To Chicago White Sox fans of the 1950s, “Friendly Bob Adams” was as familiar a name as Minnie Minoso or Billy Pierce.
While Minoso and Pierce labored in White Sox pinstripes, Friendly Bob was the guy to call for a bill consolidation loan from the finance company that sponsored the Sox’s radio broadcasts.
Gov. Rod Blagojevich is too young, no doubt, to remember the Go-Go Sox; he was not yet 3 years old when the South Siders won the 1959 American League pennant, and he’s a Cubs fan to boot. Yet from all appearances, the Demo-cratic chief executive would be quite at home with Friendly Bob’s offer to lend folks the money they need now to pay off current bills, in return for low monthly payments spread out over many years.
While preaching the gospel of fiscal responsibility, Blagojevich has taken state borrowing to all-time heights during his first 15 months in office. The state’s general obligation bond debt stands at an estimated $19.8 billion in FY 2004, up from roughly $7.6 billion in FY 2002. Per capita debt increased to $1,566 from $609 during the same span, according to administration estimates.
“He’s increasing spending with weak revenues and financing it by borrowing and passing the bill off to the next generation of taxpayers,” says state Sen. Steven Rauschenberger, an Elgin Republican and state budget expert.
Even House Speaker Michael Madigan, a Chicago Democrat, seems to be having second thoughts about the governor’s credit card addiction. “I’m concerned about the desire of the administration to borrow its way out of a very difficult situation,” Madigan told a Carbondale forum last month. “We did a Band-Aid budget last year and we’re looking at doing another one this year, and that’s why the Blagojevich Administration is so in favor of borrowing.”
Blagojevich and his apologists argue that borrowing is just one of the tools needed to help the state budget recover from years of spendthrift governors and lawmakers, Madigan included. And they contend the debt will be paid off with less-valuable dollars in the future.
In fact, the current borrowing spree “guarantees that the next governor will have to raise taxes,” Rauschenberger predicts. Besides the overall growth in state debt, the senator also is troubled by the administration’s repayment plans.
Under past governors of both parties, state general obligation bonds were sold with 20- or 25-year maturities under a repayment structure known as “level principal repayment,” in which an equal amount of principal was repaid each year. Under this arrangement, debt service — the amount of principal and interest paid — was high in the early years of a bond issue, then declined over time until the last dollar was repaid.
For the roughly $11 billion Blagojevich borrowed in 2003, however, amortization schedules call for paying only interest in the first few years, after which relatively small principal payments start then grow to huge amounts in the out years, a practice known as “backloading.”
Only $12.7 million of the $11 billion borrowed in 2003, for example, is to be repaid before the next gubernatorial election; more than $7 billion falls due in the final eight years. Moreover, most of the 2003 bonds have final maturities of 30 years, rather than the standard 20 or 25 years of all previous issues.
Backloading and extending maturities will save $1.3 billion in Blagojevich’s first term, compared to what debt service would have been had the administration followed precedent and structured its 2003 bond sales as 25-year, level principal issues, according to a study by the Legislative Research Unit, a non-partisan arm of the General Assembly.
But starting in FY 2019, the state will be paying more in debt service than under a traditional amortization schedule, with a final cost some $6.3 billion higher than had the governor followed past practice, the legislative researchers found.
Bonding is not the only area in which the administration hopes to gain short-term savings at the expense of future taxpayers. Consider these other examples:
• Pension funding. The governor wants to shave $527 million from the amount current law requires the state to set aside in FY 2005 for the five state-funded retirement systems and to pare almost $1.6 billion more in the next three years, with more cuts in the future, for a total of roughly $3 billion saved through FY 2013.
While the short-term savings would be welcome, the long-term impact is a staggering $20.8 billion more in state contributions required by FY 2045, according to actuarial studies done for the retirement systems.
• Mortgaging the James R. Thompson Center. The administration negotiated a $200 million loan from a French bank using the state’s Chicago office building as collateral. Under terms of the deal, similar to a balloon mortgage, the state gets $200 million in cash now and agrees to pay $14 million a year for 10 years, at which point the balance of $148 million is due.
State Sen. Peter Roskam, a Wheaton Republican, contends the arrangement amounts to state debt requiring three-fifths legislative approval, rather than the simple majorities that last year authorized the governor to try to peddle the building and other state properties.
If the current deal is OK, he warns, then every state asset “becomes low-hanging fruit for a hungry governor.”
The governor’s defenders argue that mortgaging the Thompson Center is a smart way to use state properties to help raise dollars sorely needed to plug holes in the budget. Similarly sound, they say, is borrowing at current low interest rates and repaying the loans years later with dollars whose purchasing power has been eroded by inflation.
But that argument overlooks an obvious fact of economic life — if future dollars will buy less, the state will need more of them to maintain services at today’s levels. Thus the mountain of debt likely to become Blagojevich’s most enduring legacy will make it more difficult for his successors to fund adequately the programs he claims to cherish — education, health care and public safety.
Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois at Springfield.
Illinois Issues, May 2004
