Everybody knows this. Everybody knows it is a crisis. It has been front-page news for months. Six months ago, the Economist correctly said “[a]s long as lawmakers do nothing, the state’s problems will become ever more expensive and ever harder to solve.”
Everybody knows that every single day the problem is not seriously addressed, it gets worse.
But the politicians who rule Illinois are paralyzed. They are incapable of making hard choices. They prefer to spend and borrow and pretend that the gravy train will chug down the track forever, like it always has. But that is a dream with no connection to reality.
The one proposal that would have actually put Illinois on the road to recovery, HB3303 never got out of committee. The plans proposed by Mike Madigan in the House and John Cullerton in the Senate were incompatible, neither was enacted, and no compromise was reached. So, nothing was done. The legislature finished its session without passing any pension reform.
Reality cannot be ignored forever. When people with authority fail to meet their responsibilities and fail to resolve serious problems, there is a heavy cost for that failure.
Fitch Ratings, one of the three main bond rating agencies, took a look at the dysfunction in Springfield, and tossed a bucket of ice-cold, unwelcome reality onto our politicians. Fitch made a realistic assessment of Illinois’ credit-worthiness, and downgraded Illinois rating from “A” to “A-.” The other rating agencies are expected to make similar downgrades.
To those who are not familiar with bond ratings, “A” or “A-” might sound like pretty good ratings. After all, those are honor roll grades in High School! But they are rotten bond ratings. The best states have AAA ratings. Illinois has not seen a “triple A” rating since Jim Edgar was governor. Illinois, which just lost its “A” rating, already had the lowest bond rating in the USA. This new downgrade to A- puts Illinois even farther behind its neighbors. In fact, since Pat Quinn became governor, Illinois already had twelve downgrade to its credit rating before this most recent one.
Fitch explained why Illinois deserved to be cut down to an “A-”:
Fitch believes that the burden of large unfunded pension liabilities and growing annual pension expenses is unsustainable, and that failure to achieve reform measures despite the substantial focus on this topic exacerbates concern about management’s willingness and ability to address the state’s numerous fiscal challenges.
According to Fitch, Illinois’ financial condition is “unsustainable.” The Illinois legislature’s failure to pass any pension reform increases “concern about management’s willingness and ability to address the state’s numerous fiscal challenges.”
The word “management” to describe our political class in Springfield is depressing. If only they acted like managers. If only they were accountable the way managers of private businesses are. If only they were subject to reality checks before they pushed the state into insolvency. If only the ordinary citizens of Illinois were not going to be badly hurt by the failures of the state government’s “management.” Governor Pat Quinn has called an emergency meeting with the legislative “management” of Illinois. Speaker Madigan, was out of state and could not participate remotely because he doesn’t have a cell phone. That is not management, it is staggering from crisis to crisis. It is an international embarrassment.
The rapid collapse of Illinois’ credit rating matters. The cost of borrowing money increases with lower bond ratings, because the market demands a premium when the borrower is risky. Of all the states, Illinois is the worst bet to pay off, so it has to pay a penalty to borrow. Even before this current downgrade, Illinois was already paying more than any other state to borrow money. Illinois taxpayers end up paying a premium for the funds their elected representatives borrow, and that is millions of dollars that cannot be spent on the actual needs of the citizens of Illinois.
The lowered bond ratings also signal to businesses that they should locate in other states, where increased taxes and reduced government services, at the same time, are not a near certainty. With Illinois trailing the other American states in every measure of economic performance, this downgrade is one more deep slash in the death of a thousand cuts to our state’s economy.
Illinois pension payments are crowding out other essential state services. And now these unfunded pension liabilities are causing Illinois to incur greater and greater costs to borrow funds. These unfunded liabilities, and the resulting lowered bond ratings, are in turn a brake on economic growth and job creation.
Our state’s so-called management has gotten itself, and all of us, into a vicious cycle, where each policy failure leads to a series of increasingly bad outcomes.
Will the politicians in Springfield wake up? Will the ice water of these reduced bond ratings snap them out of their paralysis? Or will they sleepwalk over a cliff, and take us onto the rocks below with them?
