* As subscribers know, Moody’s released yet another report on Illinois last night…
The Illinois fiscal 2012 budget doesn’t address the state’s “sizeable backlog of unpaid bills and an unsustainable ascent” in spending for pension benefits, Moody’s Investors Service said in a report. […]
Still, the tax increases are a short-term solution because the rates decrease in 2015, leaving the state with a “significant funding burden” to meet its unfunded pension liability of about $80 billion and the likelihood that late payments to vendors will persist, Moody’s said.
“The state may be able to use increased tax revenue to chip away at its large balance of past-due budgetary payment obligations, but it has not adopted a comprehensive plan to do so,” the company said. […]
“Because of its financial weakness, Illinois is less well positioned than other states to handle a renewed downturn in the national economy,” Moody’s said.
The story on the Moody’s warning from Wednesday is here.
* WLS Radio posted a story yesterday afternoon in anticipation of a possible downgrade, which, thankfully, didn’t happen…
One of the credit rating agencies - Moody’s - is reportedly thinking about downgrading the credit rating of the state of Illinois and WLS Radio’s Bill Cameron says Illinois Republicans say this is no time for Gov. Pat Quinn to try to do more borrowing.
Republicans say they’ve blocked Quinn from borrowing more billions before and will again if he tries to do it in the current climate of rising interest rates.
But Quinn says the state needs to pay its bills now, and he says this about the Republicans.
“The notion that you put your head in the sand and pretend that these debts don’t exist is not a good way to go. It isn’t good for our economy.”
* Other states are on the hit list, however…
Moody’s has already warned that it is worried about a handful of states, which it says it could downgrade. The 5 states are Maryland, South Carolina, New Mexico, Tennessee and Virginia, which remain under review.
Maryland, Virginia and New Mexico have comparatively high percentages of federal employees and contracts, the ratings company said. New Mexico, South Carolina and Tennessee depend more on Medicaid money versus the national average, Moody’s said.
Moody’s also indicated some states are safer than others and are less vulnerable to a downgrade.
The 10 top-rated states are Alaska, Delaware, Georgia, Indiana, Iowa, Missouri, North Carolina, Texas, Utah and Vermont. They would be cut only in the event that the federal rating is dropped by more than one level, Moody’s said.
Discuss.
- Anonymous - Friday, Aug 12, 11 @ 6:00 am:
IL budget is best described by this Far Side cartoon: http://imageshack.us/photo/my-images/244/farsidecomicaq5.png/
- dupage dan - Friday, Aug 12, 11 @ 9:37 am:
Looks like if we borrow $ we are toast.
Looks like if we don’t borrow $ we are toast.
We have PQ as our governor.
We’re toast.
- MoodyBlue - Friday, Aug 12, 11 @ 9:55 am:
Send the Moody Brothers to meet and convince Moody’s Investors Service that Illinios has a great great financial future.
- dupage dan - Friday, Aug 12, 11 @ 10:01 am:
MoodyBlue,
Just who decides which is right, and which is an illusion?
- Seriously??? - Friday, Aug 12, 11 @ 10:04 am:
Maybe now the House Dems and Madigan can stop patting themselves on the back for their work in the FY12 budget. Moody’s obviously isn’t impressed with their work.
- zatoichi - Friday, Aug 12, 11 @ 11:05 am:
Don’t borrow money to pay your bills. Make the vendors owed the money, borrow their own money and pay the additional interest. Excellent thinking. Then again as long as the state keeps paying the 1% per month Prompt Payment penalty for bills over 90 days, not a bad investment if you can afford it. The state will be forced to pay eventually by Medicaid and the other Federal funders. Pay up and be done with it. Seems far cheaper in the long run.
- This Little Piggy - Friday, Aug 12, 11 @ 11:34 am:
Illinois forced to borrow more money at higher interest rates is music to the Wall Street Fat Cats (the ones that get 7 figure bibises every year and fly around in private jets) ears.
- Cincinnatus - Friday, Aug 12, 11 @ 11:47 am:
The Federal downgrade has shown us that the ratings agencies consider more that the ability to pay bills, but also the legislative seriousness to address budgeting. Illinois fails both tests.
A traditional Keynesian approach to budgeting has been tried in the state, in spades. Illinois instituted an enormous increase in taxes. It will be interesting to monitor the effect on revenues over the next couple of years. If the tax increase does not increase revenue quickly, it will have been a huge mistake since the economy overall will be growing at a similar rate as before the increase. I do not expect that revenues will increase to any degree estimated by the tax supporters.
Would that the legislature would have acted to bring spending under better control. One step, demonstrated recently in Wisconsin, shows that millions can be save simply by changing negotiating rules with public service unions. Not only were the millions save, thousand of layoffs were prevented.
We have entered into an agreement with the Feds to fund a high speed rail line. Once Federal funds dry up, Illinois will have to assume the cost of maintaing this rail line since there is no reasonable expectation that the train will be profitable. Good deal? Hardly.
We are in desperate need for someone to say, NO to spending. We need to pare back programs like AllKids that fund benefits for out of state residents, and provide for benefits for people who are far above the poverty line.
If you can’t see that such programs, while admirable in the intention, are bankrupting the state, I don’t see any path out of this problem. The mindset that allows these programs to be instituted in the first place must be rethought. But I think that the chances of rethinking the process is about as likely as the bullet train making money.
In the next few months, I expect some political leader will be smart enough to step forward (if smart and politician is not an oxymoron). We drown in debt, have made no REAL effort to control spending, will not consider trimming public service unions, and God forbid anyone mentions looking at Medicaid benefits for fear of being called a Nazi. Someone will step forward. After the primaries.
- CircularFiringSquad - Friday, Aug 12, 11 @ 12:35 pm:
COngrats to WLS-AM for falling for the rumor probably moved IL CDS numbers enough for the Wall Street hustlers to pick up beer money for the weekend
BTW did anyone else notice Meredith Whitney, the Wall Street hustler who predicted (incorrectly) massive muni defaults on 60 Minutes last winter is trying to open her own credit rating agency?
She admitted it on CNBC this week while trashing banks. One CNBC talking head told her to “stick to munis) with a little snicker.
And it is important to remember it was Moody’s (along with S&P and Fitch) who allowed us all to pay the huge Bush (now Boehner) tax increase in 2008.
In case you forgot the Bush (now Boehner)tax increase is the amount of the loss in your stock portfolio or lost growth due to the Wall Street hustlers or their regulators.
The Tea Potters worry about “tax increases” inflicted on the big earners. We wish they would worry the impact of the tax hikes we have been living with for several years and got expanded this week.
- 47th Ward - Friday, Aug 12, 11 @ 3:13 pm:
Cinci, S&P was pretty clear about why it downgraded the US debt, but apparently you and others didn’t get the message. So they are trying again to explain why they downgraded the debt.
http://www.politico.com/news/stories/0811/61147.html
Maybe they should speak slower or use smaller words. It’s fun to say “cut, cut, cut” but much harder to actually find the cuts and specify the dollar amounts.
Rich had a fun exercise here a while back asking us to come up with $1 billion in cuts to Illinois’ budget. Then do it again six or seven times. We discovered then how shallow and clueless the cut, cut, cut crowd really is.
- Small Town Liberal - Friday, Aug 12, 11 @ 3:13 pm:
- A traditional Keynesian approach to budgeting has been tried in the state, in spades. Illinois instituted an enormous increase in taxes. -
Can you provide the evidence for this? Do you even understand the Keynesian approach? It’s not raise taxes and cross your fingers. Why don’t you check out how long it’s been since Illinois had a comprehensive capital construction program for a start.
- Cincinnatus - Friday, Aug 12, 11 @ 3:35 pm:
47th,
The specter of default was raised by Geithner and Obama in April.
When downgrading, the ratings agencies talked about the question that there was no government commitment to set the nation on a path toward eliminating the deficit.
- Cincinnatus - Friday, Aug 12, 11 @ 3:38 pm:
Raising taxes, continued spending and government regulation is the very definition of Keynesian economics.
- steve schnorf - Friday, Aug 12, 11 @ 3:53 pm:
Moody’s must have been in super alert mode lately. They noticed a pension ramp up that has been on the books since ‘95
- 47th Ward - Friday, Aug 12, 11 @ 4:29 pm:
===The specter of default was raised by Geithner and Obama in April.===
Yes, they raised the question because your party made it clear they wouldn’t raise the debt ceiling without conditions. I can tell you aren’t a big fan of history Cinci, but when you get a moment, consider how many times the debt ceiling has been raised a routine matter since its inception. The idea of default was put on the table by Republicans in Congress and no one else.
- 47th Ward - Friday, Aug 12, 11 @ 4:37 pm:
Moreover, Obama proposed a total package to reduce the deficit by $4 trillion that was $3 in cuts for each $1 in new revenue. Your side walked away from that, and last night every single GOP candidate for President said, even if it was 10-1 in favor of cuts, not a dime will come from new revenue.
None of those people should be allowed near Washington much less the White House.
- Cincinnatus - Friday, Aug 12, 11 @ 4:49 pm:
47th,
Yes, the debt ceiling is raised on average about every 8 months. The Republicans agreed on a short term increase but Obama insisted on an increase of 2 years to eliminate the debt as an election issue. Remember?
If you remember, the Republicans walked away from the deal with when Obama dropped last minute conditions on the deal AFTER there was an agreement.
- Rich Miller - Friday, Aug 12, 11 @ 5:07 pm:
Cincinnatus, I think you need to read up on Keynes.
- wordslinger - Friday, Aug 12, 11 @ 9:48 pm:
Cincy, keep throwing that spaghetti against the fridge, something will eventually stick. Or not.
As far as Keynes goes, you borrow in bad years and pay back in flush years. Like during the Clinton Administration.
You don’t expand benefits, including new prescription drug coverage, lard the budget with new pork Ag and Road bills, fight two wars and cut taxes at the same time. That’s the Bush Administration.
But wait, that’s okay, because it’s “conservative.”