Ah, Illinois. Once known as “The Land of Lincoln,” it is now known as “The Puerto Rico of the Plains.”
Illinois has the distinction of having the lowest municipal bond rating of any state. Only Puerto Rico, which is NOT a state, has a lower municipal bond rating (S&P rates them as ‘D’ since Puerto Rico has defaulted on the debt). S&P has downgraded Illinois to BBB-.
The yield on 10-year Illinois General Obligation bonds BBB-rated is almost 5% while the AAA-rate GO bond yields in Illinois is at 2.28%. BBB-rated Illinois GO bonds are yielding over 2x the AAA-rated yield. And remember, the Illinois GO bonds are tax-exempt. For comparison, the fully-taxed US Treasury yield is 2.15% at the 10-year maturity. So, tax-exempt Illinois bonds (both AAA and BBB-rated) have a higher yield that the fully taxed US Treasury 10 year note.
In addition to credit ratings, another similarity between Illinois and Puerto Rico is that both have declining populations. But Illlinois has four times the population of Puerto Rico.
The Illinois state legislature has not passed a state budget in three years in what basically boils down to Chicago versus the rest of the state.
Rick Moran at PJMedia has cobbled together a few of the consequences of not having a state budget.
Of course, unlike California where Governor Jerry “Moonbeam” Brown has a super-majority in the state legislature, Illinois is divided politically. The pressure of passing a budget (even a stopgap budget) is enormous, but which side will blink first?
It reminds me of “The Chicken Run” from the James Dean film “Rebel Without a Cause.”