Illinois politicians are used to being called corrupt, but rarely are they called feckless. Yet that’s how the respected British magazine The Economist portrays Illinois’ leadership class in an article on the state’s pension crisis. In our indebtedness, the magazine even compares us to Detroit, the city whose fate we’re so proud of avoiding.
Residents are fed up with the state’s enormous unfunded pension liability, which was recently estimated at $133 billion and which is growing by millions of dollars every day. The problem comes from many decades of underfunding of generous public-sector retirement schemes. Today these promises are gutting the state budget, and will do so at an increasing rate. This budgetary squeeze is, in turn, leading to reductions in services to citizens, a situation that is all too familiar to the remaining residents of Detroit.
This lack of legislation is also starting to hurt Chicago, the state’s biggest city. By 2015 the payments the city must make will spike dramatically—a forecast that caused Moody’s to downgrade its rating by three notches, to A3, last month. On July 31st the mayor, Rahm Emanuel, warned that next year’s $339m budget deficit will yawn to $995m in 2015 and to $1.15 billion by 2016. Revenues are around $3 billion annually.
This kind of publicity is making it unnecessary for the anti-union Civic Committee of the Commercial Club of Chicago to talk down the state’s bond rating, as they did this year. While Chicago is in no danger of matching Detroit’s desertion, it may face a fate that’s lately befallen the state -- the inability to float bonds. In the last week, three local Michigan governments -- Genesee County, Saginaw and Battle Creek -- withdrew bond issues because investors spooked by Detroit’s bankruptcy demanded interest rates higher than the municipalities were willing to pay.
As bond ratings across Illinois drop, interest rates will rise to account for the added risk. The state is already paying $130 million in extra interest on $1.3 billion worth of public works bonds issued in June. Cities may decide that it’s not worth floating bonds for non-essential projects, such as park improvements, or street repairs. That will make Illinois a less attractive, and less livable, state.