Moody's Catching Up by Downgrading Illinois

Moody's confirmed a reality that Illinois residents had felt for years. Our state, at least in the eyes of one major bond rating agency, is the least credit-worthy of all of the 50 United States. Illinois is now rated below other states who have big budget problems of their own if you examine their unfunded liabilities, current economic trends, tax policies, population shifts and short term budget gimmicks.

Without getting deep into the budget weeds on the stats, any fair analysis from budget policy and good government groups around the country point to several states who struggle in key areas. Annual deficits are an ongoing problem in Illinois (usually address with accounting tricks that paint a better picture that what is real) but they are pretty bad in Arizona, California, Nevada, New Jersey, New York and Rhode Island.

Illinois's long term debts keep piling up. If you don't believe me, just ask the Illinois State Treasurer Dan Rutherford who doesn't get enough money from the state to pay state service providers within 9 months most of the time. Non-for-profits working with the state are struggling the most with such dead beat payments from the state. However, despite our long term debt and the significant cost of servicing it; Massachusetts. Connecticut, New Jersey and New York all owe a higher percentage of their GDP with California and Wisconsin just a couple hairs behind Illinois.

Illinois is among the all-time champions of short-changing state pension plans by guaranteeing huge benefits to retiring workers and then failing to pay for them. However, Ohio and Wisconsin are even worse. You might be surprised to know that states like Alaska, Alabama and South Carolina find themselves under the long term liability gun as well.

Given so many other states in such bad fiscal shape, even a couple that seem more serious that Illinois, why is Moody's picking on Illinois?

Because they are finally catching up with the reality that Illinois politicians have neither the courage nor the desire to fix the problems. No one is going to hold up New York, Ohio or California as examples of great political leadership. However, you hear very serious conversations among elected officials, local media in those states and appointed department leaders regarding their future. Very few proposals that have come out of Wisconsin, Ohio, New York or California are popular or will be easy to pass. In Wisconsin's case, budgetary laws already passed may not hold up over time. Still, there is a substantive political engagement taking place between the major parties and the voters about serious budget policy changes.

When was the last time you heard a serious conversation among Illinois' top officials regarding major, long-term budget reform? Sure, they could pass a major income tax increase to hurt working families; but, this is a state run by Democrats. They could pass a tax increase in their sleep. There was no courage or deep thought in that.

Sure, Springfield legislative leaders patted themselves on the back last year when they passed pension/benefit reform for new state hires . Again, there is not much courage in ripping down benefits for people who haven't even started working yet and don't even think about retiring one day in the distant future.

You may not agree with everything that Wisconsin Gov. Walker, Ohio Gov Kasich, Michigan Gov. Snyder, New Jersey Gov. Christie or California Gov. Brown are proposing, but at least you can acknowledge they are sticking their necks way out to engage their opposition and start a major discussion on the future of state fiscal policy. What have we heard from Gov. Quinn on the issue? How about Speaker Madigan? Senate President Cullterton? How about the GOP elected leadership? Sen. Radogno and Rep. Cross talk a big game, but never seem to articulate a clear, comprehensive fiscal reform plan that can reasonably pass.

Moody's is not just judging our annual deficits or our total public debt. They are not just passing harsh judgment on the long term state pension and health care liabilities. Those are major factors in assessing risk. However, as any investor in the world can tell you, it's not just about the numbers, it's about the management and the developing trends within the entity looking for money.

Moody's pointed to "management" problems in it's Illinois assessment. That means Gov. Quinn, his budget administration and legislative leaders  in both parties. It also means voters in the state who don't seem willing to hold their mangers accountable for their incompetence.

The trends are another story. There is no evidence that the state is willing to deal with it's obvious problems. There is no leadership coming out of the governor's office at all. Speaker Madigan is the only one with any real clout in the legislature and despite the fact that he could end this thing with one edict, he is just too lazy and too complacent to bother. He has been in Springfield for a very long time, facing no opposition to either his Spearkership or his seat on the Southwest side of Chicago. His fire to govern is flickering out. It takes energy to lead and he is just about out of it.

We are nearly three years away from the next governors race when these issues will take center stage. With the new round of gerrymandering, we are probably five years away from a meaningful set of state legislative elections.

So there is your trend. The state will continue to operate with annual deficits and add to its total public debt for the foreseeable future, with long term liabilities continuing to pile up, unencumbered. There will not be any meaningful leadership in state government for at least 3-5 years, thus no reason to believe fiscal policy will change dramatically between now and then.

Moody's simply caught up on its Illinois government lessons and finally assessed that of all the states in the union, not only is Illinois the least credit worthy in the bond market, it is also least worthy of a benefit of the doubt. There is no doubt left: Most whom serve in the leadership positions of Illinois state government abdicate fiscal responsibility in favor of centralizing clout for themselves.

 

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