* You’ll recall Moody’s put the state “under review” for a downgrade to junk status just prior to the final budget override votes. Press release…
Moody’s Investors Service has confirmed the State of Illinois’ general obligation bond rating at Baa3, following passage of budget legislation that alleviates immediate liquidity pressures, moves the state closer to fiscal balance and should keep pension and other fixed costs at manageable levels at least in the near term. The rating confirmation, which also applies to state debt linked to the GO (and listed at the end of this section) ends a review for possible downgrade that began July 5. Debt outstanding for all affected securities totals about $32 billion, though not all the non-GO issues have a Moody’s rating. The state’s outlook is negative.
The budget legislation includes income tax increases that the state expects will generate about $5 billion in fiscal 2018, which began July 1. Together with internal and external borrowing provisions in the legislation, the tax increases will help contain a backlog of unpaid bills that has been hovering above $14 billion in recent weeks. The legislation brought an end to a two-year period in which the state operated without a comprehensive budget, covering many of its expenses under court orders or consent decrees rather than standard appropriations. It highlighted two of Illinois’ intrinsic strengths: sovereign control over its taxing and spending policy and a diverse economy with the capacity to generate additional revenue.
While budget passage alleviates immediate threats to the state’s credit, long-term challenges remain. The outsized net pension burden (shown above as a share of revenue compared with state medians) will keep growing in coming years, despite certain reforms included in the budget legislation. Reducing and containing the backlog over the long term will likely depend on repeated operating surpluses, which the state has not produced in recent memory. […]
Factors that Could Lead to an Upgrade
Implementation of a realistic plan to provide long-term funding for pension obligations
Progress in reducing payment backlog and adoption of legal framework to prevent renewed build-up of unpaid bills
Enactment of recurring fiscal measures that support expectation of sustainable, structural balance
Factors that Could Lead to a Downgrade
Structural imbalance that leads to renewed build-up of unpaid bills following issuance of debt to pay down backlog
Efforts to obtain near-term fiscal relief by reducing pension contributions
Political paralysis that results in failure to provide for timely payment of subject-to-appropriation debt
Difficulty managing the impacts of an economic downturn, a reduction in federal Medicaid funding or other unexpected adverse event
Well, that’s a relief. But Illinois is going to be on the edge of junk status for a long time to come.
*** UPDATE *** Senate President John Cullerton’s spokesman John Patterson…
“It’s hard to disagree with many of the points Moody’s makes. Our balanced budget highlights our ability to self-govern and the strengths of Illinois’ diverse economy. What Moody’s seems to ask is: What took you so long? That’s a valid criticism. Looking forward, the Senate President knows more work is needed to continue to shore up our financial stability and keep Illinois moving in a positive direction.”
- City Zen - Thursday, Jul 20, 17 @ 2:23 pm:
Prognosis negative.
- Saluki - Thursday, Jul 20, 17 @ 2:28 pm:
Junk will still come, because Rauner has a whole new chorus (staff) singing in D minor to back up his perspective and his perspective is more hard line now than it ever was.
- Chicago Cynic - Thursday, Jul 20, 17 @ 2:29 pm:
I guess Governor Junk gets to wait a little longer thanks to Democrats and a few brace GOPers. Wonder how the Tillman Proft crew Will spin this as a bad thing. Yea, I know. No taxes evahhhh.
- Robert J Hironimus-Wendt - Thursday, Jul 20, 17 @ 2:31 pm:
“Factors that Could Lead to a Downgrade: … Efforts to obtain near-term fiscal relief by reducing pension contributions”
Would this include not vetoing SB1 since it is tied to teachers’ pensions in Chicago?
- Arock - Thursday, Jul 20, 17 @ 2:37 pm:
Yes Chicago Cynic because that Democratic super majority for the decade before Rauner solved all the long term problems, not. The downgrades and the poor economic state of Illinois started well before Rauner as well. Barely holding our head above water with no rescue in sight with Madigan and his minions clinging to old ideas that have not worked well in the past.
- Oswego Willy - Thursday, Jul 20, 17 @ 2:40 pm:
===Madigan and his minions===
Nope. Sorry.
Candidate Rauner felt Pat Quinn failed.
The “Rauner Downgrades” according to Candidate Rauner belong to him, Bruce Rauner
- Bee - Thursday, Jul 20, 17 @ 2:49 pm:
Oswego Willy,
Fine, downgrades belong to Rauner, who won’t be re-elected. Our pensions weren’t exactly balanced before he came. What be your plan? Or Madigan’s? Kick the can Madigan.
- Deadbeat Conservative - Thursday, Jul 20, 17 @ 2:51 pm:
=Implementation of a realistic plan to provide long-term funding for pension obligations=
This places pension “reform” as paying your debt, not repeatedly trying to rip-off your creditor employees. - As called for by the angry mobs on the Crain’s comment section, or for that matter the Rauner’s and their GOP.
- wondering - Thursday, Jul 20, 17 @ 2:51 pm:
Wonder why this missive didn’t start out, “Dear Governor” Seemed a caution directed right at him. Arock, that was yesterday and yesterday is gone. What has Governor Fixit fixed?
- Oswego Willy - Thursday, Jul 20, 17 @ 2:55 pm:
===…Rauner, who won’t be re-elected.===
Granted, these past 10 days, or going “way back” to the overrides,
Rauner’s chances “may” have diminished… but he ain’t finished.
I think - RNUG - has given nunneries paths, including pitfalls…
I’m not the governor, I have no plan on being governor … but, if - Norseman - gets all the paperwork in order…
The bottom line is respected persons who comment here like - RNUG -, - AA -, just to name 2, have shown pension paths and pitfalls, so I’d point you there and if you have questions…
- Oswego Willy - Thursday, Jul 20, 17 @ 2:57 pm:
“numerous”
- wondering - Thursday, Jul 20, 17 @ 2:59 pm:
Bee, J.B. has a plan, an old fashioned plan. Pay the bills, including pension payments, on time. He advocates the progressive income tax. That will cure a great deal, more than space allows here.
- Oswego Willy - Thursday, Jul 20, 17 @ 3:01 pm:
===He advocates the progressive income tax. That will cure a great deal, more than space allows here.===
That’s a constitutional change
Neither quick or easy… nor is it a guarantee to happen.
- wondering - Thursday, Jul 20, 17 @ 3:04 pm:
Very right OW, on the other hand, I for one would never have thought the last 2 years would have ever happened. With 71% favoring, I think it will happen….mean time , tread water is the order of the day.
- Oswego Willy - Thursday, Jul 20, 17 @ 3:10 pm:
===… on the other hand, I for one would never have thought the last 2 years would have ever happened===
(Sigh)
The purposeful destruction perpetrated by the RaunerS was unseen.
The process and procedures to get the constitution changed has indeed been seen, successful and unsucessful.
Knowing actual historical perspective, it’s difficult, long, arduous, and not guaranteed.
Respectfully.
- RNUG - Thursday, Jul 20, 17 @ 3:14 pm:
== That’s a constitutional change
Neither quick or easy… nor is it a guarantee to happen. ==
Needs to be properly designed, framed, and, yes, sold.
The current 4.95% tax rate isn’t high enough to really start digging away at the pension debt or to provide property tax relief. The real choice, in the near future, is going to be between a flat tax rate of 6.5% to 8.5% (depending on how much you want to accomplish) and a progressive tax rate that could actually be cheaper for a majority of the taxpayers. I’ll refer you yo some of Ralph Martire’s / CTBA’s numbers for possible examples.
Someone like Richard Ogilvie could have sold it. Big Jim could have also.
Maybe JB can do it …
- wondering - Thursday, Jul 20, 17 @ 3:17 pm:
respect accepted and certainly given. long and arduous indeed….i can hope
- Norseman - Thursday, Jul 20, 17 @ 3:19 pm:
=== But Illinois is going to be on the edge of junk status for a long time to come. ===
Let’s hope that sobering thought is heeded by the members of the General Assembly. At least those who chose action instead of impasse. Rauner doesn’t care about impasse damage, so it’s up to the minority heads of the GA to lead. This will be a hard lift given their dependence on Rauner money, but for the good of the state it needs to be done.
- Anonymous - Thursday, Jul 20, 17 @ 3:21 pm:
Efforts to obtain short term relief by shorting the pension funds.
That is how we got to this point and no one believes there is any way around properly funding and paying down the debt.
Nice try for the scofflaw politicians (are there any other kind in this pension matter?) but the courts are saying, Pay It and so is Moody’s.
- Trapped in the 'burbs - Thursday, Jul 20, 17 @ 3:30 pm:
Pension relief requires an understanding of what can and what cannot be done. Tier 2 pensions will be manageable because they provide significantly reduced payouts at age 67 instead of age 60. The gist of the problem is paying for Tier 1 pensions which are clearly protected by the state constitution. Accepting that premise, we need to provide incentives for Tier 1’s to work beyond the time they reach their age and years of service. Another approach would be to buy them out at a reduced, up front price. Paying somebody 75% of the value today without COLA’s compounding yearly will save the fund significant amounts of money. This requires us to face the fact that we neglected our responsibilities toward the funds for decades. Looking at IMRF and the health of their fund can illustrate where we’d be without pension “holidays” or “borrowing” from the funds. We’d all have to deal in reality rather than the fantasy of the crash and burn, crisis is opportunity, nonsense we’ve been force fed. If we’re ever going to walk again, we have to go through the double knee replacements and endure the rehabilitation process. It’s going to hurt but pretending that there’s an easy solution is a big fat lie.
- don the legend - Thursday, Jul 20, 17 @ 3:34 pm:
Factors that Could Lead to an Upgrade:
Implementation of a realistic plan to provide long-term funding for pension obligations
Progress in reducing payment backlog and adoption of legal framework to prevent renewed build-up of unpaid bills
Enactment of recurring fiscal measures that support expectation of sustainable, structural balance
How does this happen on cuts alone?
We need serious legislative debates on amendments for a progressive income tax and redistricting to name two items; on legalization and taxation of cannabis, Chicago casinos, motor fuel tax to name just three.
Enough blame game and more leadership.
- Downstate43 - Thursday, Jul 20, 17 @ 3:38 pm:
“Factors that Could Lead to a Downgrade:
Efforts to obtain near-term fiscal relief by reducing pension contributions”
Joke’s on Moody’s. We don’t reduce, we “smooth” and “ramp”.
- Midway Gardens - Thursday, Jul 20, 17 @ 3:53 pm:
Harder sell for JB when his own tax tricks are brought in the argument. His campaign web site is full of where spending needs to be increased and calls for a progressive income tax. How about something that is actually a plan? Short term we raise revenue via new means (MJ legalization, Chicago Casino, pro business growth initiatives), call for a constitutional convention with a timeline - or does he not really want that with the potential for other changes?
It seems like the factors for a downgrade are more likely than those for the upgrade.
- RNUG - Thursday, Jul 20, 17 @ 3:56 pm:
== call for a constitutional convention with a timeline ==
You don’t need a Con-Con to change the Constitution. All you need is the GA to pass specific proposals to place them on the next general election ballot.
- RNUG - Thursday, Jul 20, 17 @ 4:14 pm:
-OW-,
Given my Catholic education including college, I got a laugh out of the “nunneries” auto-correct.
- City Zen - Thursday, Jul 20, 17 @ 4:15 pm:
==The real choice, in the near future, is going to be between a flat tax rate of 6.5% to 8.5% …and a progressive tax rate==
The realer choice will be whether or not to include retirement income.
- Anonymous - Thursday, Jul 20, 17 @ 4:17 pm:
Just another way of saying, another tax increase is going to be needed in a few years.
- Anonymous - Thursday, Jul 20, 17 @ 4:18 pm:
Here we go again.
- gdubya - Thursday, Jul 20, 17 @ 4:18 pm:
WOnder how much that cost the governor in returns?
- Oswego Willy - Thursday, Jul 20, 17 @ 4:19 pm:
- RNUG -
Yeah, what’s up with that? lol
Also…
Why did my phone think I meant that? Yikes.
I better head to confession.
- City Zen - Thursday, Jul 20, 17 @ 4:20 pm:
==Looking at IMRF and the health of their fund can illustrate where we’d be without pension “holidays” or “borrowing” from the funds.==
The state would either be bouncing pension deposit checks because there wasn’t enough money or its employees would be wondering why there was no money left to fund their raises and health benefits. That’s where we’d be.
- RNUG - Thursday, Jul 20, 17 @ 4:32 pm:
== The realer choice will be whether or not to include retirement income. ==
Depending on exemption / credit level, that only brings in $1B - $2B according to IDOR numbers I’ve seen. Going to need more than that to do both increased pension funding and increased school funding on a scale big enough to reduce property taxes significantly.
- Blue dog dem - Thursday, Jul 20, 17 @ 4:51 pm:
RNUG. I really dont think additional revenue is the way out of our education funding problem. Will there ever be a group of politicians out there courageous enough to change thw way we educate?
- Sue - Thursday, Jul 20, 17 @ 5:18 pm:
Hey RNUG- soaking the so called rich with high progressive rates doesn’t alwYs work(see CN). When Cullerton confidently suggests more needs to be done- then why isn’t he doing it? The reforms the Dems promised following the tax hikes seem to have disappeared. We could start with supporting the changes Rauner proposed with the AFSCME contract but we know how Madigan feels about that
- Sue - Thursday, Jul 20, 17 @ 5:19 pm:
I meant see CT- Connecticut
- RNUG - Thursday, Jul 20, 17 @ 5:52 pm:
- Blue dog dem -
I wasn’t advocating more total money, just more State money offset by a eduction in local money.
- RNUG - Thursday, Jul 20, 17 @ 5:53 pm:
*Reduction* in local money, so property taxes got lowered.
Really wish there was an edit feature.
- RNUG - Thursday, Jul 20, 17 @ 5:56 pm:
-Sue-, I’m not an AFSCME fan and I could go for some compromise … but more like 50/50 not the 99.5/0.5 that Rauner wants.
- Midway Gardens - Thursday, Jul 20, 17 @ 6:20 pm:
== You don’t need a Con-Con to change the Constitution==
Absolutely right, thanks. But I have little faith they will. After receiving 60% support for the millionaire tax advisory referendum, the GA hasn’t moved it forward. One might think it was just a cynical exercise to gin up the Democratic base.
- Grandson of Man - Thursday, Jul 20, 17 @ 6:50 pm:
I am very, very relieved that we didn’t go junk, but this is a major wake-up call. We are on the brink of major damage. Fiscal stability is so very important, and I hope we never again allow nonbudget policies like term limits and limiting union rights at the local level to impede budget negotiations.
We need more revenue in order to pay our debts and for other uses. We need the millionaire surcharge and tax revenue from marijuana legalization, at the very least. I think a progressive income tax is best, because it captures revenue at different levels, and it could give middle and low income folks tax some tax relief. But the millionaire surcharge has been proven to be popular, so maybe that’s the way forward.
The cuts-only philosophy turned out to be a disaster in Kansas and had to be reversed. That philosophy also bore rotten fruit in other states, like Louisiana and Oklahoma. Rauner is fully engaged with this philosophy now.
- RNUG - Thursday, Jul 20, 17 @ 8:14 pm:
== The cuts-only philosophy turned out to be a disaster in Kansas and had to be reversed. That philosophy also bore rotten fruit in other states, like Louisiana and Oklahoma. Rauner is fully engaged with this philosophy now. ==
If Rauner is truly in favor of that, he has the power to cut his agencies’ budgets to less that what was appropriated … but then he, Rauner, would have to own those service cuts, something he has so far been unwilling to do.
- Bee - Thursday, Jul 20, 17 @ 8:29 pm:
Question for anyone: Why aren’t fireworks legal in Illinois? Indiana sure profited earlier this month. Fireworks consumption seems to grow every year in Illinois. Part of our culture. Legalize it here and tax it.
- City Zen - Thursday, Jul 20, 17 @ 9:05 pm:
==We need more revenue in order to pay our debts and for other uses.==
The same could be said for every person walking this planet.
== I think a progressive income tax is best, because it captures revenue at different levels, and it could give middle and low income folks tax some tax relief.==
With the EITC and other deductions, most low income folks pay little to nothing today in state income tax. Not sure about exact numbers, but I think 60% of tax filers make less than $40,000 in this state but only account for 12% of total income. Since they’ll not paying much to begin with, there’s not much opportunity for a tax break.
It’s the $50,000 - $100,000 folks that need the tax break. Most of these folks are saddled with school debt and high property taxes. But since they make up a huge chunk of state revenue, they’ll never get a tax break.
I’m curious, what’s your break-even point for a progressive income tax? The salary at which you’d pay less taxes and everything above would pay more.
- Grandson of Man - Thursday, Jul 20, 17 @ 10:10 pm:
“I’m curious, what’s your break-even point for a progressive income tax?”
There was a progressive income tax proposal a few years back at which the break-even point, with today’s income tax rate, would be roughly $58,000 per year. That’s way better than virtually every neighboring state.
In Wisconsin, using our current income tax rate, the break-even point is under $15,000 per year. In Missourah, it’s roughly $7,000/year. In Kentucky, it’s roughly $5,000/year. In Iowa, it’s not much over $6,156/year. In Minnesota, the bottom tax rate is 5.35%.
So, again, with the proposal that was out a few years ago, we’d be lower than almost every state around us.
“The salary at which you’d pay less taxes and everything above would pay more.”
That’s a subjective question. It’s not about “me.” It’s what level is agreed upon. I can envision a progressive income tax that’s much less burdensome to middle and lower incomes than all the neighboring states I listed.
A millionaire surcharge of a little over 3% of the current state income tax rate, plus legalized marijuana and expanded medical marijuana, could bring in an extra $1.5 billion a year in revenue.
“high property taxes”
People can take that up with their local governments. It’s a local government issue. We can increase the percentage the state pays for education, relative to property taxes, to make it more like other states.
- City Zen - Thursday, Jul 20, 17 @ 10:59 pm:
A $58,000 break-even would be an extremely tough sell. Remember, everyone was giddy when they though only millionaires were paying more. Those other states have much lower property taxes and other differences (like MN let’s you deduct property taxes and mortgage interest). Overall tax burden is all anyone cares about.
And high property taxes are indeed a state govt issue. My property taxes are high because the state returns very little of my income tax back to my schools. They are inextricably tied.
- RNUG - Thursday, Jul 20, 17 @ 11:31 pm:
== Question for anyone: Why aren’t fireworks legal in Illinois? ==
Because Illinois is a Democrat nanny state that doesn’t believe its’ citizens have any common sense? /s?
- Grandson of Man - Thursday, Jul 20, 17 @ 11:51 pm:
“A $58,000 break-even would be an extremely tough sell.”
It would be better than what we have now.
“Remember, everyone was giddy when they though only millionaires were paying more.”
They’d have been a lot happier if it actually passed.
- RNUG - Thursday, Jul 20, 17 @ 11:59 pm:
== The reforms the Dems promised following the tax hikes seem to have disappeared. ==
We’ll, the GA ran past their schedule just dealing with Rauner’s blowing up a couple of Grand Bargains and Rauner’s vetoes.
Rauner could always call a special session to address his agenda items. And he could call a special session to propose constitutional amendments like a progressive tax or a millionaires surcharge or even go back to the well on Work comp or school funding reform.
Otherwise, we will just have to wait and see what is brought up in the fall session.