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Investors Get Out of Illinois While The Gettin's Good


If investors are fleeing your state, it’s probably a sign your government’s in disarray. Bloomberg reports that Illinois’s finances are so out of whack and its forecast so gloomy that investors wouldn’t be caught dead with money there:

“I’d rather invest in a state that is more underfunded and making its contributions than a state that is less underfunded but not trying to catch up,” said Eric Friedland, head of municipal credit research in New York at Schroder Investment Management North America, which oversees about $3 billion of munis.…

Chris Ryon, who helps oversee $10 billion of munis at Thornburg Investment Management in Santa Fe, New Mexico, said his firm owns no Illinois general-obligation bonds, in part because of the pension challenge.…

“In the past few years, they’ve embraced this idea that if they take on more risk on the asset side, somehow it’s going to make up for market losses,” [senior fellow at George Mason University’s Mercatus Center Eileen] Norcross said. “There’s been a troubling shift overall towards higher-risk investments.”

Serious pension reform is the only option left, yet Springfield has tried and failed to pass it five times in the past fifteen months. No cosmetic fixes can cover up the ugly facts: Illinois has $5.3 billion in unpaid bills; pensions funded at 40.4 cents on the dollar; a declining population; a credit rating only four steps above junk; and exorbitant borrowing costs that ensure more revenue will have to be used to pay off debts than to pay for services. This is failure at its slowest and most painful.

And Illinois is not alone. Bloomberg reports that Kentucky, North Dakota, Oregon and Vermont are also among the states whose pension-funding ratios have fallen at least 21 percent since before the recession. Among the laggards, however, Illinois, with nearly 13 million residents, has by far the most taxpayers and pensioners to worry about.

Illinois may be closer to collapse than the rest, but this is where many unreformed blue model states are heading.

[State Capitol of Illinois image courtesy of Shutterstock]

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  • wigwag

    “Illinois may be closer to collapse than the rest, but this is where many unreformed blue model states are heading.” (Via Meadia)

    Really? How do you explain this, Professor Mead? The New York State Pension Plan is fully funded; in fact it’s the second healthiest state pension plan in the nation. The last I looked, New York is pretty blue.

    Oh, by the way, the healthiest public employee pension plan in the country belongs to Washington, D.C. That’s a pretty blue place too, isn’t it Professor Mead?

    • Anthony

      WigWag, unrelated but Adam Garfinke has long piece in Tablet that you will be interested in:

      • wigwag

        Hi Anthony. I read Adam’s “Tablet” article a few days ago. He makes some good points, but there are also some important things I think Adam gets wrong. In particular, I wasn’t impressed with Adam’s triangle metaphor. I don’t think American support of Israel depends on the three factors Adam describes in his triangle example.

        What I found particularly interesting is how Adam’s view contradicts many assertions that Walter Russell Mead has made in several of his essays for Via Meadia.

        Anyway, I am being rude by discussing all of this on Professor Mead’s real estate. If Adam decides to allude to the Tablet article in a post at his AI blog, I will provide you with more details about what I think.

        Thank you again for the heads up.

    • Andrew Allison

      Two swallows do not a summer make.

  • Anthony

    “This is failure at its slowest and most painful.” No, no, no WRM; the failure may be painful but has been moving rapidly 30 plus years. All underlain by inside deals via state “combine” as well as machine politics, fiscal malfeasance, corruption, etc., etc., etc. 13 million Illinoisan are in need of some serious reflection…

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