Friday, January 11, 2013

More Bad News for Illinois

Citing Pensions, Fitch Puts Illinois Bonds On Downgrade Watch has the breaking news this afternoon:

"The lowest-rated U.S. state might pad its lead over the rest of the field, after Fitch Ratings on Friday placed its single-A credit rating for the state of Illinois and its general obligation bonds on watch for a possible downgrade, affecting $26.2 billion of state G.O. debt. From Fitch:

The Rating Watch Negative reflects the ongoing inability of the state to address its large and growing unfunded pension liability, most recently through the failure to pass pension reform in the ‘lame duck’ portion of the 97th general assembly legislature that ended on Jan. 8. Fitch believes that the burden of large unfunded pension liabilities and growing annual pension expenses is unsustainable. The Rating Watch Negative will be resolved after an assessment of the extent to which the state takes action within the next six months that limits the impact of pension payments on the budget while bolstering pension funded levels. Failure to achieve meaningful results would lead to a downgrade of the rating.

Fitch calls Illinois’s long-term pension liabilities “very high” with the unfunded actuarial accrued liability at $94.6 billion, resulting in a 40.4% reported funded ratio. Fitch says annual pension funding requirements have been increasing significantly and growing pension payments are crowding out other expenditure growth and absorbing revenue growth. Fitch says pension payments from the general fund increased by a whopping 23%, or $965 million, to $5.1 billion in 2013, reflecting in part the use of more conservative investment return assumptions."

Summing Up

Being a taxpaying citizen of Illinois today must feel a lot like what it means to be a long suffering fan of the Chicago Cubs.

Being in last place, Illinois must be the strongest state in the nation, since it is firmly on the bottom, holding all the others up.

Or as another old saying goes, if we took away all the bad news coming from Illinois these days, there would probably be no news at all.

Maybe now the government knows best gang will get serious. But if not, perhaps the people of that great state will have gotten mad enough to make the politicians get serious.

Either way, however, the public sector unions aren't going to help solve the state's or its citizens' extremely serious financial issues.

And that's because public sector unions haven't even broken a sweat to make any effort to eliminate the state's public sector pension funding problems ---they just worked hard over many years to help create them.

In concert with their staunch allies in the Democratic Party, of course.

So now can you guess who runs Illinois? {HINT: They are part of the same crew that runs California.}

The effects of government practicing public choice theory are on display in the Land of Lincoln for one and all to see.

We'll stay tuned.

Thanks. Bob.

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