What is Illinois doing that has the markets so nervous?
A few months back, I explored the issue, noting that Illinois doesn’t face many of the challenges that typify “states in peril.” Unlike California, Illinois cannot blame its budget woes on a particularly volatile revenue system or on outsize exposure to the housing bubble. Illinois’s crisis is unique in that it is purely a creature of mismanagement by elected officials. Like California, Illinois hasn’t balanced a budget in nearly a decade, and instead uses gimmicks and borrowing to close gaps. Like California, Illinois regularly issues bonds to pay for current government operations. But unlike California, Illinois has some of the country’s least-funded public employee pension plans. Public employee pensions plans create fiscal challenges for all states, but it’s hard to find one that is coping more poorly than Illinois. Legislators have routinely closed budget gaps by deferring pension payments. (Or sometimes they make the payments by issuing Pension Obligation Bonds, over $13 billion
