Kirk, Garrett Sound Off on Illinois Bond Downgrade

Moody’s devalues Illinois debt rating to lowest among all 50 states. Biss and Nekritz also voice concerns.

Local elected officials reacted with criticism and others with potential solutions when Moody’s downgraded Illinois’ debt to A2 from A1 Friday, making an investment in the state’s bonds potentially the riskiest of all 50 states’ securities. 

Illinois had been tied with California at the bottom of the list, according to the Bloomberg News Service, until Friday’s action put it alone at the bottom. 

, who is retiring at the end of her term in a year, called for the entire Illinois General Assembly to work together to do something about getting the rating higher again. 

“This is somber news and a very great challenge for Illinois,’ Garrett said. “We’ve come to a crossroads and must find a solution in a bipartisan and fair way for our taxpayers.” 

The effect on Illinois taxpayers was foremost on the mind of U.S. recognizing citizens must pay higher interest on money Gov. Patrick Quinn plans to borrow later this month. 

"Moody's decision to downgrade Illinois debt echoes the judgment of my Sovereign Debt Advisory Board report last year,” Kirk said in a prepared statement. “We are reaping the results of years of irresponsible spending and debt." 

and recognize years of neglect to the state’s pension liabilities are a major part of the problem demanding immediate attention. 

“It’s unfortunate,” Nekritz said of the downgrade. “We can and will take steps to correct it. At the top of the list is our pension debt. It’s unfortunate all of our new revenue will be tied up in the next year’s pension liability and it will be up to us to make cuts necessary to accommodate the issue.”

Biss considers Medicaid liability as well as pension responsibility areas requiring immediate attention. “This strengthens our resolve to put in place workable and sustainable budgets that take into account all liabilities including our pension and Medicaid liabilities,” he said.

While the state’s debt has been downgraded, a number of suburban communities like Deerfield, Lake Forest, Highland Park, , Wilmette, Winnetka and Glenview have AAA bond ratings, the highest possible.

Just like the reduction of the federal government’s bond status by Standard & Poor’s over the summer, the action by Moody’s Friday should not affect the local ratings. Highland Park Corporation Counsel Steve Elrod made that clear in August in the face of the federal action.

Daniel Krudop January 09, 2012 at 01:15 PM
In Springfield, Democrats worked on a new legislative map to assure their control so Biss, Nekritz, and Garrett's hope for her replacement, Morrison, can help their Union bosses minimize any reductions to the pensions. They are sure we haven't maximized the level of taxes we could get from the wealthiest of our citizens and corporations, no matter how many of them we drive out of Illinois.
Gary January 09, 2012 at 04:12 PM
The solution is to get government out of all long term retirement and health care plans (defined benefit programs). The incentives are all wrong. Governments have every incentive to make unsustainable promises, very little incentive to raise taxes high enough to fund those promises, no incentive to save the money intended for those plans... and they sure don't give a damn about the next generation who will have to pay for it all. No system is worse than the one we have now. 401K style retirement plans and some sort of Health Savings Account are the real solution. We better start moving in that direction while there are still people to tax in Illinois.
RB January 10, 2012 at 02:44 AM
The double dipping, income padding near retirement, no or super low cost healthcare...all needs to end. A huge problem in Illinois is that the state pension system is protected within the constitution. During the 70's pensions were basically guaranteed payment (not funding) . The state treasurer would have to not pay tax refunds or other bills in order to pay pensions. Opening another constitutional convention would be a huge mistake (what other hair brained ideas would be implemented in the political and economic climate) but they need to figure out a way to get these excessive pensions off the citizens shoulders.
Richard Schulte January 10, 2012 at 12:33 PM
RB, welcome to the TEA party.
Richard Schulte January 10, 2012 at 12:39 PM
"We better start moving in that direction while there are still people to tax in Illinois." Our best and brightest are already leaving for "greener pastures". Unfortunately for the farmers, they can't leave.
Ellen Beth Gill January 10, 2012 at 04:34 PM
An easy way to get the rating up would be to have the state engage in securitization of subprime loans. Rating agencies loved to rate pools of junk mortgages AAA. On a serious note, the insufficiency of defined contribution plans as retirement savings is already showing. Few people will be able to retire on the 70,000 - 75,000 most people are able to save in a 401k. DB plans can work if they are managed properly and not raided from time to time, but the corporate media has worked overtime to make sure people misunderstand and hate these plans even though they are better for most people, and for society, over the long haul.
Richard Schulte January 10, 2012 at 04:59 PM
The problem is that we are living longer than we used to. Age 65 as a retirement age works fine if most people only live to age 62, but with people living longer, age 65 doesn't work anymore. In order to make retirement systems work, we need to increase the retirement age above the average life expectancy once again. It was my understanding that a pension was provided to gov't employees in exchange for lower salaries. Instead what we've got now is fat gov't salaries and that generates fat pensions. Perhaps the solution is to cut the salaries of gov't workers and raise the age of eligibility for a pension. Raising the minimum age for collecting a pension to 100 would solve the gov't employee pension problem. It should be noted that Chile has a retirement system that seems to work-the system provides an annual return of 8 percent, rather than the measly 2 percent return that SSI provides. Note that President Bush proposed such a system in 2007, but quickly retreated after the opposition party attacked him for trying to make the improve the system.
Deadcatbounce January 10, 2012 at 05:43 PM
When a moron tells you that this pension fiasco would not be a problem if only the obligation was properly funded by the state, try hard not to smack this person especially after reading the following. If the same pension rules in effect in 1970 were still in effect, we would have a surplus in the TRS fund, not a deficit. Before 1970, there were few substantive changes to the pension rights granted to retirees. Afterward, the teacher unions worked their legislative magic and got increased benefit after increased benefit passed-starting immediately in 1971. It was like Custer at the Little Big Horn, except the taxpayers didn’t know about the slaughter until 40 years later. Here is a partial list of the 130TRS pension enhancements passed by a compliant legislature and governor at the time at the expense of every Illinois taxpayer: • 1971 – Pension maximum raised to 75% from 60%. Ogilvie • 1971- Annual COLA raised to 2% from 1.5% Ogilvie • 1971- No pension reduction if younger than 60 with 35 years service. Ogilvie • 1972 – 85 sick days (1/2 year service) allowed for early retirement. Ogilvie • 1973 – Survivor benefits paid at age 50 instead of 55. Ogilvie • 1978 – Annual COLA raised to 3% from 2% (not compounded) Thompson • 1979 – ERO (Early Retirement Option) allowed. Thompson
Deadcatbounce January 10, 2012 at 05:44 PM
continued ... • 1980 – Retiree health insurance program established. Thompson • 1982 – Employer pick-up of employee contributions allowed. Thompson • 1983 – Unmarried children over 18 eligible for health insurance coverage. Thompson • 1984 – Sick leave credit upped to 170 days from 85 days. Thompson • 1990 – 3% COLA compounded. Thompson • 1990 – Survivors get COLA. Thompson • 1990 – Disability and pensions added for part-time and substitute teachers. Thompson • 1991 – Retiree health care premiums 75% subsidy. Thompson • 1998 – Waive Early Retirement cost – 34 work-years becomes 35 years for pension. Edgar Every one of the above items added to taxpayer cost- $100′s of billions over the decades. Just the COLA going from 1.5% not compounded to 3% compounded increases the pension payout by 30% over a 30 year retirement life expectancy. Based upon this 130 item, 40 year rap-sheet, teachers should be paying at least 15%.
Richard Schulte January 10, 2012 at 06:02 PM
Dcb, thank you for your research and for taking the time to post the above. There is a small city in Alabama who solved their pension system problem-the city is located just outside of Mobile. They had a choice between writing checks for pension benefits or keeping the lights on. They chose to keep the lights on and stopped sending the pension checks. Simply because you're promised something 30 years in the future doesn't mean that you will actually get it. Sorry, so sad, too bad. When my father's company went bankrupt in 1970, he got 4 cents on a dollar-not that big a deal, he died before he collected a dime of it, so you could say that he didn't lose anything on the deal. No doubt losing 96 percent of his pension helped cause his early demise, along with a pack of unfiltered cigarettes a day. The way to deal with the pension problem is for local and state gov't to declare bankruptcy and then negotiate pension benefits with all current and former employees. 25 cents on the dollar is what is guaranteed by the Federal Government, so a good point to the start the negotiations would be a 75 percent haircut. Christmas is for kids and only comes once a year. Gov't employees think that every day is Christmas. Never ever vote for a politician who promises you something after he is out of office. Mayor Daley destroyed the City of Chicago with all of his promises and got the hell out of the Mayor's Office before the house of cards started falling.
Gary January 10, 2012 at 06:07 PM
Ellen, "DB plans can work if they are managed properly..." The people of Illinois (and the people of Greece) want to hear how to properly manage defined benefit programs. In particular, how can you honor promises made when the economy slows down, revenues drop, and taxpayers begin running away from the increasing burden... causing a downward spiral leading to increasing taxes on those left paying for everything? You have the floor.
Deadcatbounce January 10, 2012 at 07:28 PM
Ellen, I'm not understanding the following ... "DB plans can work if they are managed properly and not raided from time to time" When it comes to the state of Illinois. Did you mean "enhanced" each year instead of "raided"?
Ellie January 10, 2012 at 10:37 PM
Democrat Elaine Nekritz is part of the problem, having held office for ten years. I'm looking forward to voting for Republican Jonathan Greenberg, so we can change direction. The Bloomberg News article pointed out Illinois' 2010 unfunded pension liability was a whopping $85 billion! The system has assets to pay 45% of promised benefits - lowest so-called funded ratio of all U.S. states.
lucas January 11, 2012 at 02:18 AM
WE the People of Illinois allowed one political party to control the state offices far far to long. As the President Said three plus years ago in his forst campaign 'ITS TIME FOR A CHANGE"
The Q January 12, 2012 at 02:52 PM
Vote them all out......anyone that supports Madigan and his Clan must go!


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