Illinois a Higher Default Risk than Iceland, Approaching Iraq

by Brian Costin On Wednesday, the State of Illinois resorted to more borrowing and sold $900 Million in Build America Bonds to support public works projects. Unfortunately, due to Illinois rapidly deteriorating credit rating taxpayers are paying a premium. On face, the bonds will pay investors an average interest rate of 6.96 percent. Bad enough but...

by Brian Costin

On Wednesday, the State of Illinois resorted to more borrowing and sold $900 Million in Build America Bonds to support public works projects. Unfortunately, due to Illinois rapidly deteriorating credit rating taxpayers are paying a premium.

On face, the bonds will pay investors an average interest rate of 6.96 percent. Bad enough but in a potential sign of things to come the Chicago Sun-Times reported “that once the bonds hit the resale market, the prices slipped, driving the yield to 7.35 percent.”

In comparison, the average new 30-year fixed home mortgage interest rate is 4.57 percent.  The market is telling us, despite the housing market collapse over the last few years, the an average American home buyer is a much safer investment than the State of Illinois government.

Illinois recently passed the State of California in having the worst bond rating out of all 50 state governments. Now, Illinois is being compared to Iceland. The same country of Iceland that the Economist magazine pointed out whose banking collapse “is the biggest, relative to the size of an economy, that any country has ever suffered.”

Recently, it was revealed that the state of Illinois has a worse credit rating than Iceland and is approaching the war torn country of Iraq, according to the CMA Sovereign Risk Monitor.

Maybe this is finally the wake up call for the State of Illinois to start making the tough choices, engaging in spending realignments, right-sizing labor costs, and adopting common sense pension reforms that will improve our state’s bond rating and financial future, without a income tax hike that would punish businesses and residents. If anyone is listening in Springfield there is a plan that does just that, it’s called Budget Solutions 2011.