By Greg Bishop/Illinois Radio Network
SPRINGFIELD – One way out of the state’s fiscal mess is economic growth, but an economics professor says nothing stops such growth quite like corruption.
Taxpayers will have to pay more for the state of Illinois to borrow after bonds meant to pay off the state’s massive backlog of unpaid bills received near junk status from two different agencies.
Gov. Bruce Rauner issued $6 billion in bonds to pay down some of the $15 billion bill backlog. The deal would result in half a billion dollars in debt service each year for 12 years, but lawmakers didn’t appropriate any funds to pay the debt service this year.
Three series of the bonds are set to go out for sale: one next week, again later this month and in December.
Ratings agency S&P rated Illinois $6 billion bonds BBB- with a stable outlook Monday afternoon. S&P said even with the permanent $5 billion income tax increase, Illinois still has major structural budget imbalances.
Last week, ratings agency Moody’s said Illinois’ backlog bill bonds are Baa3 with a negative outlook, the agency’s lowest investment grade rating. Moody’s said the state’s unfunded pension liability is five times that of the median national average.
Illinois State University Associate Professor of Economics, Oz Dincer, said the low rating means taxpayers are going to have to pay a lot more for their poorly rated government to borrow.
“It’s similar to what happens to individuals,” Dincer said, “If your credit rating is low, the financial markets are going to charge higher interest rates if you want to borrow again. And Illinois, we have to borrow again.”
Dincer also said credit ratings agencies don’t have the best record either. He said just before the financial crisis of 2009, the ratings agencies gave stellar ratings to junk bonds.
Regardless, Dincer said, the way out of the Illinois’ fiscal mess is through spending reductions and economic growth.
Lawmakers like spending cuts unless it hits their backyard, he said. As for generating more revenue, Dincer said that could come from economic growth, but corruption gets in the way.
“We wouldn’t be warring today, pulling Amazon to Chicago,” said Dincer, who is also director of ISU’s Institute for Corruption Studies. “Chicago would be their first choice if Chicago were not corrupt, if Illinois were not a corrupt state.”
Dincer said perceived government corruption repels business investments and economic growth.
“Corruption cripples economic growth,” Dincer said. “If the state is corrupt, nobody will invest in the state. And without investment, there’s no economic growth.”
Dincer said in a blog post there are two forms of corruption: Legal and illegal.
Illegal corruption, according to Dincer, is “the private gains in the form of cash or gifts by a government official, in exchange for providing specific benefits to private individuals or groups.”
Legal corruption, Dincer said, is “the political gains in the form of campaign contributions or endorsements by a government official, in exchange for providing specific benefits to private individuals or groups, be it by explicit or implicit understanding.”
Illinois suffers from both forms, he said.
“Illinois is … one of the most corrupt states in America, both illegally and legally,” Dincer said. “Corrupt states do not grow. Unfortunately, corrupt states do not implement fiscal reforms either.”
Rauner has been unable to get his package of workers compensation, pension, property tax and other reforms through the Democrat-controlled General Assembly.
