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 "We watch those (states)
very carefully," said Ben Bernanke, chairman of the Board of
Governors of the Federal Reserve. "We also look at exposures of
banks and other institutions to those states. We don't see any
immediate risk there."
Bernanke spoke Thursday in Washington, D.C., during a State Banking
Committee hearing on the U.S. debt ceiling and Europe's shaky
economies. He was answering questions from U.S. Sen. Mark Kirk,
R-Ill., who said he wanted to know that the federal government was
not just watching potential problems abroad.
"As Greece has ruined the bond market of Europe, so could Illinois
and California ruin the bond market of the United States," Kirk
said.
Bernanke said no U.S.
states are quite in the desperate financial situation of some
European countries, at least not yet.
"A number of states do need to be thinking about their longer-term
sustainability, given the unfunded liabilities they may have in
state pensions and in some cases health-care programs," said
Bernanke.
A 2010 study from the Pew Center says that Illinois' five public
pension programs are short by more than $54 billion. But the Sunshine
Review, a government watchdog website, puts Illinois'
unfunded pension liability closer to $80 billion.
But Illinois' debt is more than just underfunded pension programs.
Illinois Comptroller Judy Baar Topinka estimates the state owes
more than $4 billion in unpaid bills to state vendors, mainly for
Medicaid. Topinka has said as recently as May that Illinois' unpaid
bills could grow to as much as $8 billion by the end of 2011.
Kirk said most people in Illinois were misled into believing that
the revenue from the higher income taxes has put the state on track
to pay its bills and get out of debt. Lawmakers in January hiked the
personal income tax rate more than 67 percent. The state's corporate
income tax rate rose 45.9 percent.
"It's the unfunded liability that ... increasingly looks like it
will cripple the state's economic future," Kirk said. "And I'm
worried that state leaders are not being clear, concise and fully
transparent on the bleak future that faces Illinois because its
leaders will not cut spending."
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Kirk's alarm echoed Illinois Treasurer Dan Rutherford, who threatened in May to
go to the bonding houses and stop Illinois from taking on more debt. Rutherford
said he wanted to drive up the state's interest rate to make it prohibitively
expensive to obtain more money. That didn't happen, but Rutherford said
Bernanke's comments prove he was on the right path.
"When the state's past borrowing is combined with unpaid bills and unfunded
pension and retiree health-care benefits, every Illinois household shoulders
more than $40,000 of debt," said Rutherford.
Rutherford said he will continue to compel Illinois to live within its
means and not borrow money that "has become dramatically more expensive."
But Kirk said it's too late.
"Even credit-worthy communities inside the state of Illinois have to pay more to
borrow money than other communities in other states that are better run," Kirk
said. "This is a drag on all municipal finances in Illinois, not just our poorly
run state.
[Illinois
Statehouse News; By BENJAMIN YOUNT]
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