Illinois “Beats” California as most Likly to Default

Living in California, I am used to hearing well-earned criticism of California’s legislature for failing to control its spending,  failing to pass a budget, and generally not doing its job.  Candidly, I have been known to add to the criticism (here is an example of a comparison of California’s legislators to monkeys that used video clips).  So, I was surprised to learn of the market’s view (as measured by the cost of credit default swaps) that California is only the second-worst state in terms of its ability to pay its obligations. 

Courtesy of Bloomberg news, the cost of insuring Illinois’s bonds against default rose to the highest level in five months as of the beginning of 2011.  Bloomberg expressed some surprise at Illinois’s position, since California remains the lowest-rated U.S. state according to Standard & Poor’s.  According to Standard & Poor’s, California is rated A- (its fourth-lowest investment grade) and Illinois is rated at A+, two levels higher.

One of the reasons Illinois is rated poorly involves the cost of its pension obligations.

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