It went unnoticed by much of the mainstream media, but Moody's Investors Services, one of the three giant credit ratings agencies, downgraded the state of Illinois last month because of its failure to address its massive budget deficit and debt, making Illinois the worst-rated state in the nation.
In the meantime, Moody's last year affirmed Wisconsin's positive credit rating, hailing Gov. Scott Walker's and the GOP's budget enacted last summer.
Specifically, Moody's lowered the Illinois' general obligation bond rating to A2 from A1. The agency also attached the lower rating to an $800 million general obligation January bond offering that is intended to finance school and transportation projects. That will drive the cost of borrowing for those bonds to 3.1 percent, rather than 2 percent other states get with better ratings.
According to Moody's, the state Legislature seemed to lack the will to grapple with its debt or with its costly pension fund.
"The downgrade of the state's long-term debt follows a legislative session in which the state took no steps to implement lasting solutions to its severe pension under-funding or to its chronic bill payment delays," Moody's stated in its downgrade announcement. "Failure to address these challenges undermines near- to intermediate-term prospects for fiscal recovery."
The move gives Illinois an even worse rating than California, and it reflects what everybody realizes is a dire economic situation. According to the nonpartisan research group, the Civic Federation, the state will owe $9.2 billion at the end of this fiscal year, and, unless serious reforms are undertaken, that will balloon to $34.8 billion by 2017. In addition, at the end of fiscal year 2011, the state pension fund had total unfunded liabilities of $83.1 billion and a funded ratio of 43.3 percent, also worst in the nation.
What's more, the Civic Federation stated, the state is continuing to run an operating deficit of $508 million this year. Rapidly rising Medicaid and pension costs have fueled the deficits.
So far, as Moody's observed, the state has failed to enact measures to reform those two programs. Instead this past year the Democratic-controlled Legislature and Democratic Gov. Pat Quinn enacted a budget raising taxes and delaying the payment of more than $1 billion in bills until the next fiscal year.
Laurence Msall, president of the Civic Federation, said that approach would fail.
"The state of Illinois' continued practice of spending more than it takes in and pushing operating expenses into future fiscal years is a growing threat to our most vulnerable social service providers, local governments and anyone doing business with the state of Illinois," Msall said. "Failure to address unsustainable trends in the state's pension and Medicaid systems will only result in financial disaster for the state of Illinois."
Last year's budget also raised the personal income tax by 67 percent; the corporate income tax jumped by 46 percent.
The lower rating has set off a heated political battle in an election year, of course, and both sides have ready answers for the economic predicament.
For his part, Quinn has blamed the budget mess on the national recession and on the policies of his predecessor, former Gov. Rod Blagojevich.
But, pointing to the tax-and-spending increases, Republicans and conservatives say Quinn hasn't changed those policies and indeed just last month called for even more spending in his State of the State address.
Observers such as Kristina Rasmussen, executive vice president of the Illinois Policy Institute, say Democrats promised higher revenues and a strengthened economy as a result of higher taxes and austere budgeting. Instead, she wrote in the Milwaukee Journal Sentinel, out-of-control Medicaid and pension costs gobbled up the new revenue streams, reform plans got waylaid, and unemployment continued to rise, from 9 percent to 10 percent.
Illinois Senate Republicans also observe that Illinois' credit rating has been downgraded 10 times since 2003, when Democrats took over both houses of the Legislature and the governor's office.
Republican U.S. Rep. Randy Hultgren of Illinois said the tax hikes were killing jobs and driving unemployment higher.
"I hope that this news compels Gov. Quinn to produce credible plans to balance the state's books, without more job-crushing tax hikes, and address its enormous unfunded pension liabilities," Hultgren said. "Regardless of whether Gov. Quinn chooses to lead on this issue, he should remember that Congress will not bail Springfield out; solutions to the state's profligacy must come from within."
Illinois Republican state Rep. Jim Durkin said he was disappointed by the downgrade, but not surprised.
"For years, the House Republicans have stated how we need strong, meaningful financial reforms in the budget, including the costly Medicaid and pension components," Durkin said. "The Democratic leadership has continued to sweep our proposals under the rug and further run this great state into the ground."
Moody's praises Walker budget
All of this is in stark contrast to Moody's assessment of Wisconsin's economy last year, when it affirmed the state's positive credit rating, as did Fitch and Standard & Poor.
One reason for the strong credit endorsement was the budget of Gov. Scott Walker, which Moody's praised even prior to its passage.
"If enacted the budget will be credit positive for Wisconsin by bringing the state's finances closer to a structural budgetary balance...," the agency stated. "Enactment before the end of the current fiscal year would be credit positive."
The budget virtually eliminated the state's structural deficit of $3.6 billion, and, in contrast to Illinois, paid off the state's debt.
That prompted Moody's to report that "the state's ability to make progress toward structural budget balance and improve its liquidity and fund balances will be important to future credit analyses."
Walker said the positive credit rating had a tangible economic effect.
"Having our bond rating confirmed is great news for Wisconsin taxpayers that will keep debt payments lower," Walker said. "It also shows the importance of a fiscally responsible budget, paying off the bills that we inherited and making the hard choices in this budget."
Richard Moore may be reached at email@example.com
Posted: Sunday, February 19, 2012
Article comment by:
As a former resident of LDF, I find reading some of these articles quite interesting. Maybe Mr. Johnson might want to explain why CAT moved an engine plant out of IL and recently decided to bring back a product being made in Japan to GA. Unions! Cost of business in IL. High taxes. You will see more moving away if the state of IL does not change their way.
Schools in WI. With some of the budget changes, the cost to taxpayers have gone down, because the cost of operating the schools has gone down.
When are the "Progressives" going to wake up?
I think the article comparing IL was an eye opener.
Regards, Dave Fitch Now living in Ocala, FL
Posted: Sunday, February 12, 2012
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The reason the LT wanted to print this is because of the strong labor and union ties within Illinois and the LT is showing its bias. Truth be told Illinois is in about the same shape as Wisconsin as far as total dollars in debt. Is that bad? Consider that state is nearly three times as large population wise as Wi the answer is no. The other strong factor is that Illinois has higher wages which means they can pay more in tax and still have significantly greater disposable income. Which nation lead the country in JOB CREATION last year-Illinois. Which was last- Wi. In a bigger metro area their workers are paid significantly more- Stevenson teachers average 98k. Starting in Minocqua- low thirtys. The schools are newr- a plus for the kids who we find in Wi can be in 100yr old buildings more often than not, and they also have higher achivement scores. Progressive Illinois found in a 2010 survey that 82% of all state residents want the services they receive and will pay higher taxes for it. State satisfaction surveys conducted by Illinois also show a higher satisfaction with their standard of living than Wi. The bottom line is about trust- who do you believe in looking at figures? Walker said we don't have a deficit anymore in Nov. then certified we do have one in Dec in a signed letter to the Fed. (we had to have a deficit in order to dump those 58,000 people off medical care) then two weeks later you saw him on TV saying we don't have one, and now he says we do have a 140mil deficit but he will take some money from the mortage fund. This certainly casts doubt on Moodys which also said we don't have deficit- then why is Walker and the state budget office saying we have double the amount he declared last year was so great it was an emergency?