DYI

Opinion

Illinois is Already Junk! 

Rating agencies warn, Illinois flirts with junk

By: Ted Dabrowki and John Klingner

Illinois’ brutal political campaigns may have distracted attention from the reality of the state’s crumbling finances, but an upcoming $500 million bond borrowing by the state will remind investors and Illinoisans alike how little has improved. 

The state continues to operate at a deficit despite nearly $5 billion in new taxes in 2018. And the shortfalls aren’t being compensated with spending reforms. Instead, the state continues to primarily use interfund sweeps to make the general budget balance. And the agencies don’t expect any big reforms this year – not with a stalemate that might ensue during this campaign season.

Bond investors are demanding a heavy price from Illinois for the increased risk they are being asked to take. 

To reverse that trend, Illinois needs massive reforms that change from the way Illinois politicians do budgets, dole out retirements, control local governments manage labor rules and handle education finance. 

If there’s not a major reversal, prepare for a downgrade – and the plunge to junk.

DYI: It’s a toss up who is worse California or Illinois?  If I lived in either of these States and especially Chicago or Los Angeles I’d be moving out yesterday!  As far as I’m concerned Illinois debt paper is already trash as the rating agencies are only waiting till it is obvious to all before they mark their paper to junk status.  If these two States don’t turn their finances around quickly as we are overdo for the next recession.  Even a mild recession will blast many of these bonds into default.  An economic smash State and local governments will grind to a stand still with massive layoffs.  

DYI