Illinois 5 to 10 years from real fiscal crisis, regulatory compliance attorney says
Illinois' economic crisis continues, but it's not as bad as it could get, a Chicago regulatory compliance attorney who is expected to be part of a panel discussion this week about the state's debt load, said during a recent interview.
"We're probably about five to 10 years away from the real fiscal crisis," John Costello, a partner in the Corporate Department of Dinsmore & Shohl in Chicago where he focuses his practice on federal and state regulatory compliance, said during a Chicago City Wire telephone interview. "That's assuming government does nothing and continues to kick the can down the road."
That means that Illinois hasn't yet hit bottom and won't, so long as action is taken in time, Costello said.
"You want to talk about this five years before hitting the floor rather than five years after hitting the floor," he said.
Costello's remarks came less than a week after the nationally recognized rating service Fitch Ratings Inc. downgraded DuPage County’s bond rating from AAA to AA+. Another ratings service, Moody's, warned recently that the state's continued problems over its budget may trigger more downgrades. Illinois already has the lowest credit rating in the nation, a Baa2 with a negative outlook.
While Illinois in general is having difficulties, including approaching two years without a full budget as state General Assembly members continue to bicker largely along party lines, it is the state's suburbs and smaller municipalities that are most at risk, Costello said.
"If credit markets don't have faith in government, then the flow of money stops," Costello said. "That's the real crisis. And we are not the most fiscally responsible state in the nation."
Costello also is a member of the Chicago Area Public Affairs Group's board. That group will hosted a panel discussion Sept. 16 at the Union League Club of Chicago on "Drowning in Debt: How to Preserve Illinois Municipalities."
In addition to Costello, other speakers at the panel were Center for Pension Integrity Chairman Ed Bachrachl; Conway MacKenzie executive director and former state of Michigan treasurer and Michigan house speaker Andy Dillon; Dinsmore & Shohl Bankruptcy Practice Group Chair Kim Lewis; Eric Madiar, former chief legal counsel to state Senate President John Cullerton; and Fundamental Credit Opportunities co-founder, co-Chief Executive Officer and chief investment officer Hector Negroni.
The answer to the forum's how-to is easy, but it's hard, Costello said. Government needs to consider its costs, including delivery of government services, servicing legacy debt, and what is owed to creditors and bond holders.
"Everyone knows what needs to be done," Costello said. "It's easy, but it's deceptively easy. Government needs to curtail spending and increase revenues."
That means thinking about things that often seem politically unthinkable.
"No one likes to talk about it but, yes, we need to raise taxes," Costello said.
That would include traditional government revenue streams, such as property taxes, but also broadening the base of businesses in which taxes are applicable, he said. Government also needs to cut back on services and do some overall belt-tightening in services it does continue to provide.
"Turn a critical eye toward what government is paying for and decide what government should pay for," Costello said.
Credit rating services are not the bad guys in this process, he said.
"Once the credit agencies see that you're making an effort, then the credit markets will respond in kind," Costello said.
This month's forum could well be a step in that direction, an opportunity to begin a dialogue between members of the business community, legislators, bankers, the general public and others, Costello said.
"There really are no neat, elegant solutions," he said. "However, raising the level of awareness will allow us to address these problems five years before we hit the bottom."