The American Interest
Analysis by Walter Russell Mead & Staff
Illinois Pension Costs Choking Off Investments in Roads, Schools

Illinois already has the highest unfunded pension liabilities of any U.S. state. This has forced the state to cut hundreds of millions of dollars from its education budget, lowered its credit rating, and given it the highest borrowing costs of any state in the nation.

Now, the Wall Street Journal reports, the state has postponed an auction of $500 million in bonds only hours before it was set to begin, citing concerns that investors would demand higher interest rates. The bond sale, which had been intended to finance education and transportation projects, is now delayed indefinitely:

“It’s the first real market indication that, because of our fiscal condition, we couldn’t sell bonds,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago, referring to his home state. His firm had no role in the Illinois bond sale.

The potential jump in borrowing costs is the latest sign of growing fiscal challenges in Illinois. The state already is paying the highest interest rates—at about 3.2% on its 10-year bonds, according to Thomson Reuters Municipal Market Data—among U.S. states, and the Illinois government is behind on its bills to hospitals, doctors and pharmacies by an estimated $8.4 billion, according to the state comptroller’s office.

Given the state’s recent failures at pension reform, there’s little hope that a comprehensive solution is forthcoming.

But there was at least one spot of good news for Illinois. The number of ex-governors currently in prison has now dropped to one.

Published on January 31, 2013 3:07 pm