S&P Global has warned that Illinois’ debt could be downgraded to junk bond status if the state doesn’t get its fiscal affairs in order. Paralyzed by partisan gridlock, the Prairie State hasn’t had a budget in two years. Since the Great Depression, no other state has gone for more than a year without a budget, reports the Wall Street Journal. Meanwhile, the state’s unfunded pension liability exceeds $130 billion, and its backlog of unpaid bills has hit a record high of $14.3 billion.
If S&P, Moody’s and Fitch all downgrade Illinois debt to junk status, the state will be in violation of numerous loan covenants which could trigger more than $100 million in penalties, and make state and municipal debt even more expensive.
In parallel developments, Bloomberg reports today that the bankrupt Commonwealth of Puerto Rico has lost two percent of its population in each of the last three years. Since the economy began contracting a decade ago, the cumulative loss amounts to 400,000 residents from an island with population of 3.4 million today. By contrast, Puerto Rico’s fiscal turnaround plan assumes that the population will shrink only 0.2% each year over the next decade. Good luck with that!
The exodus means that fewer people will remain to shoulder the island’s $74 billion debt, trapping Puerto Rico in a vicious cycle of a contracting economy, cutbacks to core government services, and a population fleeing the deteriorating conditions.
Hmmm. As its turns out, Illinois is one of only seven U.S. states that experienced a population decline in 2016. Between 2000 and 2010, the population grew only 3.3%, one third the national rate. Then the population has declined every year since 2013 by a cumulative total of about six-tenths of a percent. A 2016 poll found that 47% of respondents said they would like to leave the state, citing taxes, the weather, government, and poor job opportunities in that order as the reason.
Just think what will happen when the next recession comes. Instead of Okies fleeing the Dust Bowl, we’ll see Illini fleeing the Blue State governance model.