Speaking of Illinois politics, the ratings agency Fitch found Gov. Pritzker’s budget, relying as it does primarily on wishful thinking, completely inadequate in dealing with the state’s fiscal problems and is warning Illinois to expect another downgrade in its credit rating. Illinois’s present credit rating is just two points above junk, the lowest in the nation. The Tribune reports:
Fitch Ratings said in a news release Tuesday that the plan Pritzker presented last week “would not materially address the state’s structural budget issues in the current fiscal year or the next.†The warning comes four days after S&P Global Ratings panned the new Democratic governor’s spending plan for the budget year that begins July 1, calling it “precariously†balanced.
Like S&P, Fitch took issue with Pritzker’s plan to stretch out pension payments to lower short-term costs while extending the state’s funding deadline by seven years. The administration says it’s part of a multifaceted plan that also includes infusing cash into the severely underfunded retirement systems by selling state assets, issuing bonds and dedicating revenue from a proposed graduated-rate income tax plan.
Shifting the state from its current flat-rate income tax structure to one where higher earners pay higher rates would require voters to approve an amendment to the Illinois Constitution. That can’t happen until November 2020 at the earliest.
In the meantime, Pritzker has proposed raising about $1.3 billion in new revenue through a series of taxes and fees — including licensing fees from legalized sports betting and recreational marijuana — to help close the state’s estimated $3.2 billion deficit.
Borrowing more money at high interest rates is a mug’s game. Given Illinois’s declining population is means that ever fewer Illinoisans will be struggling to make ever higher interest payments. Gov. Pritzker has presented a short range plan for increasing taxes and a long range plan for attracting people to Illinois. He needs the reverse—a short range plan for convincing people to stay in Illinois and a long range plan to increase taxes, mostly through a vibrant, growing economy.
He can’t do that without aggravating the people who put him in office which is how we got where we are.
Meanwhile, at Forbes Elizabeth Bauer presents her plan for dealing with Illinois’s pension problem. It consists of three steps:
- Provide a benefit to new employees which is both fair, financially-sustainable, and fully funded from Day One.
- Reform benefit provisions for existing participants to reduce liabilities in a fair and responsible manner.
- Deal with legacy debt.
Only the first step can be accomplished without amending the state’s constitution and that step is bitterly opposed by the state’s public employees’ unions.
Said another way we are very unlikely to see anything material done to fix Illinois’s fiscal problems during Pritzker’s term of office.
Illinois’s rating becomes an issue only if 2 of the 3 rating agencies downgrade to junk.
My recollections is while it’s not too hard for 1 agency to downgrade to junk; no one really wants to be the 2nd one and cause a crisis.
So Illinois still has quite a bit of road to go…
Cold comfort. Both Moody’s and S&P lowered Illinois’s credit rating to just one notch above junk some time ago and S&P warned Pritzker of their intention to lower it to junk a couple of days ago.
While it may be true that none of the rating agencies wants to cause a crisis, I suspect that none wants to the last to move, either. Magic 8 Ball says “Outlook not so good”.
“My recollections is while it’s not too hard for 1 agency to downgrade to junk; no one really wants to be the 2nd one and cause a crisis.”
Wait, are you suggesting that rating agencies have other agendas besides a pure fiduciary responsibility?
I’m shocked there’s gambling in this establishment!
“Borrowing more money at high interest rates is a mug’s game.”
You might say its like credit cards, or you might say its like loan sharking.