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* My weekly syndicated newspaper column…
As we are all too painfully aware, the past several days have been beyond crazy.
Congress and the president took the nation to the brink of default. Standard & Poor’s lowered the federal government’s credit rating by a notch. The markets devolved into a swooning bipolar frenzy. And the political rancor emanating from Washington, D.C., showed no signs of abating.
I focus on state politics, however, so I’ve been trying to keep a close eye on how all this insanity would impact Illinois. S&P lowered the federal credit rating, but bond interest rates actually dropped in response. That wouldn’t be the case for a state like Illinois, which is far more sensitive to ratings changes than the feds apparently are. If Illinois is downgraded yet again, then the interest rates the state pays would undoubtedly rise, costing taxpayers hundreds of millions of dollars that they don’t have.
Last Monday night, S&P issued a report that said state bond ratings weren’t necessarily tied to the U.S. debt rating. “This means a downgrade is unlikely,” was how a spokesperson for the state’s budget office responded.
Ironically enough, one of the very few “advantages” that Illinois has right now in comparison to D.C. is the absence of a government bitterly divided along partisan lines. There’s one party rule here, which means things can get done.
If you read S&P’s full statement from last Friday and the firm’s statements since then, you’ll see that the bone-crushingly partisan federal gridlock during the debt ceiling debacle was as important to the agency’s federal downgrade (or even more so, depending on your perspective) as the nation’s mid and long-term debt problems.
Unlike D.C., Illinois showed it could act by raising its income tax rates earlier this year, which has mitigated some of its near-term problems. That action (and other things like pension reform last year and some budget cuts this year) did prove that the state, unlike the federal government, can move itself when necessary.
But while our state government is more “stable” than the federal government in that one, single, very narrow partisan aspect, it is still severely hobbled by an undeniably huge debt load, particularly when $80 billion of future pension obligations are included in the mix.
And if federal payments suddenly stop during a congressional budget-related shutdown, for instance, or are reduced via a federal budget deal which drastically or even significantly cuts aid to states, then Illinois would have almost zero room to maneuver. The same is true if the economy tanks again.
That was essentially the message another ratings agency delivered to Illinois last Thursday night.
Moody’s whacked Illinois for its billions of dollars in past-due bills and its failure to control pension and retiree healthcare costs, which it claimed are on an “unsustainable ascent.”
The ratings agency also worried that the state will allow its income tax increase to expire on schedule in 2013 without first shoring up the underlying budget problems.
The ratings agency may have been so pessimistic about Illinois’ future because it wasn’t exactly impressed with this year’s budgetary effort. “The state may be able to use increased tax revenue to chip away at its large balance of past-due budgetary payment obligations, but it has not adopted a comprehensive plan to do so,” Moody’s rightly claimed.
The revenue from January’s income tax hike is about equal to the state’s annual pension payments, which the state earlier couldn’t afford to pay without borrowing. If the problems with pensions and the rest of the budget aren’t addressed, then there’s no way the state can get rid of the “temporary” income tax hike without causing yet another serious crisis.
Earlier this year, Gov. Pat Quinn promised the CEO of Caterpillar, Inc. that the tax hike would expire on schedule in 2013. The company is the state’s largest private employer, and it was getting really nervous about the Illinois’ negative business climate.
But last week, Quinn toned down his prediction. “We’ll have to take it year by year,” Quinn told reporters. “Hopefully, we’ll have a much stronger economy than we have four years from today.”
Hope is not a plan, of course, and bond ratings agencies very often have more influence over state governments than any big business. Quinn has even admitted that the tax hike was all but forced on the state in the face of a major credit downgrade.
Somehow, some way, this state has to finally get its act together.
Discuss.
posted by Rich Miller
Monday, Aug 15, 11 @ 5:42 am
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Right now our Boehner tax( that’s what we call the portfolio, was the Bush taxpreviously) is about $25K for the debt ceiling debacle.
Gotta wonder when Americans will catch on to these hustlers who talk “no new taxes” and then skid the nation’s savings and retirement account into the gutter. BTW still seeing about $50K in losses from the fine Bush Administration oversight of the Wall Streeters. That is not “blaming” as the GOP like to say when trying to escape responsibility just the facts.
The next bit of GOP drama should be renewal of the federal gas tax at the end of September. Everyone can get ready for more losses — unless we are still losing from this charade.
The GOPers need to learn to do their jobs and shelve all their “reforms”
Comment by CircularFiringSquad Monday, Aug 15, 11 @ 5:58 am
So, on the one hand we have the advantage of unified government allowing us to get things done. But on the other hand we somehow, mysteriously, can’t seem to get our act together? Are the two really unrelated?
Comment by Confused Monday, Aug 15, 11 @ 6:12 am
Related: The Savage Truth
As debt crisis looms at state level, Illinois identified as a ‘sinkhole’
The Missing Link:
http://www.suntimes.com/business/7069692-417/as-debt-crisis-looms-at-state-level-illinois-identified-as-a-sinkhole.html
Comment by Quinn T. Sential Monday, Aug 15, 11 @ 6:23 am
After watching the documentary “Inside Job” last night, our rating agencies are useless. The day before the big guys started falling in in 2008, they all had triple A ratings.
Comment by DMAC57 Monday, Aug 15, 11 @ 7:04 am
so the house democrats and the senate democrats aren’t two different parties?
Comment by bored now Monday, Aug 15, 11 @ 8:04 am
Options (a/k/a “Pick Your Poison”):
1) Increase state taxes (already happened; second time around - not going anywhere).
2) Multi-billion dollar budget cuts - Where? - only option I see is literally to say we are resetting all State programs, regulations, and staffing back to 2003 (pre-Blago) and tell everybody to “live with it” (ALL of them)..
3) Pension reform. Nice way to say all current and upcoming state pension holders are going to take a haircut in the benefits packages. And yes, we know and have heard all the arguments why it’s unfair and not possible, but there’s one inescapable fact facing us - “There’s not sufficient money to fund the pensions as currently defined”. And you can say it’s not your problem, but it is your problem.
4) Wipe out (100% eliminate) local government revenue sharing. As part of that, reform the pension system going forward (going to have to be some pretty brutal cuts, including all cost of living increases), dedicate 100% of the previously allocated local government revenue sharing to state pension funding. Let the locals deal with the problem to the best of their abilities. Give local governments the ability to file for bankruptcy (similar to other states).
5) Keep playing the political games (BOTH SIDES) until the bond vigilantes get serious and then we’re really screwed.
Anybody see any other options (which might actually work)?
Comment by Judgment Day Monday, Aug 15, 11 @ 8:37 am
What kind of ROI will Illinois get for the the $100 million plus in incentives from the state
that they gave to Motorola Mobility to keep their headquarters in Libertyville, now that Google is buying them?
If Google is paying a 40% premium for Moto Mobility shares, how much of that is coming back to Illinois tax-payers?
Comment by Quinn T. Sential Monday, Aug 15, 11 @ 8:45 am
very good article, I’m glad Moody’s keeps the pressure on the State to tackle the past due bills and wish the Republican’s would start listening to the credit agencies instead of threatening to call them and begging them to increase borrowing costs to help their gubernatorial campaign.
Quick question, doesn’t the tax sunset in 2015?
Comment by Ahoy Monday, Aug 15, 11 @ 8:57 am
by 2015 I mean, I believe it expires December 31, 2014. Is that right?
Comment by Ahoy Monday, Aug 15, 11 @ 8:59 am
“Hope is not a plan, of course…”
I had to laugh when I read that. Thanks, Rich!
Comment by Regular Reader Monday, Aug 15, 11 @ 9:46 am
Re: Motorola Mobility
It’s more likely that Google will leave Motorola Mobility right where it is. They didn’t buy Motorola Mobility for their advanced technology (that’s an assist, but certainly not primary). Google bought them for their patent portfolio (It’s like well over 2++ times the size of the Nortel patent portfolio that just went for $4.5 bil).
And the Motorola Mobility patent portfolio holds a number of 4G related patents, and Google needs to build their arsenal to avoid more Android centric lawsuits.
Google will probably leave Motorola Mobility here in IL. If Pat Quinn is really smart about it, he would id several members of the IL political community (both sides) who are really tech astute, and have them (led by himself & say, Rahm) to talk with Google.
Bring them a small package of a “peace offering” that really means something to Google (know how Larry Page works - he’s into the “Long Game”): 1) Make Google Chrome the official State of IL web browser; 2) Make Google Apps the official productivity applications software to be used by all state governmental agencies here in IL, and 3) Eliminate the recently enacted “Amazon” tax on Internet sales.
4) Direct State and local governments that they are to make more use of Google+ (social media); SketchUp; Google Earth, Maps, and StreetView. Really push them.
Comment by Judgment Day Monday, Aug 15, 11 @ 10:17 am
From - Quinn T. Sential: “4) Wipe out (100% eliminate) local government revenue sharing. As part of that, reform the pension system going forward (going to have to be some pretty brutal cuts, including all cost of living increases), dedicate 100% of the previously allocated local government revenue sharing to state pension funding. Let the locals deal with the problem to the best of their abilities. Give local governments the ability to file for bankruptcy (similar to other states).”
If the State wants to make all cities home rule, and the State wants to stop forcing unsustainable pension plans on local governments and if the State wants to reform the ILRB and quit imposing unaffordable collective bargaining agreements on local governments and the State wants to be less restrictive on prevailing wage issues for local governments, and the State wants to reduce red tape/reporting requirements… then maybe we can talk about the State not funding local governments.
Comment by Shemp Monday, Aug 15, 11 @ 10:51 am
Originally posted by SHEMP:
“If the State wants to make all cities home rule, and the State wants to stop forcing unsustainable pension plans on local governments and if the State wants to reform the ILRB and quit imposing unaffordable collective bargaining agreements on local governments and the State wants to be less restrictive on prevailing wage issues for local governments, and the State wants to reduce red tape/reporting requirements… then maybe we can talk about the State not funding local governments.”
Don’t have a problem with any of that (Rule for the State of IL: “If they ain’t paying, they ain’t gettin”), except the last part (”then maybe we can talk about the State not funding local governments”).
If you get your wish list, it’s probably going to happen. May very well happen anyway, as “local government revenue sharing” is a big time chunk of change, and honestly, it’s so large that it stands out.
Facts are that nobody wants the pain, but 1) Taxpayers have already taken a pretty good hit, 2) Public pensions are going to take a hit (if not more than one), we’re going to shortly be down to both 3) State government expenditures, and 4) Local revenue sharing expenditures.
Comment by Judgment Day Monday, Aug 15, 11 @ 11:10 am
QTS, I read the Sun-Times article you referenced above and agree that IL’s accounting shenanigans along with the tax giveaways give the rating agencies the creeps. One side note that can’t help is the over one year late release of the State’s official financial statements:
http://www.auditor.illinois.gov/Audit-Reports/Compliance-Agency-List/Comptroller/Comp-Int-Cont-Compliance/FY10-Comptroller-Stwd-Fin-Stmt-(CAFR)-Fin-Digest.pdf
Comment by Anonymous Monday, Aug 15, 11 @ 11:21 am
Judgement Day, if you reset state staffing back to pre-2003 you’d be hiring about 14,000 more state employees than you have now. Rod was not big on state hiring or particularly worried about staffing levels.
Comment by Michelle Flaherty Monday, Aug 15, 11 @ 11:44 am
Pat Quinn is already gearing up to lie to voters again he suggested that the tax increase that he sold as temporary may have to become permanent on Thursday. Just another example of Quinn saying one thing then doing a complete 180 months later.
Comment by Fed up Monday, Aug 15, 11 @ 11:52 am
“This state finally has to get its act together” or what?
Panicked, last-minute measures forced by the bond market seem to be the remedy so far. In the absence of competence it will continue.
I mean you’re talking about a governor who thinks it’s a great idea to collateralize his own failure to maintain cash flow. There is zero indication that any acts are going to be gotten together in the near or intermediate future.
Comment by Dirt Digger Monday, Aug 15, 11 @ 11:53 am
It’s funny that just a year or so after a political uprising based on paying attention to main street rather than Wall Street, we find our selves suddenly obsessed with what Wall Street thinks.
Yes, yes, I know they’re inexorably linked, but the political irony is just too rich.
Comment by Michelle Flaherty Monday, Aug 15, 11 @ 11:57 am
Pretty soon, somebody will come here and post we should not play the blame game and all hold hands and work together.
Comment by Cincinnatus Monday, Aug 15, 11 @ 12:39 pm
Michelle:
“Judgement Day, if you reset state staffing back to pre-2003 you’d be hiring about 14,000 more state employees than you have now. Rod was not big on state hiring or particularly worried about staffing levels.”
You probably have superior information on that, but since we’ve increased revenue, our expenses have increased more.
If it means that other state expenditures have increased since 2003, (in spite of staff reductions), it’s got to be in (a) employee benefits, and (b) programs.
Something’s got to give. We’ve already raised taxes, and even if we keep the “temporary” tax increase as “permanent”, all that appears to do is keep us at even. Pat Quinn got his tax increase - that well’s run dry for at least the next 5-6 years, if not longer.
Hey, Quinn wanted the job to captain the ship, and he got it. Good luck with that.
Comment by Judgment Day Monday, Aug 15, 11 @ 1:18 pm
Michelle is on target. About 11,000 State employees (myself included) retired the end of 2002 as part of the ERI program. While here has a been a little hiring since then, there has also been cuts that actually further reduced State employee headcount. What has gone up is program cost and contractual (consultants) cost.
Comment by Retired Non-Union Guy Monday, Aug 15, 11 @ 6:58 pm
Tough times, no doubt. We’re living through strange, anxious times, but I’d encourage everyone, however, to keep their heads and look beyond the hysteria of the markets/casinos.
Do not equate the shortcomings of our governments on fiscal matters, and the despicable, misanthropic behavior of our financial Masters of the Universe with an underlying weakness in the American economy.
American resources, labor, productivity and power are no different today than they were when the bubble burst in 2008. They are, in fact, awesome and unchallenged.
This capitalist society lacks capital, not because it’s not there, but because the scoundrels who got us into this mess are going for another bite of the apple, taking free money from the Fed and parking it in low-risk guaranteed returns. They get great returns, business starves for capital.
When the history is written on this silly and destructive time, students are going to wonder why there weren’t ropes going over the lampposts on Wall Street.
You’re worried about tax increases? What’s it cost you to get robbed by cheap hustlers, with the the cooperation of your government?
Nevertheless, go long on America, no matter what Fox says. It’s still the only place on earth where your investment enjoys the rule of law in addition to the chance of return.
Comment by wordslinger Monday, Aug 15, 11 @ 9:31 pm
JD, the main reason for expenditure increases since 2003 is neither of the ones you identified; it’s debt service, esp. on the unfunded pension liability.
Comment by steve schnorf Monday, Aug 15, 11 @ 11:50 pm
Lets be honest this problem was not created overnight. It is the result of 30 years of bad budgeting. The GA took more steps this year to address structural budget issues than any GA is recent history. Give them some time, there is no quick fix.
Comment by Joe Tuesday, Aug 16, 11 @ 9:28 am