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Tuesday, May 30

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State Budget Wed Mar 10 2010

More Debt? Expect to Spend More to Pay It Off

When you borrow money it is reasonable that the folks who loaned you the money expect to be paid back, with interest. That is another issue that is now facing the state budget and it's another issue that did not appear overnight. The Civic Federation on Chicago has
a report (PDF) that covers some of this in depth.

But like I pointed out in my last post about the budget, none of this is really a surprise.

Long Term Debt

In FY 2001 the state was spending about a billion dollars a year on long term debt service; in FY 2008 it had doubled to $2 billion; in FY 2011 it is projected to be $2.7 billion. So in the past seven years it has just about doubled.

In terms of the debt, in FY 2001 the state had about $8.4 billion in debt; FY 2008 it had $21.1 billion in debt and in FY 2011 it is estimated at $25.4 billion. These are state bonds that need to be paid, not the general underfunding of the state pension system.

Short Term Debt

Short-term debt is state debt that has to be paid back in a year. In FY 2007 it was $900 million, FY 2008 it was $2.4 billion, in FY 2009 $1.4 billion.

When the state can't pay its bills, it takes out short term debt so doctors, hospitals, social service agencies and schools don't beat down the doors asking where their money is.

So take that with the estimated $1.89 billion in FY 2010 for long term debt service, you have about $3.4 billion you have to pay in FY 2010 (I have seen estimates that the payroll for all of state government is about $4 billion).

The repayment of the the short-term debt the state took out is now requiring $500 million a month -- and will require $750 million a month starting this April. To give you some perspective, the state needs $335 million a month to meet payroll and $418 million in school general aid. So in April the state will spend more paying short-term debt a month than it will spend on payroll and general school aid combined.

The state can decide not to send money to schools, but it has to pay the debt and it has to pay it first.

General Debt Issues

The state's financial situation is bad enough that Illinois has the second lowest bond rating of any state in the country (behind California). This obviously has an impact on the rates the state has to offer on the bonds in order to sell them. When the rating was reduced in December, the two major bond raters put a "negative" outlook on the state as well. So over time the cost of all this borrowing is only going to go up until Illinois gets its financial house in order.

In Part 3: I can't pay you now but I will pay you at some point.

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Jenny Smith / May 28, 2011 3:35 AM

There are many reasons why you might be in debt, from over buying on a house to medical troubles. Regardless of the reason you are in debt, the question now is what you plan to do to get out of debt. There are many options, including bankruptcy. However, there are several reasons why bankruptcy should be your last resort. Rather you should consider hiring debt reduction services to help you get out of debt. These companies can get you out if debt in a short period of time, and can possibly save your credit score.

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