56 Comments - wordslinger - Friday, Jan 21, 11 @ 8:58 am: The NYT story is incredibly shoddy and irresponsible journalism (I guess that’s why it tops Drudge). No quoted proponents. No bill. It’s pulled out of thin air, somebody’s trial balloon — apparently bankruptcy lawyers and folks like Newt who want to bust employee unions in the courts. The story admits that it’s “extremely unlikely” that any state will default (they haven’t since the 1830s) and that even talking about bankruptcy hurts muni governments in the credit markets. They’ve got that right. The story will pound muni bonds in the market today. Those with short positions will make a bundle. Makes you wonder what the motivation was to print the story. Maybe R. Foster Winans found work at the NYT. - With All Due Respect - Friday, Jan 21, 11 @ 9:06 am: To Comptroller Topinka - I am amazed that you are able to predict what state spending will be 2,3 or 4 years from now — which is what you must be able to do to determine the backlog of bills. What would that backlog be without the tax increase — which by the way none of your Republican comrades supported> - Secret Square - Friday, Jan 21, 11 @ 9:10 am: Yes, Word, that has got to be one of the worst leads ever on an NYT story. “Policy makers” — for whom? Federal or state government? White House or Congress? What federal agency? We’re not given an idea until well down in the story. No editor I ever worked for would ever have allowed a vague, unsourced story like this to appear in print (or on the Web). - U-Haul Ho! - Friday, Jan 21, 11 @ 9:14 am: Is the NYT article just a by-product of the hysteria that was needed to get the income tax hike here in Illinois? I’m sure this will all blow over in a few weeks. - cassandra - Friday, Jan 21, 11 @ 9:15 am: I think the back story in these and other accounts of impending public pensions disasters is a struggle with public employee unions. It’s a debate that needs to take place, especially in a country where, increasingly, private sector employees must rely on savings and defined contribution plans for their retirements. And where Medicare is looking shaky, meaning many of today’s younger private sector employees may have to fund a larger part of their retirement health care. - Responsa - Friday, Jan 21, 11 @ 9:16 am: Word, I’m sure you are correct that this is a trial balloon being floated. However, the fact that the balloon was launched by the NYT, without attribution other than “policymakers”, and the fact that it is headlined on such politically diverse websites as Drudge and MSNBC suggests to me that this “story” is likely originating from somewhere high up in the O administration for some reason or other. Unless I’ve missed it, nobody from Washington has poo pooed it publicly yet, or said it is completely laughable and out of the question. Should be interesting to see what happens and if the new White House COS has anything to say. - Rich Miller - Friday, Jan 21, 11 @ 9:17 am: ===the fact that the balloon was launched by the NYT=== It wasn’t launched by the NYT. It was launched by a Wall Street Journal blogger several days ago. That piece was posted here. - Anonymous - Friday, Jan 21, 11 @ 9:28 am: This isn’t a surprise. It gives the state governments the upper hand in their negotiations with the unions. They can say “if you don’t negotiate in good faith, we’ll go to bankruptcy and everything goes away.”. And the State of Illinois is hardly out of the woods. The expenses are known moving forward, the revenues are projected. Just wait until the revenues don’t come in. - Irish - Friday, Jan 21, 11 @ 9:30 am: Once again Jon is spot on and his satire is excellent. One facet of this whole tax increase that hasn’t been mentioned yet, and I don’t think a lot of folks in Springfield understand yet, is their spending really has to be watched for the next four years. I don’t think it has quite sunk in that the old “there isn’t enough money” line can’t be used for a while. You can’t raise income tax 66% and then close facilities. It is understood that the money will not be available instantly, and it will take a while for the revenues to begin to make a difference. But I am noticing that in certain areas of my Agency the upper level folks have not been cutting back in their budgets but they are cutting in the frontline areas. That will not fly when someone who is paying a 66% increase in their income tax goes to get a service that has been reduced. Unless I am missing something I don’t see that anyone in the decision making area has a real grasp on the true fiscal problems. I am absolutely not inferring that the tax increase should have been higher, but I am saying that this tax increase is not a silver bullet, and that message is not being mentioned enough. JBT might have a little bit of an ulterior motive for her comments, but she also might be trying to point out that the tax increase is not going to fix everything. - Responsa - Friday, Jan 21, 11 @ 9:30 am: Thanks Rich. I missed the WSJ piece. But that is even further support that the story is being “pushed”. The NYT does not regularly use the WSJ as a source, and if the NYT thought for a minute that a state bankruptcy plan was being hawked by “policymakers” like Newt, or the Heritage Foundation one can bet they would have said so. It is telling that they did not. - cassandra - Friday, Jan 21, 11 @ 9:32 am: “originating from somewhere high up in the O administration” I hope the WH is concerned about this. Maybe those who say no state would ever default ever are correct. But I don’t know what is going on in all those states. And if a default were to occur, it could come on fast, like the bank meltdown, requiring the feds to make some quick decisions. - piling on - Friday, Jan 21, 11 @ 9:34 am: The NYT piece would have you believe the Prez would sign off on letting states dump their union contracts and pension obligations JUST IN TIME to go campaign for re-election. Brilliant! - Amuzing Myself - Friday, Jan 21, 11 @ 9:39 am: Agree with Irish. There is a misconception - especially here - that this tax increase (with additional borrowing on the horizon) is going to “fix” our budget problems. If you believe that, I expect you to be absolutely astonished in a couple of years when things are still just as bad. You can’t help an addict by giving them more of the substance they abuse. Maybe Quinn or Madigan or Cullerton really do want to keep spending in check (that’s debatable), but if you think their caucuses are going to agree to go YEARS after a tax increase without increasing spending, you weren’t paying attention when legislators were trying their hardest to get NEW SPENDING included IN the tax increase deal. This is Illinois. Until the way government is run is significantly changed, we’re in for a really long haul - as long as we can stand it, anyway. And a lot of municipalities haven’t had to pass everything on to local taxpayers yet… - steve schnorf - Friday, Jan 21, 11 @ 9:40 am: Respect; you make assumptions about revenue and spending, and wait until they are refuted. The spending ones are the ones that need to be refuted, believe me. As the old c&w song says, “cowboy change your ways”, or that number is exactly where we are heading. - RetiredStateEmployee - Friday, Jan 21, 11 @ 9:43 am: “…insolvent pension funds, that are diverting money from essential public services like education and health care. ” One of the first problems with this story is that this statement is the opposite of what has happened in Illinois and I suppose in many other states. In fact, Illinois has diverted money from the pension funds for other purposes for decades. The public in general never opposed that diversion. Now, it has caused a major problem and the state employees have become the scapegoat for past malfeasance. - Secret Square - Friday, Jan 21, 11 @ 9:44 am: “The NYT piece would have you believe the Prez would sign off on letting states dump their union contracts and pension obligations JUST IN TIME to go campaign for re-election.” And if he did… wouldn’t it take a lot of wind out of the GOP sails? Remember, public employees and their unions are the new “welfare queens”. For every vote Obama might lose by relieving states of their pension obligations, he’d probably gain at least 2 more. Speaking of “welfare queens,” it was a Democratic president (Clinton) who more or less “ended welfare as we know it”; so is it really all that farfetched to think that another Democratic president (Obama) COULD more or less end public employee pensions as we know them? - steve schnorf - Friday, Jan 21, 11 @ 9:47 am: ss; yes - yinn - Friday, Jan 21, 11 @ 9:47 am: From the Center on Budget and Policy Priorities: “Misunderstandings Regarding State Debt, Pensions, and Retiree Health Costs Create Unnecessary Alarm.” http://www.cbpp.org/cms/index.cfm?fa=view&id=3372 Illinois is an outlier. - Bigtwich - Friday, Jan 21, 11 @ 9:56 am: Our Federal Constitutional is based on the idea that the States are sovereign. This is the basis for the Eleventh Amendment, although the interpretation of that Amendment seems to vary from one Supreme Court case to the next but the idea that States could be subject to the Bankruptcy Act calls for a restructuring of our form of government. States currently can be subject to the jurisdiction of Bankruptcy Courts but only to the extent they are seeking something. I suspect that the Constitution would have to be amended to allow the States to file Bankruptcy. But if that were to happen or if the States could waive sovereignty to come under the Bankruptcy Act the Bankruptcy Court would be running the State and it would probably be able to rewrite the State Constitution and Statutes without any input or need for ratification other then from higher Courts. We would have taxation without representation to an unimaginable extent. I do not understand this concept could gain support from people who identify themselves as conservative. - John Bambenek - Friday, Jan 21, 11 @ 10:06 am: Conservatives (quite errantly) believe that somehow bankruptcy will allow us to restructure debt, union contracts and pension obligations and keep it at that. I’m not sure where this idea comes from that somehow we will get a conservative result from the federal judiciary. I’m sure there will be a haircut to the pensions, et al. But they can just as easily hike taxes. I wouldn’t be entirely surprised to see a court ordered graduated income / corp tax and fee hikes if we ended up in bankruptcy court. If I was a pensioner, the argument I’d make to the court was “It wasn’t me that didn’t put in what I owed into the state. The state continued to spend money it did not have, it continued to make promises it did not keep or prepare to keep. And now, due to their malfeasance or nonfeasance, they want to be let off scot-free and that I (and others) should bear the full brunt of their bad conduct.” I see that as a very persuasive argument. Contract law generally does not favor the side that, through it’s own incompentence, corruption or neglect, breaks their obligations. - Bigtwich - Friday, Jan 21, 11 @ 10:09 am: yinn excellent article. Thanks. - John Bambenek - Friday, Jan 21, 11 @ 10:15 am: yinn- The one thing about that article, and almost every single article like it, that talks about Illinois’ “outdated tax code” as the problem is that it completely ignores one thing: that we shouldn’t have spent what we don’t have to begin with. It isn’t like we didn’t know what our tax code does or does not do. It should have structured services accordingly. Our problem isn’t the tax code, or necessarily the spending. The problem is that we simply thought we could spend money on things when we didn’t have the money to begin with. That is why that balanced budget clause is in the constitution to begin with and why we will have just as bad (if not worse) budget deficit in 4 years. We keep pretending we can buy things with non-existent money and that somehow we can make it work. - Bill White - Friday, Jan 21, 11 @ 10:16 am: Whether federal bankruptcy law would or could permit the State of Illinois to avoid the clear language of Article XIII, Section 5 of the Illinois Constitution is one of those questions on which four lawyers could easily share six or seven different opinions. - steve schnorf - Friday, Jan 21, 11 @ 10:20 am: JB, I couldn’t say it better. A better tax code could have helped us manage better, and would help us get out of our dire straits more easily, but we shouldn’t be there to start with. Other than for brief periods of time, effectively bridge spending over a recessionary cycle, we should limit our spending to what we bring in, and in the good times, we need to repay that bridge spending. - Bigtwich - Friday, Jan 21, 11 @ 10:37 am: ==four lawyers could easily share six or seven different opinions. == Sound like billable hours. $$$$$$$$$$$ - wordslinger - Friday, Jan 21, 11 @ 10:37 am: –I do not understand this concept could gain support from people who identify themselves as conservative.– The word “conservative” has taken such a beating in recent years as to become almost meaningless. Dick Lugar is a conservative. Glenn Beck says he’s a conservative. That tent’s so big it collapses on itself. I think some right-wingers like the idea of state bankruptcy as a means to bust public employee unions; walk away from contractual obligations, punish them for supporting Dems. Of course, that short-term fiscal and political gain would probably wreck the economy for generations, but hey, politics ain’t beanbag, right? - zatoichi - Friday, Jan 21, 11 @ 10:38 am: Didn’t Topinka just say a couple of days ago she could ‘painlessly’ cut $1B right now? Bankruptcy for the states sounds like a great idea. I am sure the organizations owed that estimated $6B-$12B in unpaid bills would be very understanding that they caught the short end of the stick. They will just carry on as if nothing has happened. How many hundred thousand people would be put out of work by this excellent solution? It could not possibly increase any state costs or have anything but a positive effect on future tax collections. - So Blue Democrat - Friday, Jan 21, 11 @ 10:42 am: State employees are not the “welfare queens.” It is corporation leaders who destroyed the pension system in the private sector, and they are now wanting to destroy the pension system in the public sector. Rest assured the corporate folks have no problems in their retirements. This is the real issue. It is similar to the Republican hypocrites in Congress as they attempt to repeal the Affordable Care Act. They have accepted the health insurance provided to them and their families by taxpayers. As they attempt to repeal the Affordable Care Act, I ask them to also repeal the excellent health insurance they are provided. It will not happen. - dupage dan - Friday, Jan 21, 11 @ 10:46 am: =But there was that tax hike last week which took care of most of the state’s structural deficit= I hope you’re right, Rich. I am uncomfortable with counting tax receipts before they arrive, however. Raise the taxes too much and it sometimes has a paradoxical effect. Are we at that tipping point? - How Ironic - Friday, Jan 21, 11 @ 10:51 am: @DD No. We are not at the ‘tipping’ point. Although our taxes have gone up…we are still lower than many others. - Anonymous - Friday, Jan 21, 11 @ 10:51 am: Wordslinger’s favorite “conservative” is Richard Lugar. Telling. I laugh at the thought that the “conservative” tent is too big as too collapse on itself. Actually, it’s about a quarter of the size of the liberal one which has already collapsed. It’s mind-boggling to think that some here suggest that a grown up conversation can be had without the subject of pension reform being brought up. With the average life expectancy for American’s being in the mid to late 70’s and the average retirement age for public employees being in the 50’s, the pensions with a 3% increase every year without being tied to inflation are unsustainable. The benefit will literally double during retirement for most people. - piling on - Friday, Jan 21, 11 @ 11:08 am: Anon, That’s why there’s a new pension system in place for those hired as of Jan. 1, a system that raises the retirement age, limits pensionable income and does away with the 3 percent COLA, etc, etc. - Yellow Dog Democrat - Friday, Jan 21, 11 @ 11:13 am: The idea of allowing states to file for bankruptcy is DOA, and here’s why: If states can file for bankruptcy, they can not only renegotiate their pensions and union contracts, they can also default on their bonds. The very idea that bonds could be subject to default would drive markets nuts. Moreover, its not clear what impact, if any, this would have in Illinois. Pensions are still guaranteed under the Illinois Constitution, regardless of what the federal government says. And even if you amended the Illinois Constitution, previous rulings from the Supreme Court make it pretty clear that those changes can’t be retroactive. Please, someone tell me if I’m wrong. - Secret Square - Friday, Jan 21, 11 @ 11:17 am: “average retirement age for public employees being in the 50s” Average for firefighters and cops, maybe, but for ALL public employees? - wordslinger - Friday, Jan 21, 11 @ 11:20 am: –It’s mind-boggling to think that some here suggest that a grown up conversation can be had without the subject of pension reform being brought up. State bankruptcy is a possibility among grownup, “right-kind” of conservatives like yourself? What dictionary do you find your definitions of the words “grownup” and “conservative.” - 47th Ward - Friday, Jan 21, 11 @ 11:23 am: ===Please, someone tell me if I’m wrong.=== I don’t think you’re wrong YDD, but I think the point of challenging the Illinois constitution is to finally get the courts to decide the issue. Until we have a case that goes to the Supremes, it will be an unresolved question in the minds of some. I can’t see any way that the US Supreme Court tosses any state’s constitution or any provision thereof. Then again, I didn’t think the US Supreme Court would rule the way it did in Bush v Gore, so anything is possible I suppose. - Anonymous - Friday, Jan 21, 11 @ 11:29 am: GM, the largest US automaker, went belly up an there wasn’t much outrage from the democrats about the bondholders that were stiffed. So now when it comes to states and the payrolls filled with union employees, it’s suddenly taboo to use the same standard applied to GM. Funny. - Rich Miller - Friday, Jan 21, 11 @ 11:31 am: Anonymous, GM is not a sovereign state, no matter how much the company liked to think it was the past 100 years. Illinois is a sovereign state. That’s the difference. Stop being so obtuse, please. If it’s deliberate, you’re making yourself look like a fool. If it isn’t, you are one. - Anonymous - Friday, Jan 21, 11 @ 11:35 am: “It is corporation leaders who destroyed the pension system in the private sector, and they are now wanting to destroy the pension system in the public sector.” So it was the corporates that told our political leaders to underfund the pension system. I get it now! - wordslinger - Friday, Jan 21, 11 @ 11:38 am: Bankruptcy for private corporations — large and small — and individuals has been deemed necessary for capitalism and dynamic economies to thrive. It’s also why corporations get some of the same legal protections as individuals. You fail, but you get another chance, not out of the goodness of someone’s heart, but to keep the economy pumping. Can’t see the differences between private business and sovereign governments? - Bill - Friday, Jan 21, 11 @ 11:47 am: ==So it was the corporates that told our political leaders to underfund the pension system. I get it now!== No, Anon, It was the corporates that underfunded the private pension plans that went bust forcing the federal gov’t to bail them out with taxpayer dollars while they escaped with their golden parachutes. As far as the 3% COLA that righties like to whine about, that was put in as a cap. Most years, until recently, the cost of living increased greater than 3%. For many years the federally computed cost of living increase for social security greatly exceeded 3%. It is there to insure that retirees don’t have to choose between food and medicine after years of inflation. By the way, most active employees contribute 1/2% of pay to fund their COLA when they retire. - John Bambenek - Friday, Jan 21, 11 @ 12:21 pm: If the State of Illinois were allowed to file for bankruptcy, it would at the same time as a matter of necessity be surrendering it’s sovereignty. That should scare the crap out of anyone enough to see why it’s a bad idea. You broach that door, you give the federal judiciary essentially cart blanche over a state’s finances. And that includes taxation. - Cook County Commoner - Friday, Jan 21, 11 @ 12:32 pm: Just checked a sampling of municipal bond funds, the closed end variety, and it appears buyers are coming in, boosting muni values. So, the talk of state BK isn’t perturbing muni investors, at least today. Perhaps, the muni pay rates have finally increased to the point where investors are willing to step in for the fed tax free money. Some funds are now paying over 8% annually in fed tax free interest with portfolios including the junkier issues, like Illinois. State BK appears to be hogwash. States are the fundamental governing unit in our republic. Transferring sovereignty to a BK judge doesn’t seem possible. How does a federal judge enforce, for instance, an order that the state raise taxes? I wonder if even the IL Sup Ct could enforce its order against the state executive and legislative branches to raise taxes. It seems to me that the issue of government employee pensions in Illinois (there are over 300 plans throughout the state) will play out like the torture of a thousand cuts as some plans outside and inside Illinois fail, and plan participants take a haircut, as well as further tax increases. This will go for years as timid politicians seek to continue receiving election time help from the gov employee unions. - Champaign Dweller - Friday, Jan 21, 11 @ 12:48 pm: Before anyone advocates for bankruptcy court as an option, try talking to any school district who lived and operated under a consent decree overseen by the feds. They never want the thing to end, and there’s always something else that you can do to address whatever problem drove you there in the first place. Can anyone say that Rockford’s school district, or Champaign’s, performs that much better because of their consent decrees? The two things are different, but it always costs to bring in the feds, and there are often unforeseen consequences. - It's Just Me - Friday, Jan 21, 11 @ 1:14 pm: I have started to have more and more respect for non-traditional news media, as I’ve noticed that the old school media doesn’t check their facts and is only interested in getting higher ratings or selling more papers. (This is something I know Rich has pointed out before in reference to the recent surge in blog reporting.) The Daily Show, while a comedy show, is a perfect example of someone taking the time to think through an argument and report on it, unlike the old schoolers who just re-print other people’s press releases and try to one-up each other. The beginning of the end to me was when CBS hired a morning tv personality who offered cooking tips and funny chit-chat with celebrities to try and be their serious news anchor. - Jeff - Friday, Jan 21, 11 @ 1:28 pm: In October I an automated telephone poll inquired if I used The Daily Show or fox news for my news source. Now they can ask if I think the NYT or Stewart is more reliable. - cassandra - Friday, Jan 21, 11 @ 1:37 pm: Here in Illinois it may seem that unions reign supreme, especially with respect to the expense and quality of public services, but the fact is that union membership continues to decline. Recent talk about state bankruptcy and reining in public employee pensions and benefits may reflect this loss of numbers and power. According to the BLS union membership in the US fell to 11.9 percent nationally in 2010. Even public union membership dropped a little, and private sector union membership is 6.9 percent, the lowest since beginnings of the labor movement in the first half of the 20th century. This is probably a function of globalization. With billions of Indians, Chinese and Brazilians, among others, around the globe willing to compete in the American marketplace for much less, it doesn’t matter how many Democratic politicians the unions, um, contribute to and how many protectionist laws they try to pass. Globalization changes not only local wages but also the kinds of jobs Americans may find available to them in the future, especially if they lack competitive skills. That will affect the kinds of tax revenues states can aspire to. If everybody is working in retail or eking out an existence as a self-employed contractor, that won’t be much. Perhaps our state Democratic political leaders and bureaucrats should hold off on the joyful extra spending now that a tax increase on the middle class is done. There may not be much to tax. - Bigtwich - Friday, Jan 21, 11 @ 1:49 pm: ==You broach that door, you give the federal judiciary essentially cart blanche over a state’s finances. And that includes taxation. == Tho Bankruptcy idea gets stranger as I think about it. There are only two levels of government is our country, State and Federal. Counties, cities, school districts, etc, are creatures of the State. A bankruptcy might well get the Bankruptcy Court control of all of these units as well as the State. I am going to go think about something else. - Bill - Friday, Jan 21, 11 @ 1:52 pm: Cassie, The tax is on all “classes” that have income not just the middle. By the way, how, exactly do you define your beloved “middle class” anyway? - Yellow Dog Democrat - Friday, Jan 21, 11 @ 1:53 pm: @cassandra - Don’t blame the unions. The unions SCREAM every year when state lawmakers fail to make required pension payments. I was at an event for Jim Durkin where Tom Cross admitted that the underfunding of Illinois pensions was not the union members’ fault — employees had their share of the pension payments deducted from their paychecks every time. It was the politicians in Springfield who chose to skip pension payments. As for the new public servants as Welfare Queens meme, here’s my suggestion. If Tom Cross is so convinced that the state can retroactively reduce pensions, he should file a bill to repeal the pensions of members of the general assembly, judges, county elected officials, municipal elected officials, township officials, and every other elected official I may have overlooked. If Tom Cross wants a Test Case, he should volunteer. And if lawmakers aren’t willing to rollback their own pensions, they shouldn’t be rolling back the pensions of teachers, firefighters, police, child abuse prevention workers, nursing home investigators, and other public servants. - The Elderly Eastern Sangamon County Land Surveyor - Friday, Jan 21, 11 @ 1:59 pm: In that Jon Stewart clip, why are they interviewing Lovie Smith’s wife about the tax increase? (Check out the 5:05 mark). - Grandson of Man - Friday, Jan 21, 11 @ 2:01 pm: State worker pension reform was already enacted; many of you know that. New state employees will get full pension benefits at age 67, and not younger. For the average state worker, retiring before age 67 will result in a small loss. Such a worker will not earn an exorbitant pension. Quinn is touting taxpayer savings of $200 billion over 35 years with this pension reform. I have no idea if the projection is remotely accurate, but it’s a good idea to follow this. So Illinois state workers are between future cost savings and a monster of unfunded pension debt. Can they ride it out until the savings start kicking in without harsh reform that will hurt many workers? - amalia - Friday, Jan 21, 11 @ 2:15 pm: Can some mainstream news network please hire a Stewart staffer who will show you how to actually cover a news story!!!!!! - He Makes Ryan Look Like a Saint - Friday, Jan 21, 11 @ 2:19 pm: JB–Good point. Would filing bankruptcy immediately open our State Constitution? If so, I can see a serious backlash aimed at the legislators. It could be bloody. - wndycty - Friday, Jan 21, 11 @ 2:31 pm: @The Elderly Eastern Sangamon County Land Surveyor do you care to explain your Lovie Smith’s wife joke for those of us without a sense of humor? - Captain Angrypants - Friday, Jan 21, 11 @ 3:29 pm: I dunno, Rich. I think you’re missing the point of The Daily Show clip. Illinois could be saving billions of dollars a year by switching from costly police and waste management services to a canine-based form of corpse removal… Sorry, comments for this post are now closed.