socastcmsRssStartBy Greg Bishop | Illinois News NetworksocastcmsRssEnd
A credit-rating agency used a post-election report to remind Illinois Democrats poised to retake control of state government about the party’s track record of "poor fiscal decisions."
Fitch Ratings already had a negative outlook for Illinois’ credit, which is a notch above junk status. In a report released Monday, the agency noted that the "return of single-party control to Springfield does not signal an end to the state’s credit challenges."
It noted a laundry list of mistakes Democrats made last time and the ongoing cost of some of those decisions.
"Between 2003 and 2014, the state operated under single-party control with two different Democratic governors and sizable Democratic majorities in the General Assembly," the report said. "Over that span, the state’s credit quality deteriorated considerably. In that 11-year span, Illinois made various poor fiscal decisions."
The new report also flagged some ideas majority Democrats have floated to deal with the state’s long-term debt.
Fitch gave Illinois’ credit a BBB rating with a negative outlook, which it says “reflects an ongoing pattern of weak operating performance and irresolute fiscal decision making.”
In a report titled "Illinois: What Happens Next," ratings analyst Eric Kim wrote that “Illinois’ fiscal pressures may accelerate in the near term given implementation risk for the fiscal 2019 budget and uncertainties around ongoing fiscal management and decision-making.”
Kim said the fiscal 2019 budget is already hundreds of millions of dollars out of balance and it could go further into the red if the state-owned Thompson Center in Chicago isn’t sold and if savings from a yet-to-be-fully-implemented pension buyout plan don’t materialize.
On top of those problems, there’s the state’s pension debt. Add in other post employment benefits to the state’s $130 billion unfunded pension liability and taxpayers are on the hook for more than $200 billion.
"The state’s combined debt and net pension liabilities of approximately $200 billion are 29 percent of the state’s personal income," according to the report. "This ranks highest among U.S. states and well above the 50-state median of 6 percent."
State Rep. Will Davis, D-Hazel Crest, said he wants lawmakers to address the problem in the new year.
“We have to re-amortize our pensions,” Davis said. “We have to refinance them, for what it’s worth. It’s going to require us to put a little more money in on the front end.”
Davis cited a study from the Center on Tax and Budget Accountability as a way to do it.
Kim, the Fitch analyst, said that while Gov.-elect J.B. Pritzker hasn’t put out specific proposals, he did nominate Center on Tax and Budget Accountability Executive Director Ralph Martire to his campaign’s budget transition committee.
Back in May, the center proposed moving the goal posts for funding the state’s pensions "from a target of a 90 percent funded ratio in [fiscal year] 2045 to a target of between 70 and 80 percent.”
Kim said the idea of lowering the funding target was troubling.
“Already it’s at an inadequate 90 percent, and the proposal from CTBA would take that down to an even more concerning 70 percent,” Kim said. “So we flag those as potential concerns.”
The existing pension ramp has the state on a path to 90 percent funding by 2045. The average funding ratio for the state’s five pension funds is not even 33 percent, ranging from the General Assembly Retirement System at only 14.36 percent funded up to the State Universities Retirement System at 42.04 percent funded, according to the latest Auditor General report.
The Center on Tax and Budget Accountability also proposed in its May report that “issuing a series of annual pension obligation bonds to cover the difference between the contributions called for under the re-amortization plan and those called for under the current Pension Ramp.”
Kim said that’s also problematic.
“Anytime you’re taking bond proceeds and particularly pension obligation bond proceeds and using those to finance near-term contribution increases, that would be a concern for us,” Kim said. “It’s basically a form of deficit financing.”
Kim said that while single-party control may make passing a budget easier, the Democrats last time at the helm wasn’t great.
“The credit quality for the state deteriorated even during that time,” Kim said. “So having joint control might make decisions easier to reach, but whether those decisions are a proven in terms of fiscal policy remains to be seen.”
Davis said he doesn’t see Democrat control as a blank check. While some have said the real pension fix is to change the state constitution’s pension protection clause that locks in 3 percent compounded annual increased pensions for Tier I retirees, Davis said he doesn’t see that happening “just because.”
State Rep. Allen Skillicorn, R-East Dundee, said when Democrats have supermajorities in both chambers and control of the governor’s mansion next year means, they are going to have to own the problems and whatever solutions they pass. He said Democrats are being dishonest when they push for a progressive income tax while not wanting to advance what he said is the real pension fix.
“How come they are so for changing the constitutional language about taxation,” Skillicorn said. “Let’s have an honest conversation. If they really want a constitutional amendment to have a progressive tax, then let’s open up the pension protection clause too.”
Pritzker campaigned on the idea of a progressive income tax. Earlier this year majority Democrats in the House passed a resolution supporting a progressive income tax. The CTBA has also proposed a progressive tax taxing any income over a million at 9.85 percent.