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Illinois’ debt burden

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Illinois

Back in 1981, Illinois reported $164 million in debt service “interest” expense. By 2012, Illinois’ accumulating debt led to a reported $1.6 billion in interest expense — about 900% higher than in 1981, despite a 95% decline in general interest rates! To boot, Illinois has had a longstanding ‘balanced budget’ requirement in the state constitution, which theoretically constrained state borrowing.

In 1981, Illinois reported $8.4 billion in total liabilities. By 2012, that amount had risen to over $100 billion. And that is just the amount reported by the state under current government accounting standards. These standards have long allowed states to accumulate massive off-balance sheet liabilities for retirement programs for government employees. Truth in Accounting estimates these obligations totaled over $120 billion in Illinois as of fiscal year-end 2011 – an amount about equal to the state’s total reported liabilities.

$164 million in interest expenses in 1981 would be equal to $421 million in today’s dollars, and $8.4 billion in total liabilities in 1981 is equal to $22 billion in 2013 money, so the percentage increases aren’t quite as dramatic as claimed.

Still, that’s a whole lot of debt.

Discuss.

posted by Rich Miller
Friday, Aug 30, 13 @ 10:20 am

Comments

When it doubt, vote “No,” is still the best advice.

Comment by Anonymous Friday, Aug 30, 13 @ 10:26 am
According to these numbers, that means our interest expense is increasing roughly 4 times faster than inflation. Should be $421 million but is $1.6 billion.

And our total liabilities are increasing roughly 5 times faster than inflation. Should be $22 billion but is over $100 billion.

I would have settled for 2-3 times faster than inflation or even something crazy like a balanced budgets that increase in accordance with inflation but hey, this is Illinois. When it comes to taking on debt, why settle? Go big or go home. /s

Comment by Keep Calm and Carry On Friday, Aug 30, 13 @ 10:27 am
===despite a 95% decline in general interest rates===

How does the math work on that? Assuming rates are currently 5%, wouldn’t a 95% decline in rates mean that rates used to be 100%? Or have I not had enough caffeine this morning and am totally messing up the numbers?

Comment by thechampaignlife Friday, Aug 30, 13 @ 10:31 am
Cloward Piven

Comment by SO IL M Friday, Aug 30, 13 @ 10:41 am
Our democratic politicians and poor fiscal mismanagement! They only hear the words spend, tax, and borrow!

Comment by Anonymous Friday, Aug 30, 13 @ 10:59 am
The data provided to Reboot, is from the Truth In Accounting group, which has long advocated reforming our accounting practices to better reflect liability and risk. Their advocated standards would be considered extreme and unnecessary by most in the private sector — not to say we shouldn’t have higher standards for government.

I don’t believe the accounting standards used in 1981 for reporting “total liability” numbers for the state are the same as those used in 2012. Current standards call for more capture of liabilities that used to be off book.

I could be wrong, but these comparisons might be apples to oranges. I’d look to JBT, or Ralph Martire to confirm these are fair comparisons.

Comment by walkinfool Friday, Aug 30, 13 @ 11:08 am
Rich’s “still that’s a whole lot of debt” is certainly true, no matter my quibbling above.

Comment by walkinfool Friday, Aug 30, 13 @ 11:10 am
The article from Reboot Illinois really wasn’t all that deep, clearly to examine this issue in debt would have required a much more detailed article which does not mean there is not a legitimate issue here. It should also be noted at the bottom of the article this appears: “The legislators continue to ignore the debt they’re building for us while protecting their political fortunes. - Chicago Tribune columnist John Kass”

Reboot Illinois by the way is not a not for profit entity its a limited liability company.
Reboot’s offices offices are actually located in the offices of ARAGON GLOBAL MANAGEMENT LLC 180 N Stetson Ave, suite 5350 Chicago, Illinois 60601. Aragon is a hedge fund run by Anne Dias-Griffin and she is the wife of Kenneth C. Griffin founder and CEO of Citadel LLC. Citadel’s group of hedge funds rank amongst the largest and most successful hedge funds in the world, and Griffin has earned several billion dollars during his tenure at the company. As of 2012, he has an estimated net worth of $3 billion.

Mr, Griffen in 2012, he said he was a Reagan Republican. He also said that “This belief that a larger government is what creates prosperity, that a larger government is what creates good: is wrong.” In 2012, Griffin, and his wife Anne, has given $150,000 to Restore Our Future (Romney Super PAC), $560,000 to the Republican Governors Association, $300,000 to American Crossroads, and $1.5 million to Americans for Prosperity.[30] Overall, Griffin has donated more than $2 million to date to the Super PACs American Crossroads and Restore Our Future.

While the journalist Madeleine Doubek is the CEO of Reboot the organization seems more complex in its political relationships than it first appears

As Rich would put it- just saying.

Comment by Rod Friday, Aug 30, 13 @ 11:24 am
We can shoot the messenger if we’d like.

It still doesn’t change the numbers or facts behind the message. Fact is, “that’s a whole lot of debt.”

Comment by Keep Calm and Carry On Friday, Aug 30, 13 @ 11:41 am
Until our elected reps start to actually make choices (we can’t pay for all of this) debt will continue to grow. Its painful, but as my parents told me: “money does not just grow on trees”

Comment by RonOglesby Friday, Aug 30, 13 @ 11:47 am
Politicians in Illinois have been on a spending, taxing, and pension/health care enhancement binge for the last 20 years. Many of the player(politicians) responsible for this mess are still around. No, it’s time for them to get sober and take the 12 step pledge. Will they? Most will just continue to drink the Kool aid.

Comment by Downstater Friday, Aug 30, 13 @ 11:48 am
Dare we think where we would be if rates had risen or remained the same during that period?? Would Illinios have been a ward of the federal government??

Comment by Mr.Big Trouble Friday, Aug 30, 13 @ 11:50 am
Downstater @ 11:48 am:

Actually, they’ve just been on a spending spree … and borrowing from the pension payments, the education funding, private companies doign business with the State, and the finanacial sector to pay for it all.

Comment by RNUG Friday, Aug 30, 13 @ 11:54 am
Rich, it’s dramatic enough for me.

Comment by A guy... Friday, Aug 30, 13 @ 12:03 pm
mixing apples and oranges

Back then they counted the retirement debt based upon the actual annula cost of sending payments to the retirees.

The 100 Billions number of today is the cost of fudning the individual retiree accounts to generate the money to pay those employees when they retire. if you follow the same count only the out the door cost we owe a lot less then 100 billion. We just keep changing accounting methods to give the most dramatic result.

Comment by Ghost Friday, Aug 30, 13 @ 12:19 pm
==Our democratic politicians and poor fiscal mismanagement!==

Well, considering that there were Republican governors for 23 of those years since 1981 I think your assertion is bogus. Only neophytes think this is the fault of one party or the other. They’ve all spent just the same.

Comment by Demoralized Friday, Aug 30, 13 @ 1:01 pm
walkinfool

Correct - Other Post Employment Benefits (OPEB) wasn’t even a part of financial reporting until the mid Blago era.

Comment by Anyone Remember? Friday, Aug 30, 13 @ 1:05 pm
==By 2012, that amount had risen to over $100 billion.==

And we owe the pension funds $100 billion or so. Why aren’t squeezy, the governor and the Civic Federation screaming that we have to reneg on our bond obligations because the debt service is squeezing the life out of our state?

Comment by Anon. Friday, Aug 30, 13 @ 2:29 pm
==Back then they counted the retirement debt based upon the actual annula cost of sending payments to the retirees.==

We still do. That’s what the comment about how retirement obligations are “off balance sheet” means — this $100 billion does not include the unfunded pension obligations.

Comment by Anon. Friday, Aug 30, 13 @ 2:32 pm
Here’s some serious questions I wish Doubek and company had addressed:

When the state borrows to fund capital projects, is that a bad thing? If so, then both parties are responsible because capital bills always have bipartisan majorities.

If debt already exists, is it better to borrow to pay debts than not to pay them?

Is borrowing a worse alternative than raising taxes so revenues exist to pay bills without borrowing?

Comment by cicero Friday, Aug 30, 13 @ 8:05 pm
Cicero: Borrowing to fund capital projects is a normal function of state government. It’s a bad thing when that borrowing is not properly matched with revenue, as is looking like the case with the last capital bill in 2009 (which is only now becoming an issue because of the hue and cry over the expensive doors on the Capitol). I’ve got more at http://rebootillinois.com/?opinion=5501

It’s better to live within your means, identify your needs and pay for them.

Truth In Accounting doesn’t sugar coat its findings, which are based on numbers, not ideology. Bottom line: Illinois has created a disaster with its budgeting and borrowing.

Glad to see this simple graphic generated some discussion.

Comment by Matt Dietrich/Reboot Illinois Thursday, Sep 12, 13 @ 3:18 pm