More bad budget news
Tuesday, Dec 8, 2009 - Posted by Rich Miller
* Budget director David Vaught told Chicago Public Radio that he wants state agencies to cut 14 percent from their spending…
VAUGHT: We don’t want people to, to think that this is a minor situation. It’s not. We’ve got some serious problems that involve big numbers. And so we’ve got to plan in double digits. And so to say to agencies ‘we want you to cut 10 percent’ just would not have been realistic.
Vaught says he hopes to save two billion dollars by cutting the budgets of state agencies. He’s also looking at borrowing more money and raising taxes.
If there’s no tax increase, and I’m really doubtful about that, then a 14 percent spending cut will look like chicken feed this time next year.
* Remember last week when Gov. Pat Quinn was trumpeting a positive bond rating from Fitch as evidence that his fiscal stewardship was working?…
Armed with a new AA bond rating from Fitch Rating Service that he says demonstrates the state is a “good credit risk,”
You probably didn’t catch that unless you’re a subscriber. As I told subscribers this week, the Fitch rating was on bonds that are not only secured by the sales tax, but have first dibs on sales tax receipts, so the rating wasn’t exactly a huge deal, nor a direct reflection on Quinn.
Today, though, Moody’s downgraded some debt ahead of the sale of those very same sales tax-backed bonds. Well, I’m wondering what the guv thinks now. This is from Reuters. No link yet, but it’ll pop up soon…
Moody’s Investors Service on Tuesday downgraded Illinois’ general obligation bond rating to A2 from A1, citing the state’s financial woes.
Moody’s said it also downgraded other Illinois ratings, affecting about $24 billion of outstanding debt, including the state’s Build Illinois sales tax revenue bonds, which were also cut to A2 from A1. […]
As a result, Moody’s also revised the outlook for the state’s GO and related ratings to negative, “reflecting the continuing likelihood of large structural budget deficits, growing negative year-end fund balances, strained operating fund liquidity and mounting pressure from pension and retiree health benefit obligations.”
More…
Moody’s said Illinois identified an $11.6 billion budget gap–a $4.3 billion deficit for the latest year and a projected $7.3 billion one for the current year–when the firm began its review of the state’s ratings five months ago. That $11.6 billion gap accounted for more than a third of the state’s expenditures last fiscal year and was one of the largest among U.S. states.
Making matters worse, the governor’s proposal in March to address the gap this fiscal year by raising tax rates by half and reforming pensions failed to win support in the legislature
* Meanwhile, in other news, perhaps the idea that the state’s legalizing of video poker will take the Outfit out of the picture will gain a little bit of media traction now that the Sun-Times is reporting that a federal investigation is afoot…
A federal investigation of mob-backed video poker machines is now under way in the Bridgeport neighborhood, sources have told the Chicago Sun-Times and NBC5 News.
Yeah, it’s the mayor’s old neighborhood, so that’ll probably dominate the news. But there’s much in the Sun-Times story worth keeping in mind when you decide it’s OK by you to maintain the status quo. For instance…
Authorities believe the video poker machines, which produce illegal payouts, tie back to the operation of the late Joseph “Shorty” LaMantia, a top lieutenant in the 26th Street Crew.
LaMantia, in turn, worked under Frank Calabrese Sr., who was convicted in 2007 in the historic Family Secrets trial, involving 18 unsolved mob murders. Calabrese, Joseph Lombardo and three others were found guilty on racketeering and conspiracy charges.
Prohibition enriched mobsters beyond their wildest dreams. Heck, we’re still seeing the effects of it today. Calabrese belongs to the same outfit Al Capone once perfected.
What the Sun-Times editorial board and others are missing is that the current quasi-legal machines can only operate under a special state amusement license. Those licenses expire as soon as the new legalization program kicks off. If tavern owners keep the unlicensed machines, the machines can be seized and destroyed. No more need for long, expensive investigations of possible illegal payouts. They’re just gone.
* Related…
* Editorial: State nearing its limit on gambling
* Morton: No video gambling
- 47th Ward - Tuesday, Dec 8, 09 @ 1:06 pm:
I thought Quinn’s statement on the last bond rating was a recipe for disaster too Rich. If you take credit for better ratings, you own blame when they decline. Good luck spinning this one Governor. And don’t expect much improvement in the debt ratings going forward either.
The money line:
“the governor’s proposal in March to address the gap this fiscal year by raising tax rates by half and reforming pensions failed to win support in the legislature”
Ouch, that’s a 3rd party indictment from the only credible source that matters.
- cassandra - Tuesday, Dec 8, 09 @ 1:08 pm:
Mr. Vaught is new to his job but presumably has lived in Illinois a while so I’m sure he won’t be surprised when the response from the general public is a big yawn.
Doomsday comes practically every season to Illinois state government….and then it doesn’t.
It seems like we’re just recovering from the Quinn doomsday scenario of 2009 spring and summer.
Are we going to have another one before X-mas?
I’m wondering if we are getting the best information about the possibility of additional federal aid, given the importance the WH has placed on preventing state and local layoffs.
Hopefully, Mr. Vaught has contacts in DC who can keep him up to speed on that option, which could
help substantially in getting us through this fiscal year.
- Montrose - Tuesday, Dec 8, 09 @ 1:15 pm:
Is that 14% cut for yet this fiscal year?
- wordslinger - Tuesday, Dec 8, 09 @ 1:18 pm:
The Outfit lost a fortune when the state started the lottery, putting the policy wheels out of business.
Still, with all the opt outs on legal video poker, there might be a market for illegal machines.
- wizard - Tuesday, Dec 8, 09 @ 1:36 pm:
Word, my local watering hole says even if the municipality opts out they cannot under the new laws keep their “old” machines negating the status quo. Not sure if that is correct or not.
- Rich Miller - Tuesday, Dec 8, 09 @ 1:40 pm:
===Not sure if that is correct or not. ===
It is correct. See above. The “amusement only” licensing expires on those machines.
- Capitol View - Tuesday, Dec 8, 09 @ 1:52 pm:
14% from state budgets is a disaster. Imagine community based agencies being forced to accept their share of these cuts, in state agency spending.
Think of all the jobs lost as local providers of services to state agency clients close their doors,after this shabby treatment. Many are holding on in hopes of a major tax increase in early 2010 — which simply is not going to happen, even if more band-aids are proposed to pay the overdue reimbursements.
The two parties are fighting over who will be the captain and the legislative crew as the state government Titantic sinks in debt below the waves.
Time for responsible governing and tough choices about revenues, or 2010 will be a disastrous year for Illinois regardless of who wins the primaries and general elections…
- dupage dan - Tuesday, Dec 8, 09 @ 1:59 pm:
I suspect it is too late to enact tax increases in an election year. Not that I am a fan of same.
The state agency I work for has been cut to the bone. Future cuts will be crushing for those we serve along with the employees.
Some of this is the result of the reality of market economies. Most blame will rest on the Illinois GA and gov administrations. Small comfort.
- Captain Flume - Tuesday, Dec 8, 09 @ 2:02 pm:
After the last session when state payrolls were going to be late, Speaker Madigan also made some comment about the hysteria of doomsday. It’s a cry wolf mentality which scares mainly the people dependent on state funds for their jobs. The private sector is more skeptical about what the state “needs” and probably figures a 14% reduction is not the end of the world, since it is largely private sector tax dollars that are being spent.
- cassandra - Tuesday, Dec 8, 09 @ 2:29 pm:
I’m wondering what “cut to the bone” means, exactly.
I don’t believe there have been any layoffs in state government and unionized state employees (nearly all of them) are receiving a 16 percent
raise over the current four year contract. I’m told that hiring continues including (legal) hiring of the politically connected. It’s harder to determine what is going on with Illinois $15 billion or so worth of contracts and to separate payment delays from actual reductions but Hynes, at least, claims that Quinn has increased contractual spending in certain areas where Hynes
felt there could be reductions. There has been no reduction in pension benefits….in fact, employees hired today have the same defined pension benefits as their colleagues with more seniority, even though defined pension benefits
are rapidly disappearing from the US private sector, whose employees must fully fund their retirements outside Social Security. And entitlement spending (Medicaid, food stamps,etc)
has benefited from increased Federal spending to aid the states.
Cut to the bone how?
- Obamarama - Tuesday, Dec 8, 09 @ 2:41 pm:
===There has been no reduction in pension benefits===
Correct me if I am wrong, but you can’t do that retroactively.
- dupage dan - Tuesday, Dec 8, 09 @ 2:44 pm:
Cassandra,
What it means for our agency is positions not being filled. People come and go from any business enterprise. New hiring is not occuring. This is the least painful way of cutting a budget. That doesn’t mean it doesn’t have an impact on the effectiveness of the organization. The loss has an insidious effect on the quality of service that is provided. Our agency is one disaster away from becoming the lead story on the 6 o’clock news. Low staffing levels are not likely to be accepted as a reasonable explanation for what occured.
Hiring going on at the top levels of gov’t have little to do with staff levels in front line jobs. Comparing them is not really fair.
Remember, please, that it is the union that negotiates the contracts, rank and file have little direct impact on that. Most in my agency would be willing to take furlough days to help offset state losses but are not able to make good on that desire due to the fact that our union won’t even consider that without being assured that it would have some concrete benefit.
Certainly, defined pension benefits are outmoded and should be phased out. I would gladly change over my program to a more modern investment instrument but I can’t just opt out of the program.
I didn’t say that the state has cut to the bone - I was clear in indicating that it was my agency that has seen little growth in head count and the budget has not increased in recent years. You morphed my comment into a general one about the state. I can only comment on what is happening in my neck of the woods. I hope I have made myself clear.
- Confused on Bond Ratings - Tuesday, Dec 8, 09 @ 2:52 pm:
Rich,
Read the Reuters story per the link you provided and found the following:
“Ahead of the $530 million sale of Build Illinois bonds, S&P affirmed an AAA rating, while Fitch affirmed an AA rating based on strong debt service coverage provided by the sales tax.”
Can you explain why the other rating agencies are so much better and higher than Moody’s you cited?
- Rich Miller - Tuesday, Dec 8, 09 @ 2:54 pm:
===Can you explain why the other rating agencies are so much better and higher than Moody’s you cited? ===
I think the difference is the number of bonds that were rated. Fitch based its rating only on one type of bond - Build Illinois sales tax with first dibs. That is probably it.
- Obamarama - Tuesday, Dec 8, 09 @ 2:58 pm:
===Can you explain why the other rating agencies are so much better and higher than Moody’s you cited?===
1. Different firms rate bonds using different scales.
2. The state has the ability to issue different types of bonds that are backed by different public monies. Depending on the size of the bond issue and the state of the particular set of public monies backing that bond issue, the rating can and does vary.
- Confused on Bond Ratings - Tuesday, Dec 8, 09 @ 3:19 pm:
Thanks for explanations.
Moody’s seemms to be marching to its own drummer! Here’s headline and link to story from Today’s Trib:
“Moody’s says US, Britain have to fix public finances to avoid threat of rating downgrade”
http://www.chicagotribune.com/business/sns-ap-government-finances,0,6956428.story
Looks like Moody’s is really on the warpath.
- cassandra - Tuesday, Dec 8, 09 @ 3:42 pm:
Obamarama-I know that. I’m just pointing out that this is an area of state financing that hasn’t changed…and certainly hasn’t become less expensive.
DuPage Dan-I assume all state agencies hire within fixed headcounts, at least fixed within each fiscal year. If the Quinn administration
is using that headcount to hire political appointees in lieu of needed frontline staff,
that would be a good topic for various investigative bodies to examine. In the absence of a total hiring freeze (I don’t think there is one) there should be at least some capacity to hire if the agency is under headcount.
- Anonymous - Tuesday, Dec 8, 09 @ 4:10 pm:
==If the Quinn administration
is using that headcount to hire political appointees in lieu of needed frontline staff,
==
The Quinn administration has continued to hire political appointees throughout this year. I’d like to think those positions needed to filled, but I am not necessarily sure.
Larry Yellin of FoxChicago ran a good story lastnight on how the state is doing post G-Rod. Quinn, Rodogno, Cross and Franks were interviewed, as was G-Rod.
State Rep. Jack Franks doesn’t think things are so new and improved under Quinn, and he was quite candid, as usual, in his assessment and comments. Seeing Franks lastnight made me wonder what the democratic primary race would look like now with him in it? It was good to see him on tv lastnight.
- Cindy Lou - Tuesday, Dec 8, 09 @ 4:13 pm:
Cassandra, go over and looksee at the budget stuff going in this FY, there was two distinct money for salary, one union, one non-union.
Not going to get into this, Dupage Dan, no desire to rattle off topic, but you’re statement indicating that the ‘union’ took control and you’re a poor innocent helpless bystander in the process is not accurate. No idea what local # you have, nor care, but if you look at the back of your available contract you will find from page 291-301 the signatures of the bargaining unit contract negotiating team with their locals behind signature. Then you can go over to Quinn’s new State of Illinois Transparency and Accountabilty site and run the names that might interest you for their job title–yeah, the regular yous and mes of the make-up. Then if you are still wanting to say you have no say and apply it to this fall’s negs you sent down your local prez who was representing you and who you had a part in electing. The prez pre-entering vote was an overwhelming “NO”. So I guess if you then still think you have/had little say you could try getting more involved in your local and/or putting yourself up at election/volunteer times. You are the ‘union’.
- dupage dan - Tuesday, Dec 8, 09 @ 4:15 pm:
Cassandra,
A lot of “ifs” in your comment. Under RodB, many agency budgets (including ours) were cut or remained the same. This while work loads increased. We were asked several times to take cuts in the budget and we accomplished this by leaving some positions open. There is little else (read “fat”) to cut from the budget, as a result. A 14% cut would be hard, indeed. Given the nature of the beast, that cut would be small compared to what is coming.
The doomsday predictions have happened so much it is hard to take them seriously. The numbers are hard to ignore, however. It’s not the same as the whining of the CTA every year. The deficit is real, tangible, implacable.
- Anonymous - Tuesday, Dec 8, 09 @ 4:18 pm:
The Quinn administration is officially blaming the state’s fiscal crisis on previous governors and our nation’s economy. I’m somewhat surprised that Quinn isn’t (yet) blaming the GA too.
http://www.suntimes.com/news/politics/1927510,illinois-credit-downgraded-quinn-120809.article
- dupage dan - Tuesday, Dec 8, 09 @ 4:28 pm:
Cindy Lou,
I have been a member of 4 unions in my lifetime. I was a boilermaker (AFL-CIO), Aerospace and Machinists, Sheetmetal Workers and AFSCME. I know a little bit about how unions work/don’t work. I am quite aware of how little power the typical employee has over the activites of the employer and the union. I don’t know any of the people who have signed their names to the contract. I never chose any of them to represent me.
In a perfect world, I would like to have impact on the entities that have control over my life. My agency is quite small (state-wide head count 130). We are a pimple on the rear end of an elephant. I harbor no illusions regarding my ability to have impact on the activites of people in the upper echelons of the union. You saying I do doesn’t make it so.
- Sam E. - Tuesday, Dec 8, 09 @ 4:37 pm:
I generally agree with Rich’s take on this video poker issue, but I think it’s naive to think illegal video poker will cease when the state license stickers expire. The taverns all break the law now by paying out on the machines. They’re not suddenly going to get religion and stop breaking the law because the state didn’t issue them a new sticker on their “for amusement only” machine.
The biggest problem with the legalization of video poker is strictly a regulatory issue. It is impossible to police so many machines at so many locations. I have little doubt that some taverns will place unlicensed machines next state regulated devices and collecting bets off the books.
The entire thing should be scrapped in favor of placing slots and video poker at the tracks. Segregated vice is the way to go.
- Rich Miller - Tuesday, Dec 8, 09 @ 4:38 pm:
===They’re not suddenly going to get religion and stop breaking the law because the state didn’t issue them a new sticker on their “for amusement only” machine.====
Except now it becomes a tavern licensing issue, and they tend to protect their licenses.
- Cindy Lou - Tuesday, Dec 8, 09 @ 4:42 pm:
I’m not going to ask you, Dan, how you voted when the last contract was put forth for your vote. You did vote, right?
- dupage dan - Tuesday, Dec 8, 09 @ 4:52 pm:
Cindy Lou,
I am now on “fair share” status with the union.
- RJW - Tuesday, Dec 8, 09 @ 5:08 pm:
Cassandra:
You can gripe about the union contract all you want but right now it is what it is. Layoffs have been tried and the union filed a lawsuit and won an injunction. There will be more layoffs coming in the near future, but I expect the same thing to happen. I personally think the Governor should try to seek some sort of authority to declare a budget emergency and go to the courts to void the union contract. Yeah, I know its fantasyland but if you are going to cut the budget payroll has to be part of the cut. I’m taking pay cuts with furlough days and, yes, it does suck. But, I have a job. Good enough “benefit” for me for now.
- Sam E. - Tuesday, Dec 8, 09 @ 5:21 pm:
That’s true about the licensing issue, Rich, but gambling convictions can cost them their liquor license, too. Which, as we know, doesn’t happen much because gambling raids are rarely conducted.
Which leads back to regulatory issues and having the resources to enforce the law at so many different locations. Just as law enforcement can’t effectively police illegal video poker now I don’t think the gaming board will be able to effectively police lawful video poker in the future.
- Cindy Lou - Tuesday, Dec 8, 09 @ 5:58 pm:
RJW, the injunction is temporary, the layoffs can not be stopped forever and likely will be pretty massive when they do begin.
- concerned citizen - Tuesday, Dec 8, 09 @ 6:01 pm:
@capitol view
Right on!!!
- steve schnorf - Tuesday, Dec 8, 09 @ 6:04 pm:
Build Illinois bonds have almost always been rated higher than Illinois’ GO debt. If you think about the reason, its very silly. Build Illinois is rated highly because the percentage of sales tax revenue pledged to debt service provides very high coverage. GO bonds, on the other hand, are backed only by the full faith and credit of the State of Illinois, which includes, of course, its sales tax.
- state employee - Tuesday, Dec 8, 09 @ 6:09 pm:
@cassandra and dupage dan,
I’m a caseworker in Chicago, for Dept Human Services. The state has NOT hired front line caseworkers/staff in well over TWO YEARS now.
My caseload has increased about 50% IN THAT TWO YEARS. We are stressed, forced to cover up to two caseloads at a time, and forced to face clients when they are angry that they don’t get their food stamps on time.
- Rich Miller - Tuesday, Dec 8, 09 @ 6:21 pm:
===Build Illinois is rated highly because the percentage of sales tax revenue pledged to debt service provides very high coverage.===
Exactly, Steve, and that’s what I explained above.
- Leatherneck - Wednesday, Dec 9, 09 @ 7:57 am:
The St. Louis Post-Dispatch is saying this morning that the 14% cuts will be for the FY11 budget and that they will only target “small and medium” agencies (the story mentions that a list of those agencies affected was given to the newspaper from the Governor’s office). Will this be only agencies under the Governor’s jurisdiction, or could the budgets of the constitutional officers (e.g. Comptroller–whose office I wouldn’t be surprised if BIG budget cuts occur there in the aftermath of the Democratic gubernatorial primary; SOS; AG; etc.) or the General Assembly also be affected too?
http://www.stltoday.com/stltoday/news/stories.nsf/illinoisnews/story/9F162FADAC9816788625768700128CEA?OpenDocument