Thursday, August 30, 2012

Illinois Debt Downgraded . . . Again

So, after another failure of Illinois politicians to address the ever-growing pension problem, Standard & Poor's (one of the largest credit rating agencies) has downgraded Illinois debt from "A+" to "A."  (see here)  Now an "A" might seem like a good grade, but when it comes to ratings of state debt, it is atrocious.  Only California has a lower debt rating than Illinois (these two states seem to be competing for last place).  Standard & Poor's has also attached a "negative outlook" to the rating, which means another downgrade may come soon.  What does this mean for Illinois?  It means that Illinois is going to have to pay more to borrow money.  For better or worse, bond investors pay a great deal of attention to debt ratings.  When ratings go down, they demand a higher interest rate on the debt of the rated entity.  Which in turn means that Illinois' fiscal problems will grow worse.  Since Illinois is living on borrowed money to fund its spending and pensions, the "hole" just got bigger.  This is a small glimpse of what a "debt-spiral" looks like.  If Illinois politicians continue to ignore the problem, the ratings will continue to drop, the cost of funding will continue to rise, the problem becomes bigger, rinse and repeat.  Once a "debt-spiral" gets started, delay only increases the difficulty and pain of pulling out of the "debt-spiral."  Time works against an easy solution.  As time goes on, the reforms to the pension system will have to be increasingly more drastic in order to fill the "hole."  If one wants an example of a more advanced stage of a "debt-spiral," one merely needs to look to Greece.

Update:  Since I mentioned California, here is the latest news on pension reform out of California.   

Friday, August 17, 2012

Next Minooka 201 School Board Meeting

The next meeting of the Minooka CCSD 201 school board is Wednesday, August 22, 2012. The Committee of the Whole Meeting starts at 6:00 p.m. in the board room (the old library) at the Minooka Primary Center located at 305 Church Street in Minooka. The Committee of the Whole Meeting will be followed by the regular Board Meeting at 7 p.m. Both meetings are open to the public, and everyone is encouraged to attend. You can find the agenda for each of the meetings here.  You may notice that one of the items on the agenda is the Fiscal Year 2013 Tentative Budget.  For a copy of a power point presentation regarding the proposed budget and the proposed budget see here.

Thursday, August 16, 2012

A "Date with Destiny" or Another Opportunity to Kick the Can Down the Road?

So, Governor Quinn has called a special session of the Illinois General Assembly and set a vote on pension reform for August 17th.  Governor Quinn has called this a "date with destiny" (see here).  Depending on whose figures you believe, Illinois has anywhere from an $83 billion to $203 billion unfunded pension liability (see here).  It is getting to the point where Illinois will soon be spending more on pensions than on education (see here).  Increasingly, pension payments are "crowding out" spending on other state services (see here).  This fiscal calamity that is staring the Governor and the General Assembly in the face, however, may not be enough (at least, not yet) to prod politicians to actually do anything about pension reform, however.  The politicians already seem to be lining up their excuses for kicking the can down the road one more time (see here).  Unfortunately, every time that Illinois politicians kick the can further down the road, the problem continues to grow, and the pain necessary to alleviate the problem (including the pain for those who depend on state pensions) continues to grow.  Not only does the unfunded liability continue to grow, but the cost of financing state deficits will grow as bond rating agencies downgrade Illinois debt (see here).

You may not be able to depend on Illinois politicians to tackle the problem of pension reform any time soon, but you can depend on at least one thing in this mess: pension liabilities that are not sustainable (and every rational person on both sides of the aisle from the Governor's office to the General Assembly agrees that the pension liabilities are not sustainable) will not be paid in full.  Kicking the can down the road does not help anyone (except maybe the politicians, who seem to care only about their next election).  It does not help the taxpayers, who can only look forward to their taxes being raised yet again.  It certainly does not help the people that depend on the pension liabilities being paid, who may wake up one day to only to find out that the pension they relied upon is being cut drastically (one town in Alabama stopped paying pensions entirely, see here).  And it most certainly does not help the younger public sector workers (teachers, firefighters, policemen, etc.) whose positions are being cut because pension obligations are taking a larger and larger share of state and local budgets (see here).