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* The Senate President referenced this early July Standard & Poors report yesterday. It’s worth a read…
Because the state has a backlog of payments (estimated at $4.25 billion as of May), it is paying its vendors several months in arrears. Illinois’ ability to continue making payments owed from fiscal 2015 will delay the cash flow impact on vendors, at least while these vendors continue to collect back payments from fiscal 2015. However, to the extent that budget adoption is delayed, the state will continue to build on its payables as payments that require appropriations cannot be made.
Furthermore, protracted budget negotiations could have a detrimental effect on the state’s economy due to reduced and delayed spending and investment. Illinois already ranks 48th in year-over-year change in personal income in first-quarter 2015, 49th in year-over-year population change as of July 1, 2014, and 38th in year-over-year employment change as of May 2015.
I made that same economic impact argument in my recent Crain’s Chicago Business column.
* Stating the obvious…
In our view, the absence of a budget, while not affecting debt service, reflects a failure in the fiscal policymaking process. The legislature is looking for the governor to propose tax increases to close the budgetary gap. Gov. Rauner has indicated his willingness to increase income taxes and expand the sales tax base to tax services, but only in exchange for several reforms he is proposing and which haven’t garnered significant support from the legislature. These measures include worker’s compensation and tort reform, and a property tax freeze tied to limits on prevailing wage requirements and collective bargaining. We have yet to see either side exhibit flexibility on their core policy objectives.
* A September pressure point…
And while an extended legislative session can sometimes result in an improved structural alignment or adoption of substantive policy reforms, it can also lead states to resort to budgetary gimmicks. On May 8 we placed our Illinois ratings, including our ‘A-‘ GO rating on the state, on CreditWatch with negative implications. In our view, the outcome of the fiscal 2016 budget deliberations will be pivotal to the state’s credit trajectory given the magnitude of structural imbalance, pension spending burden, and overall liquidity.
As we indicated in our CreditWatch, we could take a rating action within the next two months, even in the absence of an adopted budget if, in our view, there is limited progress in budget deliberations or if credit fundamentals weaken.
posted by Rich Miller
Thursday, Jul 23, 15 @ 9:47 am
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If protracted budget negotiations can have a detrimental effect on the economy, how’s about no negotiations at all?
They haven’t even gotten to about 40 percent of the budget yet.
Comment by Wordslinger Thursday, Jul 23, 15 @ 9:52 am
Morning Rich,
Bruce isn’t worried about this sham threat regarding our credit rating. If the S&P would embrace his U-Turn Agenda, he’ll then implement a budget solution.
Best,
ck!
Comment by How Ironic Thursday, Jul 23, 15 @ 9:59 am
The Governor with the business and financial background may find his leadership as the Executive of Illinois is a significabt reason Illinois’ credit rating takes a hit.
This can’t be blamed on anyone but the Governor.
“Why?”
Let’s see…
From “BruceRauner.com” it says governors own;
“Reality: Pat Quinn Has Seen Illinois’ Credit Rating Downgraded 13 Times, And Our GDP Growth Is Among The Worst In The Midwest
Under Quinn, Illinois’ Credit Rating Has Been Downgraded 13 Times”
Hmm.
Governors own, don’t they… Governor Rauner?
Comment by Oswego Willy Thursday, Jul 23, 15 @ 10:00 am
RNUG, this may affect your prediction. But then again, even this threat may not move Rauner to drop his poison pills.
Comment by Norseman Thursday, Jul 23, 15 @ 10:01 am
Crisis creates opportunity = tax increase
Comment by Anon Thursday, Jul 23, 15 @ 10:04 am
Rauner’s continual bad mouthing of the State, which creates a negative perception, will be one of the reasons for the downgrade. The other will be the clear lack of revenue.
Comment by RNUG Thursday, Jul 23, 15 @ 10:04 am
So this is what it’s like to run Illinois like a business. No wonder we never tried it before.
Is this the hammer, or the shake?
Comment by 47th Ward Thursday, Jul 23, 15 @ 10:06 am
-Norseman-,
it may speed things up a bit but, to be honest, I expected a downgrade before now and did factor it into my guess. I still think stubbornness will override financial common sense.
Comment by RNUG Thursday, Jul 23, 15 @ 10:07 am
The state may not do a “SHUT-DOWN” per se… But the vendors are starting to call and ask questions of us about the budget, their bills being paid, how much longer than 4 months behind will the state be now… etc….
Vendors who do business with the state are watching very closely and could easily shut the state down in a heartbeat by refusing to supply us. many will no longer do business with us due to our glorious pay schedule (don’t call us until it is 120 days or more over due) kind of business… that is what puts businesses out of business.
Comment by Allen D Thursday, Jul 23, 15 @ 10:13 am
@ Johnny Pike,
Recall will come in 2018 during an election. Any discussion other than is just folly.
Comment by How Ironic Thursday, Jul 23, 15 @ 10:14 am
Any more downgrades from the credit rating agencies and the Governor will soon be calling them corrupt too.
Comment by Joe M Thursday, Jul 23, 15 @ 10:14 am
S&P gave AAA rateings to the junk mortgage secirities that collapsed our economy, claiming they were as safe as US Treasury notes!
Since the State has the ability to raise taxes to make sure it meets its debt obligation, and our debt gdp is higher then our debt…. Why does this organization have any legitmatcy? They appear to be playing politics with the state bond rateings and makein up dialogue to support their political agenda. The only question for a bond rateing is the states ability to pay; which would be a comparison of the states gdp, its potential tax income and its monthly debt service. They give companies high rateing to securities and companies that dont have the potential income flow of a state government. This rateing stuff is highly suspect.
Comment by Ghost Thursday, Jul 23, 15 @ 10:15 am
@ Johnny
Rauner has done nothing to deserve a recall, he is doing exactly what he told the people he would do if elected and that is why the people at large elected him….
change is hard
Comment by Allen D Thursday, Jul 23, 15 @ 10:15 am
Way to go, Big Business Man, who would whip everyone and everything in this state into shape because he’s been such a Successful Business Man. It’s working out real great isn’t it? It is an embarrassment to read about this child’s game.
Comment by Anonymous Thursday, Jul 23, 15 @ 10:16 am
===@ Johnny Pike===
Won’t see him no more.
Move along, please.
Comment by Rich Miller Thursday, Jul 23, 15 @ 10:17 am
grasshopper, the road to a tax increase must take many paths.
Comment by Facts are Stubborn Things Thursday, Jul 23, 15 @ 10:18 am
How many downgrades before the Turnaround becomes the Runaground ™ Agenda?
Comment by How Ironic Thursday, Jul 23, 15 @ 10:21 am
The dems are going to win this battle, and I believe that Rauner knows it. This, for Rauner, is about the next legislative election.
Comment by Facts are Stubborn Things Thursday, Jul 23, 15 @ 10:22 am
not to throw another distraction at our political “leaders”, but what if the State went to a 2 year budget cycle, opposite from election years? Just asking
Comment by spidad60 Thursday, Jul 23, 15 @ 10:24 am
I’m skeptical about a sales tax expansion. I haven’t heard much about it lately, like, taxing what? Easier for both Rauner and our esteemed legislators to just hike the ole income tax than to hassle over which services to tax and how much.
Comment by Cassandra Thursday, Jul 23, 15 @ 10:26 am
Rauner can say, “I gave it all I had but without help in the legislature (more republicans) I can not defeat the entrenched Chicago machine politicians. This my fellow Illinois is about standing with me against the Chicago MJM democratic machine. Rally with me, and give me more soldiers (next election) for the next battle so I (we) can win”!
“I lost this fight, but at least in defeat I have shown you what the MJM dems are all about. I will try again, but you must give me more troops.”
Comment by Facts are Stubborn Things Thursday, Jul 23, 15 @ 10:26 am
===“I lost this fight, but at least in defeat I have shown you what the MJM dems are all about. I will try again, but you must give me more troops.”===
Bruce Rauner, like Rod, “it’s an ‘up’ day” Blagojevich never lose.
Rauner will never admit defeat, and further, the Rauner Crew believes, they are winning. No snark. So, there’s that…
Comment by Oswego Willy Thursday, Jul 23, 15 @ 10:32 am
===“I lost this fight===
LOL
If you think Rauner would ever say that, you really need to take a nap for a while.
Comment by Rich Miller Thursday, Jul 23, 15 @ 10:33 am
Facts are Stubborn Things - That line only works if his current troops don’t abandon him once the heat gets turned on.
Comment by Bluefish Thursday, Jul 23, 15 @ 10:34 am
The longer the Rauner goes without restoring the 5% income tax rate, the worse it will get. Rauner requested the rate not be renewed, and his request was granted. Rauner now says he will raise taxes only after his anti-union agenda is passed. Rauner is completely responsible for the budget shortfall. The revenue lost the first 6 months of this year is several billion, and it will have to be made up for later. With Rauner refusing to deal with the budget, bond houses have good reason to downgrade. That will make the interest rates on Illinois bonds go up. Rauner has a lot of buddies that will make a fortune off of that. It seems almost like Rauner is deliberately doing things to lower Illinois rating.
Comment by DuPage Thursday, Jul 23, 15 @ 10:35 am
Do these make Illinois more attractive to businesses wishing to locate or remain in Illinois?
- 31% cuts to higher ed
- 50% cuts to cities, municipalities and counties
- cuts to highways
- cuts to transportation systems like CTA and Amtrak
- very high property taxes because the State provides one of the lowest per pupil state funding expenditures out of all 50 states.
- cuts to social programs that will end up costing more than the original money spent (e.g. moving seniors out of their homes and into nursing homes, etc.)
- more backlog to reimbursing vendors to the state
- no plans to pay the $100 billion+ pension debt
And more ….
But we do have one of the lowest individual state income tax rates out of the 40-some states that have an income tax. But look where that has gotten us.
No wonder the credit rating agencies aren’t impressed.
Comment by Joe M Thursday, Jul 23, 15 @ 10:42 am
Loosing a battle is not admitting defeat in war.
Comment by Facts are Stubborn Things Thursday, Jul 23, 15 @ 10:44 am
Well, Rauner and the Dems could still make the income tax increase (which I suspect will be slightly under 5 percent for individuals) retroactive to July 1. The longer the impasse though, the less politically feasible.
Comment by Cassandra Thursday, Jul 23, 15 @ 10:51 am
DuPage, loosen up the tinfoil, buddy. “Bond Houses” don’t set ratings.
Further, in a rising rate environment, when an issuer’s credit is downgraded, yields on its existing debt do tend to increase ceteris peribus. However, as bond yield goes up, bond price goes down. Always.
Rauner’s “many friends” probably would not like to take a haircut on the Illinois bonds in their portfolios because he can’t get it together and negotiate a budget.
Comment by Arthur Andersen Thursday, Jul 23, 15 @ 10:54 am
=Why does this organization have any legitmatcy?=
Good point, unfortunately it does not matter as they will not be going away.
We issued bonds this year and I was told by our bond company that being in Illinois cost us an extra .5%. That may not seem like a lot but it means another $230,000 in expense to us (and all of our taxpayers including me) over the course of the bond issue.
If they want o improve the business climate in Illinois one good way to start is by paying the bills and paying them on time. After all, we have the capacity.
Comment by JS Mill Thursday, Jul 23, 15 @ 10:55 am
Oops. I meant, the total individual income tax in Illinois will be slightly under 5 percent.
Pretty embarrassing for Rauner to have to re-impsose Quinn’s rate.
Comment by Cassandra Thursday, Jul 23, 15 @ 10:55 am
It is entirely plausible that running Illinois even further into the ground is deliberate. When desperate, people will agree to anything to make it seem better. Driving a hard bargain and playing with peoples’ health and well-being is just nasty-ugly. Ok when dealing with the manufacture and sale of widgets, but the citizens of this state are not widgets.
Comment by Anonymous Thursday, Jul 23, 15 @ 10:58 am
Hey Rich, where is the post on the Cards sweeping the Pale Hose?????
Comment by anon Thursday, Jul 23, 15 @ 10:58 am
“he is doing exactly what he told the people he would do if elected and that is why the people at large elected him….”
Rauner did not tell voters that one of his top priorities would be to strip unions. He is spending too much time attacking unions in one way or another. Too bad he didn’t focus on reforms to workers compensation and property taxes. He has sowed a lot of ill will in his very short time as governor. By the way I would accept some mild reforms in exchange for tax increases.
Comment by Grandson of Man Thursday, Jul 23, 15 @ 10:59 am
Sorry, I added one too many zeros. Should be $23,000 over three years. That is still real money to us.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:09 am
@Arthur Anderson,
Just trying to think WHY, what could Rauner’s reason for irrational governing be?
Comment by DuPage Thursday, Jul 23, 15 @ 11:10 am
===Rauner has done nothing to deserve a recall, he is doing exactly what he told the people he would do if elected and that is why the people at large elected him…. ===
I totally disagree with this assessment! In the campaign, Rauner was always very vague except for “shaking up Springfield.” Many of the things Rauner wants now never came up during the campaign, and Rauner has done a 180 on other things. Just like the old saying for many voters … “If I only knew then what I know now”!!
Comment by forwhatitsworth Thursday, Jul 23, 15 @ 11:12 am
==So this is what it’s like to run Illinois like a business. No wonder we never tried it before.==
And what exactly was the winning legislative recipe before “running it like a business” that got us to this point?
==But we do have one of the lowest individual state income tax rates out of the 40-some states that have an income tax. But look where that has gotten us.==
Overall tax burden is what matters. No politician has come out and claimed significant reductions in property taxes to offset an income tax increase.
Comment by nixit71 Thursday, Jul 23, 15 @ 11:15 am
- forwhatitsworth -
“Buyer’s remorse” is NOT grounds for recall. Ever.
When others ignorantly saying they want recall get the mandated GA signatures, (which will be never under your criteria) you’d be just as surprised as everyone.
Comment by Oswego Willy Thursday, Jul 23, 15 @ 11:20 am
Fascinating to see people write that the governor is “doing exactly what he said he’d do” during the campaign.
How do you get to that conclusion? It’s bizarre.
Comment by Wordslinger Thursday, Jul 23, 15 @ 11:20 am
=No politician has come out and claimed significant reductions in property taxes to offset an income tax increase.=
Because they know what the real effect of lowering property taxes would be and do not intend to offer revenue from the state to replace lost local revenues. These guys in the ILGA are all locally elected. That is where the hit will come with a freeze. They know it, that is why it has not happened quite yet, in my opinion. I am not saying it won’t, they have to figure out how to ease the pain locally or they don’t get elected again.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:21 am
If Rauner had come out with his venomous fixation on obliterating unions while running for office, does anyone think he’d have gotten even one union vote? The man is sly.
Comment by Anonymous Thursday, Jul 23, 15 @ 11:23 am
=Rauner was always very vague except for “shaking up Springfield.” =
Then it is their fault for voting for him if they thought he was “too vague”. They bought into the campaign slogans, they own it.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:23 am
JSMill—-How many property owners where you reside that pay that @23,000?
Comment by anon Thursday, Jul 23, 15 @ 11:24 am
Thanks to Madigan’s 28 years of democrat one-party rule and their over spending, the cost of credit for Illinois is about to go up. And who suffers the most? The middle class. We will remember.
Comment by Nobody important Thursday, Jul 23, 15 @ 11:27 am
===Thanks to Madigan’s 28 years of democrat one-party rule and their over spending, the cost of credit for Illinois is about to go up.===
Governors Thompson, Edgar, and Geo. Ryan thank you for glossing over them.
Speaker Daniels and President Phillip, they’re just snickering at you.
Comment by Oswego Willy Thursday, Jul 23, 15 @ 11:30 am
Oswego -
Everybody knows that democrats control the state with their super majority. They do not need any governor. With the super majority, they can pass anything, then over-ride any governor veto.
Democrats have total control. Therefore, they take total blame.
Comment by Nobody important Thursday, Jul 23, 15 @ 11:34 am
===Everybody knows===
Ask Jack Franks.
Comment by Rich Miller Thursday, Jul 23, 15 @ 11:35 am
- Nobody important -
I derailed your “28 year” gag, you fail to understand the dynamics of the Illinois General Assembly, and you speak for “everybody” with you lack of knowledge.
That’s a busy mornin’ for anyone.
Comment by Oswego Willy Thursday, Jul 23, 15 @ 11:37 am
=JSMill—-How many property owners where you reside that pay that @23,000?=
Our tax rate (school only) is 5.45, what is yours?
To answer your question..as many as are assessed with a property value that is high enough to require it. Median house prices here is less than $75,000,
But thanks for asking.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:52 am
BTW- Wages are lower here too.
Please, come on down if you think your taxes are too high.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:54 am
Property tax rates have to be taken with property value as well. Sure CA has a lower tax rate, but the values mean that property tax bill is still wy way higher then most people in Illinois pay on comporable income.
Comment by Ghost Thursday, Jul 23, 15 @ 11:54 am
@ Ghost:
“Sure CA has a lower tax rate, but the values mean that property tax bill is still wy way higher then most people in Illinois pay on comporable income.”
What are you talking about? I bought a house 2x as expensive as my previous home in Illinois. 2x as expensive. Let that sink in.
Now, my property tax for my new home (2x as expensive) is $3,000 less per year than it was in Illinois. And it doesn’t go up each year either.
Also, my income substantially increased in CA, further reducing the burden.
So in short, I make more, have a more expensive home, and pay far less in property tax than IL.
I’m not saying taxes are not high here, because income tax IS higher. But property taxes? Way less. Way less.
Comment by How Ironic Thursday, Jul 23, 15 @ 12:23 pm
Oswego -
Sorry to burst a bubble….but just because a liberal says something, does not make it so. Facts are stubborn things. To paraphrase Regan, It’s not that democrats are always wrong. It’s that they think to many things that simply aren’t so.
Comment by Nobody important Thursday, Jul 23, 15 @ 12:28 pm
- Nobody important -,
Quoting Reagan…
Doesn’t dismiss Jack Franks… or
Republican Governors Thompson, Edgar, Geo. Ryan… or
Republican Speaker Daniels… Republican Senate President Phillip… or
That you are a Troll.
Comment by Oswego Willy Thursday, Jul 23, 15 @ 12:31 pm
=== Rauner…is doing exactly what he told the people he would do if elected and that is why the people at large elected him…. ===
“I am not anti-union, that’s a false statement by my opponents” — BR From a January 2014 appearance on Robert Rees’ Bloomington Cities 92.9FM show…
“Pushing any specific labor regulation is not my priority at all,” Rauner was quoted in regards to right-to-work, Illinois Radio Network, 10-17-14.
Comment by nona Thursday, Jul 23, 15 @ 12:31 pm
JSMill—-In other words, chump change in the whole scheme of things. You tried to make a point with a figure of $230,000 and then went oops, it is $23,000. Only $207,000 off. $23,000 over 3 years, $7667 annually.
Your school district probably wastes more in chalk than that figure.
Comment by anon Thursday, Jul 23, 15 @ 12:38 pm
So Dems are pointing to Wall Street in calling for action while the GOP gov pushes what amounts to a socio-political agenda.
Well, I suppose that’s at least a shuffling of Springfield if not the promised shakeup.
Comment by Michelle Flaherty Thursday, Jul 23, 15 @ 12:54 pm
Just a ‘heads up’, here’s one that’s going to be even more immediate - likely starting tomorrow:
Link is: http://www.zerohedge.com/news/2015-07-23/pimco-sees-long-term-value-chicagos-junk-ahead-key-court-ruling
When the ‘Hedgies’ start talking about this stuff ahead of the ruling, you might want to pay attention. Yeah, I know it’s from IPI, but it’s still all about the numbers and if the pension ‘reforms’ are invalidated, it’s impact is going to be a lot more immediate in the fiscal markets.
This game is getting downright complicated.
Fun times.
Comment by Judgment Day (on the road) Thursday, Jul 23, 15 @ 1:58 pm
@anon- bite me. I made an error and caught it, called myself on it and corrected if. It is called accountability, read up on it.
$23,000 is a lot to us. We watch every penny. I care about the value to our community, the same one I live in. That “chump change” is the equivalent to the cost of extra services for a special needs student every year. That means a lot to us.
Also, step into the 21st century. Nobody uses chalk.
Comment by JS Mill Thursday, Jul 23, 15 @ 5:04 pm
@How Ironic- So, is your California income tax lower on the same or higher income too? I don’t think so. Many, many other costs are significantly higher as well. Insurance, basic goods, gas. Lives there for a few years, not long ago. They get you one way or another.
Comment by JS Mill Thursday, Jul 23, 15 @ 7:58 pm
JS, the chalk remark was snark, sorry you didn’t catch it. The real estate taxes on properties will go up this year, next year and every year, even if property are stagnant. School districts get about 58% of those tax bills. You have plenty.
Comment by Anon Thursday, Jul 23, 15 @ 8:40 pm
Don’t forget California also runs it’s own work comp system and employees and employers pay for it out of their checks!
Comment by Anonymous Thursday, Jul 23, 15 @ 9:58 pm
@anon- nice drive by. I didn’t catch it at first, I am not as good as others are at that.
I have plenty- interesting statement considering you have absolutely no clue what we have. If you are that good at divining information, you should play the lotto frequently.
To your latest erroneous statement backed by absolutely no data- taxes may or may not go up. The rate may or may not remain the same. It depends on where you are and the laws governing that county.
Use the google, learn something, come back when you are capable of real discourse.
Comment by JS Mill Thursday, Jul 23, 15 @ 10:34 pm
@anon- also, be consistent. Is it chump change or enough. I am confused by your varying responses.
That was rhetorical by the way, I really don’t care what people like you think. And I am some feeding trolls today.
Comment by JS Mill Thursday, Jul 23, 15 @ 10:38 pm
JS, my real estate taxes on several properties go up every year, without exception. School districts get roughly 58-60% of the real estate taxes. Let me simplify this for you—-58% of $5000 = $2900. 58% of $5250 = $3045. One moderately priced property, year after year.
You get more money every year. There is the raise you say you deserve and there is the health insurance you say the taxpayers owe you.
Comment by anon Friday, Jul 24, 15 @ 7:32 am