Financial pro says Illinois following Puerto Rico's footsteps financially
Illinois appears to be heading south in more ways than one, a financial expert said on a Chicago-based radio show recently.
Jim Iuorio, managing director at TJM Institutional Services and a CNBC contributor, told "Illinois Rising" host Dan Proft that Illinois is in line to become the next Puerto Rico economically. The U.S. territory recently went into a form of bankruptcy protection and has a junk bond rating.
Proft is a principal of Local Government Information Services, which owns this publication.
Illinois has been warned by several credit agencies that if it doesn't drastically change its financial direction, it also could receive a junk rating soon.
“This should be a great thing for us to be able to see our future,” Iuorio said. “The solution seems relatively easy. It’s beyond comprehension. People are jumping into risky things."
Before Puerto Rico's move on May 3, no U.S. territory or state had ever filed for bankruptcy protection.
“The action sent Puerto Rico, whose approximately $123 billion in debt and pension obligations far exceeds the $18 billion bankruptcy filed by Detroit in 2013, to uncharted ground,” the New York Times reported.
Iuorio said continuing to make risky investments and not addressing its economic issues could send Illinois down the same path. He described the state government as “playing with other people’s money," using taxpayer dollars for investments that don't pay off rather than putting the money into places it needs to be, such as state pensions.
“Fifteen years ago pensions in Illinois averaged 35 percent of their funds," he said. "Now that’s gone below 20 percent. To put it into some sort of perspective, unfunded pension liabilities from 2015-2016 went up $18-19 billion in the state. In an entire year, Illinois now only collects about $40 billion in taxes.”
Proft's co-host, Patrick Hughes, asked why Illinois residents don't take action, but Iuorio said they are, although perhaps not in the way you might expect.
“Taxes are avoidable,” he said. “People will vote will their feet.”
The past few years have borne out his argument, as more people have left Illinois than any other state. In fact, Illinois loses a resident every 4.6 minutes, the Illinois Policy Institute reported.
“Take a look at the amount of wealth that’s moving out of your state and that’s what really should keep you up at night," Iuorio said.