Largely because of its unfunded retirement plans, Illinois has replaced longtime bottom-dweller California as having the lowest credit rating of any state. So when Illinois tries to borrow money, it faces the same problem as the spendthrift cousin: far higher interest rates. "There are investors who won't buy Illinois or bonds with Illinois labels at any price. They just see it as toxic," said Brian Battle, director at Performance Trust Capital Partners, a Chicago-based investment firm. That means the state pays "the biggest penalty by a long, long shot."
