Mary Williams Walsh at NYT reports:
For years, Illinois has racked up billions in public debt to plug budget holes, pay overdue bills, and put money into its mismanaged pension funds. And for the people who live there, this has resulted in decrepit commuter trains and buses, thousands of unsound bridges, 200 hazardous dams and one of the most inequitable public school systems in America...
Illinois has the lowest credit rating of the 50 states and has America’s second-biggest public debt per capita, $9,624, including state and local borrowing. Only New York State’s debt is bigger, at $13,840 per capita. But Illinois has not been able to use much of the borrowed money to keep its roads, bridges and schools in good working order, because years of shoddy fiscal practices have taken a heavy toll, the [ Volcker-Ravitch] report said.
“Illinois has been doing back flips on a high wire, without a net,” the task force said in the report, which was issued in Chicago...
Nearly two-thirds of the Illinois state government’s $58 billion in direct debt consists of bonds the government issued to cover retirement payments for workers, including a $10 billion pension obligation bond that broke all previous records in 2003.
Yet despite all that borrowing, Illinois’ public pension system is still in tatters. In fact, its total pension shortfall is conservatively estimated at $85 billion. Recent changes that raised the retirement age for new workers and limited the pensions that future workers can earn have not reduced the existing obligations.
The task force said that further reductions in pension benefits appear inevitable, though legally difficult, because the state has promised more than it can deliver.
While many states have heavy debt burdens and unfunded pensions, the task force warned that Illinois’ problems had been building for decades and were advanced. The state was “insolvent” even before the financial crisis hit in 2008, the report said, but that was hard to detect because “budget gimmicks became a standard practice.”...
Time appears to be running out for a relatively painless fiscal reform, the task force said. Besides a pension system in desperate shape, the government faces decreasing transfers from the federal government, the imminent expiration of a temporary state income tax increase that was enacted in 2011, and escalating state Medicaid costs.
“Retirees may lose their pensions as the funds dwindle, low-income and disabled people may lose their health care as costs escalate, and citizens and businesses seeking a stable environment may face steep and sudden tax increases,” the report said.