Towns, school districts and park boards have a higher cost of doing business because of Illinois’s deepening debt, according to the Report on Illinois Debt released Tuesday by
Kirk appeared with two members of his debt advisory panel, Ron Bernardi of Lake Forest and Henry Feinberg of Chicago, to ask state government to improve the situation during a news conference Tuesday, with the intention of making the business climate in Illinois as appealing as climates found in neighboring states like Indiana and Wisconsin.
“With the pantomime of governors of other states luring business away from Illinois, we have to do something to keep business here” Kirk said. “We are the fifth largest manufacturing state and have to take back the natural advantage we have over our neighboring states.”
The halo effect
An area of particular concern is what Kirk and Bernardi call the “halo” effect, where Illinois’s poor credit rating—last among the 50 states—forces the interest rates other governmental entities in the state pay when they issue bonds.
“We are all affected when the state pays its bills late,” Bernardi said. “Schools and towns have to pay a yield premium. When they pay more in interest they have less to invest.”
In many of the northern suburbs with , the tumult over the federal government's failure to raise the debt ceiling in August negatively affected park and school districts' ability to borrow.
The potential threat of a downgrade of America’s debt rating from AAA, which happened as a result of the latest debate over the debt ceiling, was one of the reasons voted to increase the debt ceiling in August. Kirk supported it as well.
State problems mean local problems
Kirk acknowledged the northern suburbs face a potentially greater threat to their credit rating more because of federal action than state. He thinks it is one of the reasons Illinois must rein in its debt crisis.
“This is why Senator (Richard) Durbin (D-Springfield) and I have encouraged the Super Committee to cut the deficit by $4 trillion rather than $1.3 trillion,” Kirk said. “The federal government will not be able to bail out a spendthrift state like Illinois.”
The growing federal debt prompted to question why Kirk is publishing a report on debt in Illinois when the United States government has mounting a deficit issues of its own.
“We have a problem with pension funding and are focusing on it,” said Garrett, who represents Kirk in Springfield. “The bigger issue now is the deficit and the jobs bill. It’s an international issue. That’s where his attention should be.”
Kirk indicated he would vote against President Barack Obama’s Tuesday night when he returns to Washington. Though he will not vote for the legislation, he supports some aspects of the proposed law and wants to pass those.
“If the first stimulus bill didn’t work, what will make the second stimulus bill work?” Kirk said. “Unemployment in Illinois is going up faster than in neighboring states, so we are not experiencing growth. The economic policy of the United States is not working.”
Kirk wants to disassemble the President’s economic package and pass the parts where there is agreement. “The payroll tax proposal is good,” Kirk said. “If we separate that part of the bill it would pass very easily.”
Kirk’s report was particularly critical of Illinois’ mounting pension liabilities. Garrett along with and are already focused on dealing with pension reform. Nekritz is the vice chair of the House Pension Committee.
“We recognize the issue,” said May, who pointed out that 14 percent of the state budget is pension liability. She also indicated all pension obligations are being met. “We know there is more to do. [Kirk] should be concerned with what is going on in Washington.”
Nekritz knows pension reform must be addressed as a key component of the state’s budget.
“In order to continue to pass balanced budgets we know we have to address pensions," Nekritz said. "It’s a big part of the pie.”