Illinois Is Running Out of Money and Time

The cascading fiscal crisis in America’s fifth-largest state just got more acute. The Wall Street Journal reports:

Illinois is on the verge of becoming the first state with a junk-bond rating following downgrades from two of the world’s largest credit-ratings firms. […]

Illinois is one of many states that, despite a generally strong U.S. economy, are struggling to close budget gaps because of pensions and other entitlements. State and local retirement liabilities have ballooned since the financial crisis, and some governments don’t have enough assets to cover all future obligations.

S&P on Thursday dropped its grade on the state’s general-obligation bonds one level to BBB-minus, the lowest possible investment-grade rating, citing Illinois’s inability to pass a budget.

The situation in Illinois is partly the product of political gridlock that might abate with the right leadership. But it also points to a broader failure of institutional organization that we call the “blue model.” The combination of defined-benefit pension systems for public employees, powerful public sector unions, and the shady accounting schemes needed to prop them up are pushing states and localities across the country down the path to Puerto Rico.

The Journal notes, later on, that “the state is still funding certain core functions.” You know things are bad when this needs to be made explicit.