S&P downgrades Illinois’ credit rating

S&P’s latest downgrade should come as no surprise. It’s just another mark of shame for a leaderless state spiraling out of control. The downgrade was a reaction to the state’s August 17th failure to reform its pension problems. In that meeting, the only bill on the table reduced Illinois’ total pension debt by less than...

S&P’s latest downgrade should come as no surprise. It’s just another mark of shame for a leaderless state spiraling out of control.

The downgrade was a reaction to the state’s August 17th failure to reform its pension problems. In that meeting, the only bill on the table reduced Illinois’ total pension debt by less than 0.05%. They couldn’t even get that passed.

Most of the press surrounding the downgrade focuses on the increased borrowing costs Illinois will face as a result. Yes, those costs will go up.

But it’s not the increased interest costs that Illinoisans should fret about. Instead, they should worry about the veiled pension debt that’s about to wreak havoc on the state budget. That’s what’s really driving both Moody’s and S&P’s true concerns.

New pension rules and greater transparency are exposing massive amounts of hidden debt in Illinois’ state pension systems. The $83 billion shortfall politicians often refer to is a gross understatement of reality.

The true shortfall of the five state pension systems is more than $200 billion. Add to that the hundreds of billions of dollars of debt for retiree health care, pension bonds and all the retirement debt lurking at the local level and what do you get? More than $21,000 in debt for each and every Illinoisan.

Under new pension reporting rules, the yearly payments needed to meet the state’s true retirement costs will more than double in the very near future. But the state can’t pay for everything. Funding for education and for other core services is about to be crowded out. Either that, or a whole lot of retirees are going to have to do without when the state pension systems go broke.

This is all becoming increasingly clear to the credit agencies. That’s why they’re sending the message to investors and anybody else who’ll listen.

Gov. Quinn is once again requesting a meeting with the four legislative heads — Madigan, Cullerton, Cross, Radogno — in September.

They are unlikely to put together meaningful reform given the upcoming elections and the desire to avoid union backlash. But when they finally get serious about change, they’ll need a plan that addresses the true scope of the crisis. And that means ending the defined benefit system, a root cause of this problem.

If they don’t, they’ll need to consider this: Illinoisans know there’s a simple way to get rid of the $21,000 in debt handed to them by their government. It’s not by writing a letter to a representative or donating to a campaign. It’s by packing up, shipping out, and feeling sorry for those they’ve left behind.