Moody’s Investor Service warned on Wednesday that big income tax increase engineered by House Speaker Mike Madigan might not be enough to prevent the rating service to send Illinois bond’s spiraling into junk status.
In a statement, Moody’s said:
The decision to place the state’s ratings under review for downgrade incorporates our expectation that the legislature will implement revenue increases, overriding the governor’s vetoes. The review will provide a limited amount of time for the Illinois General Assembly to finish voting on the measures, and for assessment of the plan’s credit implications. The review process will also address the likelihood of further deterioration in Illinois’ most pressing credit challenges: its severely underfunded pensions and a backlog of unpaid bills, which has doubled during the past year.
Moody’s referred to the incredibly stupid (my words) idea that the income-tax-fueled will provide the state with the ability to borrow even more money, sinking the state into an even deeper dark fiscal whole:
So far, the plan appears to lack concrete measures that will materially improve Illinois’ long-term capacity to address its unfunded pension liabilities. A June 30 order from a federal judge that the state accelerate payments owed to Medicaid managed care organizations and service providers cast doubt on the state’s immediate ability to keep up with its statutory pension contribution schedule while also meeting obligations for debt service, payroll and school funding. The state anticipates addressing its approximately $15 billion backlog of payments owed partly through a bond offering that probably will rank among the largest in the state’s history. This component of the state’s broader fiscal plan leaves Illinois not only dependent on market access to ease liquidity pressures, but also facing a significant increase in its tax-supported debt burden. Moreover, the effectiveness of the state’s strategy to contain and reduce its deferred bills, once the backlog-financing debt has been issued, remains to be seen. [My emphasis]
This should come as a surprise to no one except those blindly partisan commentators who refuse to acknowledge that it was Madigan’s refusal to negotiate that brought about the latest crisis. Or that it was Madigan’s long “leadership” that explains much of why the state over the years has descended into this swamp. Or that it was Madigan’s refusal to incorporate any structural reforms that would make Illinois make the slightest dent in the pension and other indebtedness.
If this keeps up, the only people left in Illinois to feed off each other will be the insiders, gonifs and cheats who created this catastrophe.