The state of Illinois has a spending problem that they’ve hidden with ever-growing borrowing. Their borrowing has been so reckless that the state’s credit rating is now the lowest in the country (California has the second worst credit rating in the nation). This poor credit rating prevents Illinois from issuing bonds at a cheap rate, or possibly at all in the future.
The primary financial problem is $130 billion in unfunded pension liabilities that is owed to state workers. Illinois simply hasn’t made sufficient payments to the pension plan for so long that it is likely they will never be able to catch up. Plus, the payments that have been made in the last few years were funded by – you guessed it, borrowing more money. To anyone with financial literacy, this cringe-worthy tactic is the definition of a downward spiral to bankruptcy. It is like an individual getting a new payday loan to pay part of his or her credit card bill, every month. How many months can this continue until insolvency?
The Illinois Comptroller, Judy Baar Topinka, just wrote in her 2013 annual report that, “Illinois spent $1.45 billion last year in interest payments alone. This is money that cannot be used on pressing needs.” What she said is correct because all interest payments are pre-spent monies that cannot be spent on anything else.
Financial literacy matters for any institution that would like to remain solvent; a household, a city, a company, a state, and even a country. If you want to know what the titans of financial illiteracy are up to, the politicians in Washington D.C, you can view it at: http://www.usdebtclock.org