This is very, very bad.
SPRINGFIELD — A leading Wall Street bond house Thursday issued a negative outlook toward the state government’s finances because of concerns over the billions of dollars owed to Illinois’ public pension systems.
The move by Fitch Ratings represents a jolt to Gov. Blagojevich as he tries to mold a 2007 state budget and fend off Republican Treasurer Judy Baar Topinka, who has made the state’s precarious financial condition a cornerstone of her bid to unseat him this fall.
The state faces a $39 billion funding shortfall in its pension funds and, under a 1995 law, is committed to an ever-increasing schedule of payments that threatens to hamstring the next administration.
This year, $1.6 billion was diverted by the state to its pensions. In the 2008 budget year, the total that must be spent rises to $2.75 billion. And by 2010, the final year of the next governor’s term, the state’s annual pension commitment will reach $3.8 billion.
“Fitch believes that, barring a significant revenue increase or a substantial reduction in expenditures, Illinois will be unable to follow its own plan to contain the $39 billion unfunded pension liability,” the firm wrote in a report issued Thursday.
“This intractable problem, including cash flow pressures, is apt to impair credit quality despite the breadth and wealth of the state’s large economy,” Fitch concluded, listing Illinois as one of only three states with such negative outlooks
This doesn’t have immediate consequences, but if it isn’t dealt with properly, there will be a dramatic increase for the state to borrow money.
It’s fair to say that everyone punted except Hynes on the problem of underfunding pensions before Blagojevich, but making it worse doesn’t leave the administration somehow clean. Continuing an unsustainable policy is not an excuse.
Via the 13th Floor at Governing
ArchPundit