Former Highland Park Mayor: Illinois Needs To Adopt A Debt Affordability Study

The Pew foundation recently found that 21 states do not publish debt affordability studies. Sadly a high debt state such as Illinois is one of them.

A debt affordability study is a document that describes all of the state’s outstanding debt by type. For example debt supported by taxes and debt supported by a revenue stream such as that of the tollway. The study in turn projects out future indebtedness based on the capital budget for items such as state buildings or roads. Finally, based on state policy, the study will set constraints, for example annual debt service on tax supported bonds cannot be more than 5 to 10% or revenues. It could also be total debt relative to GDP. These parameters are often based on what peers are doing and or what the rating agencies feel is reasonable.

Because the study is forward looking the state must accurately, to the extent possible, project future revenues and then determine if they can live within those constraints. The best studies done by places like Rhode Island, Georgia and North Carolina include pension and health care benefit payments as debt. So these payments are added to annual debt service when applying constraints.

If the state had this best practice in place a few years back perhaps we would not be in the fiscal mess we are now facing. That said, it the state should adopt a study, and like most states, update it annually. Because Illinois would blow through any reasonable constraints the document should be aspirational and complied with over time. A debt affordability study will force the Governor and the Legislature to understand trade-offs as debt can crowd out other essential services such as education. This sort of transparency would also be of use to the voting public. Finally adopting this practice is a plus with the rating agencies.

By Michael Belsky, Former Mayor of Highland Park