State of the States

By Thought Pieces

Some interesting insight in this recent article from Barron’s regarding the uncertainty that cities and states are facing due to the COVID-19 pandemic. The pandemic has introduced new risk into municipal bonds and the revenue shortfalls for most states are projected to be strikingly large. Eaton Vance ranked each state’s creditworthiness based on their fiscal year ending June 2019… wondering where Illinois ranked? Dead last. Due to their financial position, Illinois is currently paying a whopping 2.23% higher interest rate on its debt than the MMD benchmark, far more than any other state. The next “worst” state, New Jersey, is only paying .74% more than the benchmark. Under the best circumstances, Illinois needs to raise revenue and residents will be able to vote on a constitutional amendment to raise taxes on higher income levels this November. The impact on states that prudently manage their budgets with reserves and lower tax rates have more flexibility to address shortfalls.

 

While we feel the situation is so dire that it is difficult to speak out against a tax increase (there is no way to cut enough spending), it would have been nice for the state to also address the pension system, which is by far the largest contributor to the state’s financial position. 60% of Illinois voters must vote yes to change the constitution to allow a graduated tax.  It is a big deal and may be worth getting past the political ads to look at the issue and make an informed vote. Below are a link to the full article from Barron’s and a chart showing the 5 states with the best and worst creditworthiness according to the Eaton Vance rankings, the full chart can be found towards the end of the article.

 

Cities and States Are Facing a $1 Trillion Budget Mess. There Will Be More Trouble Ahead.