Is Illinois the Worst State? Depends on What You Think Makes a State Good or Bad.

We're hearing a lot about Illinois being the worst state in the union. CBOE Chairman, Bill Brodsky, recently said that he is "embarrassed" to live in Illinois. He's embarrassed because Moody's downgraded Illinois' bond rating to A2 and placed our state dead last compared to other states.


That's the same Moody's that rated mortgage backed securities AAA in 2006 and 2007. But, nonetheless CBOE's Brodsky is embarrassed by Illinois and not by Moody's, and nonetheless, Brodsky recently blackmailed Illinois into granting CBOE a large tax cut on the threat of moving and taking jobs with them. Maybe he's really embarrassed that Illinois fell for his stunt.


Moody's dinged Illinois for "weak management practices." They didn't like that the state has failed to pass legislation to cut or eliminate public pensions, backed off on harsh Medicaid cuts (although they made plenty of them), and hasn't fired enough of those leech-y state employees like teachers and firemen(women).


Mark Kirk isn't a fan of Illinois either and that's a shame because Illinois made him its senator. He always said he hates Chicago, being full of thugs and goons and all, now he's going after the rest of the state.


Soon to be former Illinois State Senator, Susan Garrett, said that the entire Illinois General Assembly needed to work to raise the bond rating. That got me to thinking, do state governments exist to get a good investment rating, like corporations?


The Mitt Romney Bain Capital story has been going around the Internet lately. Bain is a private equity company that purchases "non-performing" companies to cure them of their non-performance. Sometimes the cure kills the patient. The thing to note about that is the meaning of "non-performing" to a firm like Bain. Most people would assume they mean companies on the verge of going out, companies paying too much is labor costs, producing bad or unwanted products or so woefully mismanaged that they need rescue. That is what Bain executives and others in the financial sector would like us all to think, and sometimes that is true, or true in part, but that's not exactly what "non-performing" means in that world. Non-performing companies, to a holding company like Bain, are companies that are not keeping up stock price or are not leaving enough for distributed profit or paying down debt. The "performance" they are looking for is the value of the stock price, or leverage value, not the quality of the operation of the company or its products. Now, it can be true, that a non-performing company may also have some other management, product and labor issues, but make no mistake, Bain is not concerned about product quality, customer service or labor force quality or satisfaction. It does not purchase companies to reform them so they succeed and create great products. It wants quick cash out from the companies it purchases.


Now, many of you are going to argue that Bain had a right to do what it did with companies. After all, if the companies Bain purchases and destroys are so great, or so loved by their former owners, they would not be up for sale in the first place. Robert Reich does a good job explaining  why the inequality caused by this type of capitalism isn't good for the country as a whole here.


So it seems that the CBOE Chair, and it's own Senator, Mark Kirk, are aghast at Illinois basically because it's a non-performing company. Should Illinois be a performing company? Let's take a look at a performing state, say like South Carolina. South Carolina is rated AAA by Moody's, just like those 2006 and 2007 mortgage backed securities. However, what else is going on in South Carolina? For starters, they just tightened the rules people have to follow to obtain unemployment benefits, forcing the unemployed to take extremely low paying jobs in lieu of the benefit. Some of you will argue that the new rules are good because people should be forced to give up their education and self-worth to make a few pennies, but you should also consider that South Carolina is a pretty poor state with high unemployment and low wages. Good low Republican tax rates and anti-socialist ways have led to underfunded schools, underfunded and inadequate roads and a fifth of its citizens having no real health insurance. They have those Orwellian named "right to work" laws that prevent unions from stabilizing wages. South Carolina's poverty rate is 3 points higher than the national average. As the article at the prior link points out, there are large disparities between young and old and between races causing lots of fear and segregation, both physical and emotional. The South Carolina answer to poverty is to isolate and ignore the poor, when they aren't admonishing them for being bad people. That's the portrait of a good state, a worthy state per an outfit like Moody's.


Here in Illinois, we don't gleefully fire public employees like the Scott Walker's of the country or the good old Republicans of South Carolina. We don't like to cut the benefits of retired employees or force folks onto the streets because their bosses made a mess of things. A bunch of homeless old ex-teachers or closed factory ex-employees is not a goal for most of us here in Illinois. While we had to further restrict the Medicaid laws to enforce federal law, we took our sweet time doing so and HFS did not end up finalizing the really tough rules they were considering. Frankly, I think Illinois is a lot better place to be than say South Carolina. The financial sector wants to contribute to Illinois' demise, as that bond rating will make all the things we want to do here in Illinois more difficult and expensive, and the bad-mouthing done by guys like Brodsky and Kirk will probably hurt job creation in the state, but that says a lot more about them than it does about Illinois in my book.


The bottom line for me is that no state, or other governmental unit, was created to be a high performing profitable company, by the definition of the financial sector. These governments represent the people's agreement to do certain things together that would be difficult or impossible to do alone, including educating our children, taking care of our elderly, creating an infrastructure that helps everyone live and do business, and helping each other be productive, innovative and happy. If Illinois was run for-profit, like Bain capital, what do you think it would be like? Where and to whom would the resources go?