Is Illinois “Greece on Lake Michigan”?

The New York Times reports that Illinois has taken the place of California for the state with the biggest troubles. Downgraded by every ratings agency, Illinois’ pension system is likely to run out of money to pay retirees in the next few years. And the state has hasn’t figured out how to close its $12 billion deficit, representing about half of its budget.

Illinois has avoided program cuts and tax hikes by borrowing. Those bond issues are now another budget line item for interest rate payments. Last year Illinois paid $55.3 million for two short-term borrowings it issued to pay for operating expenses. Former Govenor Rod Blagojevich, pushed the state to issue $10 billion in Pension Obligation Bonds, and Governor Quinn is currently considering issuing more pension bonds to make the state’s payment. The POBs haven’t helped. Today Illinois officially reports $70 to $80 billion in unfunded liabilities, a figure that vastly understates the systems’ true unfunded liability which is likely closer to $219 billion or about one-third of the state’s GDP.