BORROWING MORE EXPENSIVE FOR STATE

Illinois taxpayers got an $8 million taste during the week of just how expensive poor fiscal management can be.

The state took out a short-term loan in mid-July and – even though federal treasury rates have been cut nearly in half – the state will end up paying about $8 million more in interest when compared to a similar loan taken out last year.

The key difference is that Illinois has seen its credit rating plummet. One major credit rating agency ranks Illinois as tied for worst in the nation with California, while two other agencies have Illinois just one notch above California. The state has had eight credit downgrades since impeached Governor Rod Blagojevich left government in January 2009.

A short-term state loan recently drew an interest rate of 2.11%, which is nearly a full percentage point, or more than 80 percent higher, than a similar loan taken out in August 2009. That’s despite a U.S. Treasury rate of about .26% or almost half of the 2009 one-year U.S. Treasury rate of about 5%.

The short-term loan of $1.3 billion carries with it about $19 million in interest—which is an $8 to $9 million premium that can be attributed to the state’s lower credit score.

HELPING LAWMAKERS ESTIMATE TRUE COSTS OF NEW LAWS

A conservative think-tank is calling for reform of the state’s “fiscal note” process to make it more effective in helping legislators estimate the true cost of new laws. At least one Republican senator has already agreed to sponsor the legislation.

The Illinois Policy Institute is advancing a reform that would make the state’s fiscal note process a more meaningful tool to highlight the impact legislation has on Illinois’ finances.

Fiscal notes are incorporated into legislation as a way to estimate the cost of the initiative, as well as any savings, revenue gains or losses that may result from the proposed bill becoming law. Unfortunately, Illinois’ fiscal notes often fail to provide accurate estimates.

As a result, it’s often difficult for legislators and the public to determine what a bill’s true cost will be. The proposed reform would require fiscal notes whenever the proposed legislation involves spending or taxation; include a minimum five-year forecast; and would have to be authored by a neutral source, not the state agency that will be impacted by the legislation.