58 Comments - PublicServant - Wednesday, Mar 18, 15 @ 11:01 am: Rich, what are the chances that it will pass? Or is that a subscribe? - Oswego Willy - Wednesday, Mar 18, 15 @ 11:03 am: Ron Sandack, you broke my heart. You are doing your job for Rauner, against your better self, even as a former Mayor. You are a Dope, but a safe Dope. I hope making Uihline happy hos you sleep. I hope being an Owl for Rauner was worth your integrity. Since you don’t care, I’ll be embarrased for you. - Wordslinger - Wednesday, Mar 18, 15 @ 11:03 am: The bankruptcy bill is just part of the whole union-busting effort. Municipalities will go into court and ask judges to tear up the contracts. Corporate America has been doing it forever. - illinifan - Wednesday, Mar 18, 15 @ 11:15 am: This hopefully won’t pass. We don’t want our government to sink to the levels private industry and venture capitalists have taken us to over these past decades. Just because the Rauners and Romneys of the world have been raiding corporate pensions and made a fortune at it, does not mean a city should. - Andy S. - Wednesday, Mar 18, 15 @ 11:15 am: I am not saying bankruptcy should never be allowed, but giving local governments blanket permission to declare bankruptcy without any oversight, where they can do so out of convenience rather than necessity, is a really, really bad idea. If a local government can demonstrate beyond reasonable doubt that it is raising the maximum possible amount of revenue (i.e. that further tax increases would actually reduce collections), that it has cut non-contractual spending as much as possible and it still cannot meet its contractual obligations, then there is really no alternative to bankruptcy without a state or federal bailout. This is the situation most observers agree Detroit was in. But short of these circumstances, allowing bankruptcy is a travesty. Bankruptcy must be a last resort, not a first resort. - Gooner - Wednesday, Mar 18, 15 @ 11:17 am: Ron Sandack has become the biggest dope in Springfield, and considering that Jeanne Ives and Scott Drury are in the mix, that’s quite an accomplishment. The reason that municipalities with finances that on paper are pretty shaky can get bonds is because there is no fear of bankruptcy. Take out that factor, and why take that risk? Maybe that’s Ron’s intent — to completely end municipal bonds. That would be the only reason to promote something like this. - Norseman - Wednesday, Mar 18, 15 @ 11:23 am: “Illinois the Land of Deadbeat Governments” Sponsored by the IL GOP? Wake up Republicans before the extremists take you to new level of irrelevance. - The Dude Abides - Wednesday, Mar 18, 15 @ 11:28 am: Municipalities in Illinois are going to have a difficult time borrowing money should this pass. On top of that when borrowing becomes difficult good luck looking to the state for help, especially when at this time the Governor is proposing decreasing their share of the state income tax. These municipalities are going to have to do what the state is doing, trim the fat out of their budgets and increase their revenue. - Just Me - Wednesday, Mar 18, 15 @ 11:30 am: This is one of those FOX News ideas to solve all the problems of the government. It’s a terrible idea but folks like Sandeck feel the need to cater to the FOX News crowd. - Wordslinger - Wednesday, Mar 18, 15 @ 11:35 am: – Fox News idea– Regular Fox News genius Donald Trump’s businesses go bankrupt all the time. Four and counting, I think. That’s some neat trick to bankrupt a casino, where the games are rigged so the house always wins in the end. - A guy - Wednesday, Mar 18, 15 @ 11:42 am: Unfortunately, for the value something like this might provide at the negotiating table when “realism” has left the conversation, I fear it wouldn’t be used as a tool and would be the first resort instead of the last one. It just goes too far and encourages less accountability and responsibility for a lot of places that would completely misuse this as an easy fix. Representative, this isn’t the ticket. - Minnow - Wednesday, Mar 18, 15 @ 11:45 am: Wordslinger - Wednesday, Mar 18, 15 @ 11:03 am: Exactly!! - hockey fan - Wednesday, Mar 18, 15 @ 11:49 am: Since the state force the city’s to pay an arbitrary pension funding level “fully funded” I wonder if Sandack’s bill would allow them to default on that obligation as well. So much of what is hurting municipalities is based on mandates from Springfield. That’s why this local government funding raid proposed by Rauner hurts so much more - VanillaMan - Wednesday, Mar 18, 15 @ 11:50 am: Bankruptcy isn’t a solution. It would be rewarding bad politics, not preventing it. Bankruptcy would become a convenient escape clause for every government operated criminally and irresponsibly. It would not be seen as a last resort - it would be seen as a viable resort. Permitting bankruptcy would give license to government officials to ruin their communities and gamble fiscal health on scandals and gimmicks. Without bankruptcy as an option, there becomes a point where government officials must face accountability for their decision making. Sandack is allowing government officials to play victim on decisions they are responsible for making. His proposal will make government less accountable, not more, at a time when voters and all citizens feel that their elected officials are untrustworthy. This idea is a complete disaster and solves absolutely nothing. It is short sighted and when considering the secondary consequences known to exist in historical precedent, amazingly stupid. Vote it down and then kill it with fire. - Illinois Spork Producers - Wednesday, Mar 18, 15 @ 11:52 am: If the Chicago media covers this extensively, he will have done the Mayor a big favor in his re-election efforts. - anon - Wednesday, Mar 18, 15 @ 11:58 am: Yes, the Chicago media inexplicably casts the person under whose stewardship bonds were downgraded as the very same person who is the annointed savior from bankruptcy. - Illinois Spork Producers - Wednesday, Mar 18, 15 @ 12:00 pm: VM “there becomes a point where government officials must face accountability for their decision making.” A lot of this debt was incurred decades ago by local elected officials who were also unwilling to make tough decisions to pay the bills they racked up in real time. This non-payment of debt has produced a bubble in real estate values that continues into the present day as a result of decades of kicking the can down the road. I agree that BK should be very, very rarely used but blanket BK authorization from the state would give local governments some leverage in negotiations on their debt. If property taxes are raised significantly to pay off decades old debt - without providing any new or improved services - property values are certain to decline. - Juvenal - Wednesday, Mar 18, 15 @ 12:41 pm: Rich - I think the other lesson here is that a wise mayor will keep making the payments to the pensions of the firefighters and police who are his constituents and stiff they guys in pinstripes. - Apocalypse Now - Wednesday, Mar 18, 15 @ 12:45 pm: This bill will probably not pass, but it would bring fiscal responsibility to the municipalities in the state. Issuing bonds would no require much more due diligence and fewer of these crazy projects would get done. Hope this bill passes. - Anonymous - Wednesday, Mar 18, 15 @ 12:50 pm: What would happen to IMRF funds for workers/retirees in a muni that goes bankrupt? - Steve - Wednesday, Mar 18, 15 @ 12:50 pm: It’s easy to criticize Ron Sandack’s bill. But, what is the alternative if a town can’t file for Chapter 9? Eventually if nothing changes in Illinois, the lending will dry up to municipalities when creditors suspect they can’t get their principal back. Think it’s crazy? Check out what Sears is having do to calm jitters. http://nalert.blogspot.com/2015/03/sears-tries-to-calm-supplier-jitters.html - TGS - Wednesday, Mar 18, 15 @ 1:01 pm: I see no good argument for NOT allowing munis to declare bankruptcy just like munis in other states or private businsses can. If munis think it will be harder to issue bonds, they can make that decision for themselves. The State of IL should be the last entity to give sound financial advice to munis. - Oswego Willy - Wednesday, Mar 18, 15 @ 1:02 pm: ===Like other states, I’m proposing a statutory lien for bond holders. In sum they get secured creditor status.=== Hope Sandack cleared that with Rauner and Uihline before responding… - Apocalypse Now - Wednesday, Mar 18, 15 @ 1:11 pm: Well stated TGS. - Illinois Spork Producers - Wednesday, Mar 18, 15 @ 1:11 pm: Bondholders are already secured creditors. No one would loan money to a local government without some form a security. - TGS - Wednesday, Mar 18, 15 @ 1:11 pm: Chicago knows they want this. - Illinois Spork Producers - Wednesday, Mar 18, 15 @ 1:20 pm: TGS - Probably more for CPS… You have to wonder when the Emergency Manager Amendment gets filed…? - MrJM - Wednesday, Mar 18, 15 @ 1:24 pm: “If munis think it will be harder to issue bonds, they can make that decision for themselves.” The option to declare bankruptcy would tank bond ratings for municipalities throughout the state regardless of whether or not a particular municipality declared bankruptcy or not, i.e. the new possibility of bankruptcy would make all Illinois municipal bonds riskier. In addition, that could create a perverse incentive for municipalities to declare bankruptcy since their bond ratings are going to take a hit anyway, i.e. they may as well try get some upside to go along with the downside. – MrJM (Yes, I did use “i.e.” twice in two sentences. Deal with it.) - Apocalypse Now - Wednesday, Mar 18, 15 @ 1:33 pm: =The option to declare bankruptcy would tank bond ratings for municipalities throughout the state regardless of whether or not a particular municipality declared bankruptcy or not, i.e. the new possibility of bankruptcy would make all Illinois municipal bonds riskier. In addition, that could create a perverse incentive for municipalities to declare bankruptcy since their bond ratings are going to take a hit anyway, i.e. they may as well try get some upside to go along with the downside.= Not true. Bond ratings would only go down for communities with too much debt and inadequate income. Bankruptcy is always subject to the bankruptcy court and judge. This isn’t something done easily and quickly. It does bring fiscal accountability to government entities. There would probably be occasion where bond companies would tell municipalities the crazy project they want to do will not fly, which is a good thing. - moby - Wednesday, Mar 18, 15 @ 1:36 pm: On the subscribe issue I fear the “banned for life” nuclear option. Just sayin’ - Demise - Wednesday, Mar 18, 15 @ 1:46 pm: In other words, it’s primarily designed to get rid of pension obligations. - Wordslinger - Wednesday, Mar 18, 15 @ 1:57 pm: AN, you’re completely wrong. If this becomes law, every muni will take a hit immediately simply because the risk will obviously be higher. And once the dam breaks, and Illinois munis start filing, the market will see that muni bankruptcy in Illinois is a live option and assess risk on all accordingly. When did bankruptcy become a “conservative Republican” thing, anyway? Times have certainly changed. - Wordslinger - Wednesday, Mar 18, 15 @ 2:01 pm: Sandack’s “statutory lien” means oogats to a federal bankruptcy judge. You open the door, you’ll play by their rules. - Shell Answer Man - Wednesday, Mar 18, 15 @ 2:03 pm: What would a secured lien be secured with? The local fire station? The water system? Public streets? - Illinois Spork Producers - Wednesday, Mar 18, 15 @ 2:04 pm: There was a lot of speculation on how Detroit’s BK would impact the State of Michigan and local governments in Michigan but I haven’t been able to find a follow up article to see how it played out. My guess is that historical low interest rates have prevented the uncertainty brought by Detroit to overly impact the bond market in a negative way. I think overseas investors as well have played a large role in maintaining the stability of the Michigan and US bond markets. http://www.newsmax.com/finance/FinanceNews/Detroit-bankruptcy-bonds-Michigan/2013/07/02/id/513068/ http://www.bloomberg.com/bw/articles/2013-08-08/detroits-bankruptcy-doesnt-faze-the-municipal-bond-market http://michiganradio.org/post/will-detroit-s-bankruptcy-affect-your-hometown - Apocalypse Now - Wednesday, Mar 18, 15 @ 2:44 pm: Wordslinger, if a muni has a good credit rating and a good financial condition and good cash flow, they will not see rates go up. When the new bankruptcy laws went into affect years ago, credit card rates and lending rates generally dropped. Will cities with bad credit rating pay more? Yes and they should. A general overall increase in borrowing costs for all cities has not been the case in other states allowing municipal bankruptcies. - Pelonski - Wednesday, Mar 18, 15 @ 3:22 pm: I agree with Apocalypse Now. There are plenty of municipalities in other states which currently can declare bankruptcy, and they do not see excessive borrowing rates unless they are on financial shaky ground. If passed, the number of municipalities who would actually file bankruptcy would be small. Once you are in bankruptcy, the courts decide how a city’s money gets spent, not the city. That can be a long and painful process for everyone in the community. It is by no means an easy solution for fiscal problems. - ChiTownSeven - Wednesday, Mar 18, 15 @ 3:23 pm: Sandack is Bruce Rahner’s guy on the issue of city bankruptcy, and Brucie is Rahm’s guy. Three things happens if this bill becomes law: 1. Rahm gets a bazooka in his previously weak arsenal against the unions — negotiate with me on pensions reform, or I’ll see you in bankruptcy court. 2. City workers and retirees face the very distinct possibility that the pensions supposedly protected by the State Constitution are no longer protected - see Detroit, where pensions were reduced and some pensioners now have to pay back some of the pensions they previously received. 3. The capital markets will charge some sort of premium in terms of doing business with Chicago. When it comes to an analysis of Chicago’s financial structural problems (including those with CPS), it’s likely that Rahm will get more benefit from items 1 and 2 than he will lose from item 3. That might explain why Rauner, Rahm’s go-to-guy, has pushed Sandack on this bill. - walker - Wednesday, Mar 18, 15 @ 3:26 pm: Wordslinger’s on it, on it, and on it. To think that credit ratings agencies, and the bond markets for this matter, don’t informally or formally group risks into categories like “small Illinois municipalities”, and use such shortcuts going in on analysis, is naive. They all will be immediately hurt regardless of their individual strengths and weaknesses. Part of War on unions, driven by powers outside of Illinois, as well. For Raunerworld: how else will some local govt’s survive a loss of distributed state tax funds, loss of grant support, and a (”promised, period”) local property tax freeze? This is what you get when you make political promises without doing arithmetic. - Vivian Bagley - Wednesday, Mar 18, 15 @ 3:26 pm: I thought Republicans were the party of responsibility? This “I want a do-over” stuff is troubling. People have planned their lives and negotiated contracts and pensions. It was the politicians who were irresponsible, not the clerk, cop, or firefighter. This is especially sickening from a Republican. - How Ironic - Wednesday, Mar 18, 15 @ 3:38 pm: Stockton CA went bankrupt, and tried to discharge it’s pension debt. It was not allowed to by a Federal Bankruptcy judge in November. (2014) I think the same would be in Illinois. - JS Mill - Wednesday, Mar 18, 15 @ 3:54 pm: =if a muni has a good credit rating and a good financial condition and good cash flow, they will not see rates go up= When was the last time you went out for a muni bond? We are going through the public bonding process and all of the Bond companies told us it would cost us more becuase of Illinois status. We have always paid our bills. The financial sector guys like Baron Von Carhartt McMoney Pants always find a way to get theirs. And they get us coming and going. It will cost public entities more to bond if this bill passes. Count. On. It. - anon - Wednesday, Mar 18, 15 @ 4:20 pm: Hey Rahm, you can sell off O’Hare airport and use the proceeds to pay my pension. Do you think only debts and no assets go into bankruptcy? - ChiTownSeven - Wednesday, Mar 18, 15 @ 4:48 pm: The federal banrkuptcy court that dealt with Stockton, CA kept the public pensions pretty intact, but that decision is being challenged on appeal by Franklin Templeton, another creditor, which took a haircut to the tune of 12 cents on the dollar. All eyes are watching for the appellate court’s decision. . . . - Wordslinger - Wednesday, Mar 18, 15 @ 5:32 pm: AN, Pelon, you guys are just making stuff up. It’s bizarre, because you don’t have a leg to stand on. When the first Cali munis filed bankruptcies, the rating agencies put all the state’s munis on review and started whacking the stuff out of them. The markets took a premium. Look. It. Up. What’s your scam, spreading your nonsense? Good old “conservative Republican” bankruptcy to bust contracts, unions, and walk away from debt? Geez, I miss the old-school, Main Street GOP. - Norseman - Wednesday, Mar 18, 15 @ 5:43 pm: === Geez, I miss the old-school, Main Street GOP. === I do too Word. - Oswego Willy - Wednesday, Mar 18, 15 @ 5:48 pm: - Norseman - All we can do is keep pressing on in hopes to turn the tide, Bud. Rauner just isn’t helping. - Apocalypse Now - Wednesday, Mar 18, 15 @ 6:21 pm: Main Street GOP. Sounds like your looking for Republicans who work with Democrats, as long as the Democrats get their way. Less we forget, Democrats are the one who ran the state in the ground financially over the last 12 years. Actually bankruptcy allows the free market to operate. Sorry wordslinger your California example doesn’t fly. Rates for similar rated debt in other states are the about the same. No premium. Sure there was premium after the first bankruptcy, but then the markets settled down. Haven’t seen rates for other muni debt in Michigan rise, after the Detroit bankruptcy. Wordslinger you giving an opinion not backed up by facts. - Apocalypse Now - Wednesday, Mar 18, 15 @ 6:25 pm: Detroit’s debts included $369 million in unlimited general obligation bonds, bonds issued with the general backing of taxpayers, described by Florida bond finance director Ben Watkins as “[having] been the gold standard of the municipal-bond market”. The offer by Kevyn Orr to settle these for less than 20% face value, and doubts regarding the willingness of Michigan to assume the debts, was predicted to drive up borrowing costs of nearby municipalities.[40] This effect has been seen in regard to localities in Michigan. Three have so far had to postpone new bond offerings or face higher interest rates.[41] However, this concern has not materialized on a wider scale, as investors have actually treated municipal general obligation bonds as safer than before the filing. Recent history from California “has shown that the fallout from a bankruptcy can dissipate quickly” in the bond market. Contributing to this is the fact that Moody’s has fewer than 40 of the 7,500 local governments that it rates listed as below investment grade.[42] So much for your fears Wordslinger. - Wordslinger - Wednesday, Mar 18, 15 @ 7:16 pm: – Actually bankruptcy allows the free market to operate.– What in the world does that mean in regards to municipalities? Seriously, I don’t have a clue, which makes two of us. What are you trying to say? Michigan muni debt issuance went dark after Detroit filed. California munis got whacked, too. Use the google. And what is the source of your windy cut and paste job? Under what “economics” theory are you operating under that holds adding the possibility of bankruptcy where it didn’t exist before does not increase risk to debt buyers, and therefore the cost to debt issuers? Better yet, why don’t you just explain your “conservative Republican” motivation for wanting Illinois municipalities to file bankruptcy? I bet you can’t do it without writing “unions” or “pensions.” - Apocalypse Now - Wednesday, Mar 18, 15 @ 7:35 pm: Detroit Bankruptcy Wikipedia. Wordslinger you need to talk with some bond issuers, if you want to understand the impact of bankruptcy laws on rates. - Wordslinger - Wednesday, Mar 18, 15 @ 7:45 pm: Talk with bond issuers? Maybe I’ll try that some day. That whole industry is a complete mystery to me. Thanks for the Wiki. Always put my money on the Wiki. - Madison - Wednesday, Mar 18, 15 @ 7:46 pm: First off…the reason a state cannot file bankruptcy is that the states can raise taxes at will. The framer’s believed that bankruptcy is a last resort. interestingly enough, home rule communities can also raise taxes at will, with an unlimited tax levy. It will be interesting to see how the federal bankruptcy court would adjudicate a home rule bankruptcy should it pass. - Anonymous - Wednesday, Mar 18, 15 @ 7:47 pm: AN - From your precious wiki article: “Yields on bonds issued by the city of Detroit increased on July 18 to record highs, as investors considered the potential effects of the bankruptcy filing. Rates had already escalated when yields jumped from 8.39% in mid-May to 16% in mid-June of 2013.[30] The credit rating agency Moody’s said that the bankruptcy filing was credit negative for Detroit and that it created an “unprecedented litigation scenario,” which could impact services city residents receive, as well as how much bondholders would recover from Detroit.[35]” Is that what you read? You understand that high yields and rates mean higher cost for the borrower, right? By all means though, please explain your wizard math. - foster brooks - Wednesday, Mar 18, 15 @ 8:04 pm: Geez, I miss the old-school, Main Street GOP. they are now the party of parasites - Wordslinger - Wednesday, Mar 18, 15 @ 8:17 pm: States are specifically prohibited from filing for bankruptcy under federal law. It’s questionable whether any federal law allowing state bankruptcy could pass muster under the Constitutional contracts clause in Article One Section 10. - walker - Wednesday, Mar 18, 15 @ 8:19 pm: The ability to escape obligation by bankruptcy used to be considered by American Conservatives as a Liberal attack on the workings of the pure (and always mythical) Free Market. Just because it has proven a valuable escape valve and alternative to total confiscation in the real market, doesn’t all of a sudden make it somehow a right-wing economic principle. In this modern context it is part of a general Republican ideological attack on the workings of government at all levels. Uninformed extreme ideas have moved the GOP significantly in the past 40 years. - RNUG - Wednesday, Mar 18, 15 @ 8:32 pm: === Geez, I miss the old-school, Main Street GOP. === I’ll second that … Sorry, comments for this post are now closed.