Illinois’s crack habit
The state of Illinois has been riding the easy governance boat on a river of debt. It has run up its borrowing to fund infrastructure, pension liabilities and unpaid bills. According to state treasurer Dan Rutherford, Illinois’s debt load currently amounts to $198 billion — that is a mountain of debt. The amount is also about 31% of the 2009 gross state product of $630 billion.You get the feeling that Illinois state government is addicted to overspending and debt and just can’t let go of that overdraft account down at the bank.
Even with a big income tax rate hike passed in January, Illinois is still spending about $5 billion more a year than it receives in revenue, according to the position paper, which also said the state’s low bond ratings have resulted in higher borrowing costs compared with other states.
Governor Pat Quinn has been pushing the legislature for anywhere from $2 billion to $8.75 billion of bond authority to pay off bills and other obligations incurred this fiscal year.
His office said in a statement on Monday that this plan is not new borrowing, but a restructuring of debt the state owes to vendors and service providers who have been waiting months for payments.
“Governor Quinn is 100 percent committed to making good on all bills due and feels restructuring debt the state already owes at attractive rates is the least costly option for taxpayers in order to address this bill backlog,” the statement said.
Governor Quinn seems to be trying to move the outstanding balances around between the various credit facilities. That works for a while, but before long lenders shut off the spigot and there is no more credit. The state treasurer Dan Rutherford wants to end the state’s addiction and has been out making the media rounds and banging the fiscal drum (see Bloomberg video above). In addition to media appearances he has written a white paper and threatened to call up the Wall Street banks to tell them not to issue any more debt for the state. This is wild.
In the Bloomberg video he says, “Sure there is always someone who is willing to lend to Greece, Iraq and Illinois but not at a rate that taxpayers should be willing to take responsibility for.”
Attention Governor Quinn! The treasurer of the state is out sounding the alarm and your borrowing costs will be rising. I’m sure big Wall Street banks are proposing many novel ways to juggle the debt and increase the state’s borrowing capacity, but you must be skeptical of the magical fixes. There is no way to escape the budget pain. Public entities can borrow from the debt markets until they can’t. Don’t become America’s first “Greece.”