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Mon March 10, 2014
Illinois Pays Penalty For Bad Fiscal Image
When it comes to finances, the State of Illinois has a poor reputation. New research shows how the state's negative perception is costing taxpayers.
Illinois already has the worst credit rating among states. And while that adds to the cost of borrowing money, Illinois winds up paying even more because investors view it as risky of default.
The Institute of Government and Public Affairs at the University of Illinois analyzed the numbers. It's part of the IGPA's Illinois Budget Policy Toolbox project. DePaul Professor Martin Luby is a Senior Fellow with the Institute. His study found the state paid about 80 million dollars more over a five year period because of its reputation.
"Many investors just won't buy Illinois debt at any cost. And the ones who do buy Illinois debt are demanding really high risk premiums. Probably higher than what the true risk of the security is," Luby said.
The likelihood that Illinois would default on its debt is extremely low. The last time it happened was in the 1840's. Still, Luby says investors who buy state bonds can be jittery.
He says the state's recent action to overhaul public employee pensions will help the credit status and already resulted in lower borrowing costs in December.