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Illinois comptroller raises red flag on borrowing.

The State of Illinois' total outstanding debt grew by more than a third in fiscal year 2003 to $51.7 billion, dramatically outstripping debt growth rates in the previous four years, according to an annual report issued by State Comptroller Dan Hynes. The state's annual debt service costs will increase by 93 percent, to more than $1.1 billion, this fiscal year compared to fiscal 2003.

The 33.6 percent increase in overall debt compares to 10.3 percent growth in fiscal 2002, 5.4 percent in fiscal 2001, 6.6 percent in fiscal 2000, and 1.7 percent in fiscal 1999, Hynes reported in the annual report on state bonded indebtedness produced by his office. In the past year, per capita general and special obligation debt (including principal and interest) has grown 150 percent, to $3,143, again exceeding growth rates for the previous four years.

"The pattern of increased debt is troublesome on a number of levels," said Hynes. "It is not just an issue of how much we are borrowing, but what we are borrowing for. Issuing debt to pay for long-term projects can certainly be financially prudent. But borrowing long term for short-term needs is dangerous. It goes back to one of the basic principles of family economics: you take on debt to buy a home or a car, not to buy groceries."

General obligation debt increased by $11.2 billion, or 146 percent, in 2003, the report said. The increase is mainly attributed to $10 billion of pension obligation bonds issued in June 2003. Proceeds from that borrowing were primarily used to reimburse the state's general fund for contributions made to the retirement systems for the last quarter of fiscal 2003 and fiscal 2004.

The report also makes note of recent changes in the state's bond rating. As of June 30, 2003, Illinois' general obligation bond rating was unchanged at AA by Standard and Poor's, but was downgraded from Aa2 to Aa3 by Moody's investors Services and from AA+ to AA by Fitch IBCA. The state's special obligation bond ratings remained the same, ranging from AAA by Standard and Poor's for Build Illinois bonds to AI by Moody's for Civic Center bonds.

The report also reveals the debt service cost on debt issued as of June 30, 2003. In fiscal 2004, interest costs are expected to total $1.1 billion, including $986 million on general obligation debt and $116 million for special obligation debt. That compares to a total interest amount of $569 million in fiscal 2003, including $453 million on general obligation debt and $116 million on special obligation debt.

The report is available for download from the Illinois Comptroller's Office, www.ioc.state.il.us.
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Title Annotation:News & Numbers
Publication:Government Finance Review
Geographic Code:1U3IL
Date:Jun 1, 2004
Words:452
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