Vice President of Policy
On Jan. 25, Standard & Poor’s Ratings Services downgraded Illinois’ credit to A- from A.
Illinois’ A-minus is the same rating as California, only California has a positive outlook. Illinois’ A- rating, along with its negative outlook, makes it the lowest-rated state in the nation. Moody’s Investors Service also recognizes Illinois as the worst credit risk in the country.
Credit agencies have hammered Illinois since Gov. Pat Quinn assumed office in 2009; Moody’s, S&P and Fitch have downgraded the state 11 times since then an average of one downgrade every 4.4 months.
The timing of the latest downgrade should come as no surprise. Illinois recently announced plans to issue $500 million worth of bonds. The state also failed to pass pension reform during lame duck session earlier this month.
What will the downgrade cost taxpayers?
Illinois now pays 1.45 percentage points more than the nation’s AAA-rated states on 10-year bonds. The most recent market numbers show Illinois borrowing rates at 3.25 percent, while AAA states borrow at just 1.8 percent.
Higher rates mean even higher interest payments that drain the budget and leave less money for education, health care and public safety. For every $1 billion dollars of new borrowing, Illinois must pay more than $14 million in additional interest payments when compared with AAA-rated states.
State Treasurer Dan Rutherford estimates that the downgrade will cost taxpayers $95 million more in interest than if Illinois had a AAA rating.
Lack of leadership
Other Midwest states continue to become more competitive reforming collective bargaining, balancing budgets and passing Right-to-Work laws while Illinois continues its legacy of tax-and-spend policies.
The state promised it would pay down its billions in unpaid bills and restore Illinois finances. But the money did no such thing; the states unpaid bills now total more than $9.4 billion.
Rather than taking steps to rein in per capita spending, which has grown nearly three times faster than the growth of inflation and population, Illinois lawmakers are pushing for additional revenue by calling for a progressive tax and a tax on services. What’s more, Springfield refuses to propose serious pension reform, backing watered-down plans like the Nekritz-Biss bill that maintain much of the current broken system.
If Illinois is serious about becoming the nation’s leader in economic outlook and job creation, lawmakers must put forward bold solutions beginning with a shifting government worker retirements to defined contribution plans, repealing the 67 percent tax hike and implementing a spending cap tied to the growth of population and inflation.
Otherwise, the credit downgrades will just keep coming.