Here we go again
Tuesday, Jun 4, 2013 - Posted by Rich Miller
* As you already know, Fitch lowered the state’s credit rating yesterday…
Fitch Ratings said it dropped the Illinois rating from “A’’ to “A-” based on lawmakers’ failure to enact a solution to the state’s public employee pension crisis. The agency graded $27.5 billion in bond debt backed by general tax revenues.
Illinois already has the lowest rating in the nation. Lower ratings mean paying higher interest rates on borrowed money. […]
“The burden of large unfunded pension liabilities and growing annual pension expenses is unsustainable, and that failure to achieve reform measures despite the substantial focus on this topic exacerbates concern about management’s willingness and ability to address the state’s numerous fiscal challenges,” Fitch wrote in a statement.
The other two agencies, Moody’s Investors Service and Standard & Poor’s Ratings Services, could be close behind. After Friday’s adjournment, Moody’s said it was “analyzing Illinois’ fiscal condition,” noting that it had said in a March report that “the state’s rating could drop if there was a failure to enact pension reforms.”
* Gov. Pat Quinn’s react…
“Today’s downgrade is no surprise. As I have repeatedly made clear to the General Assembly, this will continue to happen until legislators pass a comprehensive pension reform bill, and put it on my desk.
“Every time the General Assembly misses the deadline, Illinois’ credit rating is downgraded, which hurts our economy, wastes taxpayer dollars and shortchanges the education of our children.
“If I could issue an Executive Order to resolve the pension crisis, I would have done it a long time ago. But I cannot act alone. Legislators must send me a bill to get this job done.
“I plan to meet with the Speaker of the House and the Senate President tomorrow.
“I will keep fighting for pension reform until it is the law of the land.”
The Speaker is out of state, however. He may call in.
* From the We Are One Illinois coalition…
“Today’s downgrade was totally avoidable. Before it adjourned, the House could have passed Senate Bill 2404 — a fair, constitutional, comprehensive pension funding solution.
Instead, Speaker Michael Madigan pushed SB 1, an unconstitutional bill that would have saved nothing and done nothing to help the state’s credit rating once overturned. An overwhelming, bipartisan majority of state senators saw through SB 1 and voted to reject it twice.
The Senate, led by President John Cullerton, did its job. Its bill, SB 2404, would save the state $32 billion immediately—-more than the Madigan plan—without jeopardizing the retirement systems’ Social Security exemption. The House must now finish its work and pass SB 2404 as soon as it reconvenes. House members and Illinois citizens have been demanding a vote for weeks—the time is now.”
* Sen. Bill Brady wants a special session…
Republican Sen. Bill Brady of Bloomington questioned the ability of Quinn and Democratic leaders to strike a deal on their own, saying two years of confabs have yet to produce a solution. He wants Quinn to call a special session, saying the initial costs of paying for lawmakers’ per diems will be far less than the continued drain on the pension system.
“I don’t see the legislative leaders meeting coming up with the solution,” said Brady, who lost to Quinn in the 2010 governor’s race and plans to announce whether he’s running again by month’s end. “It’s going to take the pressure of the rank-and-file members. President Cullerton and Speaker Madigan are too far apart on this, I think it’s going to take the members to bring them together, and frankly, a strong governor making us stay in Springfield until we solve this.”
Any bill with an immediate effective date will need a three-fifths majority to pass. Other than Cullerton’s bill, that’s pretty much impossible.
- CircularFiringSquad - Tuesday, Jun 4, 13 @ 10:02 am:
Perhaps NoTaxBill could just send in a note on what he wants to vote “yes” on.
Don’t lose sight of the fact that his “plan” would have meant $6 billion less annually available to fund programs and services over the past 3 years.
Most GOPies continue to whine over reductions to their favorite sites — facilities, universities, prisons, central office work force etc. Cannot imagine how a “no tax” budget would have worked.
- CircularFiringSquad - Tuesday, Jun 4, 13 @ 10:09 am:
Capt Fax
How was the concert?
- RonOglesby - Tuesday, Jun 4, 13 @ 10:11 am:
every year its worse and worse. bandaids aren’t going to fix this.
- Old and In The Way - Tuesday, Jun 4, 13 @ 10:12 am:
Governor Dufus needs to fix the health insurance fiasco first! CMS has totally botched the retiree health insurance premium situation. It appears that CMS just basically ignored the legislation passed last year resulting in a well founded lawsuit. It’s CMS so is anyone really surprised? This is a train wreck and we still haven’t heard from ISC on the constitutionality of charging health care premiums. Face it Quinn is not a very good manager and we expect him to manage legislative initiatives? Down grade Illinois credit rating and its governor….
- Mason born - Tuesday, Jun 4, 13 @ 10:26 am:
At this point isn’t Cullerton’s bird in hand better than Madigan’s two in the bush?? Granted both will be challenged but Cullerton’s appears to be able to pass both houses. To me it certainly seems like Cullerton’s is a much easier sell then the Madigan bill when in goes to court.
- titan - Tuesday, Jun 4, 13 @ 10:30 am:
=== the House could have passed Senate Bill 2404 — a fair, constitutional, comprehensive pension funding solution ===
Constitutional? Maybe, maybe not. It is not as egregiously unconstitutional as SB1 (as amended by the House). But concluding that it is constitutional is a stretch
- wordslinger - Tuesday, Jun 4, 13 @ 10:30 am:
It is what it is. Among the 50 states, the rating agencies don’t think we’re so hot.
Whatever. They were going to dump anyway. They’re trying to show the world they’re responsible now after the subprime mbs scandal.
Back in the Blago days, they had no problem maintaining high ratings when the state was shorting the annual pension payment and raising spending without revenue increases.
Now? Raise taxes? You get whacked. Cut spending? You get whacked.
Fortunately, borrowing costs are at historic lows, so the hit isn’t that big a deal. The state has no problem borrowing at historic lows because the market is chasing yields everywhere — junk bonds, IPOs. The Bank of Ireland just issued about $650 million in Baa unsecured bonds that were oversubscribed by a factor of three.
Put it this way: back in the 80s when Illinois was AAA, you’d be paying four times the interest.
http://www.munibondadvisor.com/market.htm
- Downstater - Tuesday, Jun 4, 13 @ 10:32 am:
While the public employees get great pension and health benefits, unavailable to most in the private sector, the rest of us pay higher taxes due to higher interest costs. Democrats can’t fix this problem. It is not in their DNA!
- RonOglesby - Tuesday, Jun 4, 13 @ 10:39 am:
—-
Now? Raise taxes? You get whacked.
—-
actually, you just have to say its a “temporary” increase and you don’t… Who got whacked for that “temporary” income tax hike?
- Mouthy - Tuesday, Jun 4, 13 @ 10:40 am:
SB2404 will never be called. The unions should get out of the business of negotiating away pension benefits. I’m sure if they took a poll or a vote their members would have the same mind set. Figure out a way to pay what you owe is my only pension option.
- wordslinger - Tuesday, Jun 4, 13 @ 10:49 am:
–actually, you just have to say its a “temporary” increase and you don’t… Who got whacked for that “temporary” income tax hike?–
I was referring to the rating agencies. Previously, they called for measures to address the state’s structural deficit. Despite tax increases and spending cuts, they whacked the rating anyway.
- RonOglesby - Tuesday, Jun 4, 13 @ 10:57 am:
@Word
AHH. clearer. thank you.
I was thinking you were talking Pols
anyway, the rating agencies see its a house of cards. Regardless of prior bad behavior in a specific industry they are now doing what the government and people expected all along. You can’t fault them for that.
The reality is that Illinois (comparatively) is underwater and has no plan to even get to treading water much less paying back.
We can’t fault a viewer for saying a Baseball team s#cks if at the end of the year the numbers show they have a 40-122 record can we?
- RetiredStateEmployee - Tuesday, Jun 4, 13 @ 11:04 am:
It continues to amaze me that the focus is on a problem, not a crisis, when the real issue is the backlog of unpaid bills.http://www.ioc.state.il.us/index.cfm/linkservid/03111645-0E32-5191-CBBB831FAC924485/showMeta/0/
The state will have no problem selling bonds, the bondholders get paid first, those that the state owes for services have to wait.
Even if there were pension savings, the governor and legislature would spend it anyway. Service providers would still have to wait. By creating a pension crisis, the unpaid bills and the solution to that problem is seldom mentioned.
It just goes to prove, if something is said often enough, everyone thinks it’s true even if it isn’t.
- wordslinger - Tuesday, Jun 4, 13 @ 11:04 am:
– You can’t fault them for that.
The reality is that Illinois (comparatively) is underwater and has no plan to even get to treading water much less paying back.–
That’s nonsense. There is no one in the rating agencies or in the bond markets that believe there is a real risk in Illinois debt.
- Big Bob - Tuesday, Jun 4, 13 @ 11:04 am:
I doubt the various pension system computer systems
could accommodate an immediate effective date.
- RonOglesby - Tuesday, Jun 4, 13 @ 11:06 am:
@Word
those are the same types of words spoken about mortgages backed by the federal government, etc, etc….
- RNUG - Tuesday, Jun 4, 13 @ 11:15 am:
Word,
Isn’t one of the reasons the rating agencies keep whacking the State on the fact the temp income tax sunsets?
- wordslinger - Tuesday, Jun 4, 13 @ 11:23 am:
–those are the same types of words spoken about mortgages backed by the federal government, etc, etc…00
What do you mean? Did the federal government default on some mortgages?
Has Illinois ever been late on a bond payment or a pension check?
RNUG, I don’t know what they’re doing, except seeking redemption for past sins.
- soccermom - Tuesday, Jun 4, 13 @ 11:24 am:
I don’t think it’s realistic to expect to institute massive changes in the state’s pension plan before jan. 1, so it wouldn’t require a 3-5ths majority.
- Anon. - Tuesday, Jun 4, 13 @ 11:44 am:
==I don’t think it’s realistic to expect to institute massive changes in the state’s pension plan before jan. 1, so it wouldn’t require a 3-5ths majority.==
Bills passed after May 31 require a supermajority to become effective before the next June 1, not January.
- Judgment Day - Tuesday, Jun 4, 13 @ 12:04 pm:
“That’s nonsense. There is no one in the rating agencies or in the bond markets that believe there is a real risk in Illinois debt.”
Wouldn’t go that far. The markets don’t (immediately) think there’s a problem, but I know that there are bond players out there who are seriously concerned over the next five (5) years or so.
They’re not dumping IL bonds, and our bonds still sell, but let’s just say they are keeping a wary eye on us. And it won’t help any if Detroit goes down for the count. And in a ‘economic recovery’ such as it is, Illinois still isn’t showing much.
We’re (as a state) treading water. That’s the good news.
- wordslinger - Tuesday, Jun 4, 13 @ 12:15 pm:
–They’re not dumping IL bonds, and our bonds still sell, but let’s just say they are keeping a wary eye on us. And it won’t help any if Detroit goes down for the count.–
Detroit has nothing to do with any states’ debt standing in the market.
And Detroit is already down for the count. But the bondholders are still squeezing every dime out of the city.
The rush there to implement a state takeover — after Michigan voters had rejected the enabling law — was to keep Detroit from filing for bankruptcy and saving the bondholders.
Kevyn Orr, the emergency finance manager, is a partner at Jones Day, which he hired assist in ruling and restructuring the city.
Jones Day is a counsel of record to financial institutions holding large amounts of Detroit debt, including everyone’s favorite vampire, Goldman Sachs.
No conflict there.
- Bill White - Tuesday, Jun 4, 13 @ 12:40 pm:
=== Isn’t one of the reasons the rating agencies keep whacking the State on the fact the temp income tax sunsets? ===
IMHO, yes.
California is in far better shape because of the Prop 30 tax increases
- Cook County Commoner - Tuesday, Jun 4, 13 @ 12:42 pm:
I agree that Illinois will pay off its bond holders out into the foreseeable future. The only Illinois state bond default I could find was in the early 1840s.
What worries me is that a series of downgrades may result in bond buyers demanding an interest rate in excess of what would be expected from an isolated downgrade. The thinking is that another downgrade is likely, so I want to be compensated more because my bond will lose value. This could create an increasing downward spiral effect when each downgrade is met with legislative impotence.
They’re playing a dangerous game in Springfield.
- Judgment Day - Tuesday, Jun 4, 13 @ 12:44 pm:
“Detroit has nothing to do with any states’ debt standing in the market.
And Detroit is already down for the count. But the bondholders are still squeezing every dime out of the city.”
Word, Detroit is in many eyes just an example of what ‘worst case’ is in the muni market. It boils down to “Bonds vrs. Employee Retirement obligations vrs. Operations”, only in a ‘worst case’ environment. Who gets paid, who gets a haircut, and how much.
Sounds a little like Illinois (”Bonds vrs. Employee Retirement obligations vrs. Operations”), except we’re still a fair ways away from a ‘worst case’ environment.
Effects on state’s debt standings? Who knows? We’re probably going to find out. Not as optimistic as you are.
As far as all the insider connections - kind of sounds like how both Chicago and Cook County operate, doesn’t it?
- Anonymous - Tuesday, Jun 4, 13 @ 2:41 pm:
It would have a lot easier to lower the ramp, but the GA and the Gov seemed to fear a lower bond rating by doing so.
- Anonymous - Tuesday, Jun 4, 13 @ 2:42 pm:
Well, maybe not easier to lower the ramp, but it really is largely a paper debt.
- Small Town Taxpayer - Tuesday, Jun 4, 13 @ 3:40 pm:
‘It boils down to “Bonds vrs. Employee Retirement obligations vrs. Operations”,’
I would add one more factor (name if you will) to the list: higher taxes. Any one of the four factors, or some combination of the four, can take a ‘hit’ and solve the unfunded pension problem. With picking each of the four to pay the $100B there are good and bad points when viewed from a political point of view. It appears, however, that the GA cannot decide who to make unhappy: bond holders, taxpayers, retirees, and/or service users. What is known from the math is that every day the GA waits the larger the debt becomes and thus the more pain someone will feel at some point down the road.