* The governor’s decision to use all of the projected FY20 revenue growth resulting from the unexpected April revenue spike to make the state’s full statutory pension payment and not short it by $900 million is going over well in New York, reports Karen Pierog at Reuters…
Carol Spain, an analyst at S&P Global Ratings, which rates Illinois BBB-minus, said the stronger revenue projections and the decision not to extend the pension amortization period “increases the likelihood of near-term credit stability.”
“However, the state still faces rising pension costs beyond fiscal 2020, and we expect that the state will continue to struggle to structurally balance its budget while making progress on its bill backlog absent any significant revenue increase or cuts,” she added.
Ted Hampton, an analyst at Moody’s Investors Service, which rates Illinois Baa3, said, “putting more money into Illinois’ pensions sooner, in our view, would prove better for the state’s credit than any form of financial engineering that reduces near-term contributions.”
Eric Kim, an analyst at Fitch Ratings, which rates Illinois BBB with a negative outlook, said that lowering or delaying payments under the current inadequate pension schedule “was going to be negative from our perspective.” Suspending the plan for at least a year “is a good step,” he added. He also welcomed news that the higher April revenue will help address a $1.6 billion deficit in the state’s current budget.
Illinois is nowhere near out of the woods yet. But credit where credit is due (pun intended).
- OneMan - Friday, May 10, 19 @ 9:31 am:
As well he should, the holiday was a bad idea and he was able to back away from it with cover.
Lets hope it does not return.
- Life Long R - Friday, May 10, 19 @ 9:35 am:
It all fell into his lap he had zero to do with creating the extra income. The only credit he deserves is for not using it for anything else.
- wordslinger - Friday, May 10, 19 @ 9:37 am:
Of course, none of this has anything to do with the state’s actual legal requirements and track record in servicing bond debt, which are ironclad and unblemished, in good times and bad.
Just recently, Rauner ran the state’s pile of unpaid bills up to $16 billion in 2.5 years. Yet during that time bondholders got paid first, in full, and on time, every time.
So….. what’s the credit “risk,” again?
- qualified someone nobody sent - Friday, May 10, 19 @ 9:38 am:
Budget integrity for 2020 definitely helped, but what about 2012, 2022, etc? Graduated Income Tax isn’t a sure thing either. Nothing is in Springfield. Legal weed, Kaegi’s bill, on and on and on…
- Hamlet's Ghost - Friday, May 10, 19 @ 9:38 am:
It’s amusing watching unhappy GOP-ers grouse about good news for our state.
And telling, also too.
- ChicagoVinny - Friday, May 10, 19 @ 9:45 am:
== The only credit he deserves is for not using it for anything else. ==
Given how many other politicians of all political stripes fail this test and love to spend on goodies, I think he deserves real props.
- Moby - Friday, May 10, 19 @ 9:46 am:
== It all fell into his lap he had zero to do with creating the extra income. The only credit he deserves is for not using it for anything else. ==
The debt and unpaid bills fell in his lap as well.
- Arsenal - Friday, May 10, 19 @ 9:47 am:
==It all fell into his lap he had zero to do with creating the extra income.==
“I’d rather be lucky than good.”
- Honeybear - Friday, May 10, 19 @ 9:52 am:
Well I have to admit this looks like he made a good call on it.
Of course I would rather he used half the money (aprox 500 million) to pay the backpay that Rauner cheated out of state workers.
It’s legally owed and the 7% interest is daily making that figure bigger.
We pay our bills
We honor our contracts
We obey the courts
I appreciate that we are now doing that with applying this to the pensions. But you can’t blame me for wishing state workers were next in line.
- efudd - Friday, May 10, 19 @ 9:55 am:
Durkin stated the April spike is proof we don’t need a progressive tax.
I’ll just assume Durkin isn’t that dense.
Which defaults him into the lying category.
- Anon - Friday, May 10, 19 @ 9:56 am:
So these guys a Moody’s are going to start demanding we raise our income tax rates immediately effective for the 2019 tax year?
If not, they’re not helping.
- efudd - Friday, May 10, 19 @ 9:57 am:
“it all fell into his lap”
Nothing like a republican to put a negative spin on something positive.
Puppies aren’t cute either because they grow up.
- Grandson of Man - Friday, May 10, 19 @ 10:02 am:
Great idea, to use the windfall on pensions.
“we expect that the state will continue to struggle to structurally balance its budget while making progress on its bill backlog absent any significant revenue increase or cuts”
Which is why we need more revenue and the wealthy to pay their fair share. No more cuts, at least not big ones. We can’t keep going to the most vulnerable and public sector for savings. We got in this fiscal mess in part because no one had the will or initiative, politicians or voters, to get a graduated income tax and shift the financial burdens of the state to where they belong.
Now we have an opportunity for longer-term financial stability, but two Democrats are threatening to blow up the graduated income tax amendment or put it in jeopardy without firs proposing something themselves. And they did it in the media. How you front your governor like that, man? How you do that?
- Oswego Willy - Friday, May 10, 19 @ 10:02 am:
===It all fell into his lap===
“Boo good news, I need to be angry about it for a ‘Democrat’ governor”
We use to be better. We use to root for the state.
- wordslinger - Friday, May 10, 19 @ 10:07 am:
–It all fell into his lap he had zero to do with creating the extra income.–
Still, probably a better idea than the Bizarro Keynesian fiscal practice of nearly doubling annual deficits in a growth economy like the Life-Long Rs like yourself in DC did.
https://www.washingtonpost.com/business/economy/the-federal-deficit-ballooned-at-start-of-new-fiscal-year-up-77-percent-from-a-year-before/2019/03/05/ff8d31f6-3f75-11e9-9361-301ffb5bd5e6_story.html?noredirect=on&utm_term=.0626f3c469d5
- Anonymous - Friday, May 10, 19 @ 10:14 am:
==So….. what’s the credit “risk,” again? ==
It’s not so much about being able to afford pensions in 20 years, as it is about being able to afford other programs in 20 years. It’s a very smart move, politically and financially.
- Just Me 2 - Friday, May 10, 19 @ 10:15 am:
We outta’ have a law that all unbudgeted income goes to the pension system.
- wordslinger - Friday, May 10, 19 @ 10:19 am:
–It’s not so much about being able to afford pensions in 20 years, as it is about being able to afford other programs in 20 years.–
That’s not my point: what’s the actual “risk” of Illinois missing a bond payment? The answer, based on history, law and revenues available to service the debt is “zero.”
Yet the state is “rated” at the bottom of investment grade. Doesn’t actually make sense.
- A guy - Friday, May 10, 19 @ 10:21 am:
This R is applauding his smart choice to apply that boon of money where it was most sorely needed. Fall into his lap, or Divine Intervention, or accidental increase; who cares. There are plenty of governors, including every one still living, that may have or likely would have chosen otherwise.
I hope more “unexpected” revenue comes his way and I hope he continues to send it to the right place.
- Rich Miller - Friday, May 10, 19 @ 10:24 am:
Life Long R, just out of curiosity, why is someone with your IP address also posting with the similar yet very different “Hard D” handle?
Sock puppetry is forbidden here.
- PublicServant - Friday, May 10, 19 @ 10:32 am:
===why is someone with your IP address also posting with the similar yet very different “Hard D” handle?===
Oh man, we caught a Russian troublemaker playing both extremes to stir up trouble.
- Rich Miller - Friday, May 10, 19 @ 10:32 am:
===a Russian troublemaker===
Not unless the Russian lives in Illinois.
- PublicServant - Friday, May 10, 19 @ 10:33 am:
===“putting more money into Illinois’ pensions sooner, in our view, would prove better for the state’s credit than any form of financial engineering that reduces near-term contributions.”===
Duh. And I love the term, financial engineering. AKA Diversion bordering on theft.
- efudd - Friday, May 10, 19 @ 10:36 am:
Maybe lifelong R has a split personality.
Which would be a shame, as Rauner’s administration slashed mental health spending. Something else Pritzker has to clean up.
- RNUG - Friday, May 10, 19 @ 10:44 am:
== Of course I would rather he used half the money (aprox 500 million) to pay the backpay that Rauner cheated out of state workers. ==
JB can’t use the money for back pay without an appropriation (actually multiples for the various agencies). Since the pension fund payments are an ongoing appropriation, he can use the money for the pension funds.
Get your Representative and Senator to appropriate the back pay …
FYI … I have told my friends affected by the back pay issue to not expect it until sometime in the Fall. It might happen earlier, but don’t expect it.
- RNUG - Friday, May 10, 19 @ 10:49 am:
== That’s not my point: what’s the actual “risk” of Illinois missing a bond payment? The answer, based on history, law and revenues available to service the debt is “zero.” ==
Yep. In over 100 years, one state - Arkansas, deep in the Great Depression, delayed bond payments. And even those bondholders were eventually paid in full. -Word- is right; there is effectively zero risk.
- Honeybear - Friday, May 10, 19 @ 11:00 am:
RNUG- Thanks for that explanation. I truly wasn’t sure how it worked. I knew we needed and appropriation but I though since JB used the new money for pensions maybe we didn’t. Thanks for painting the picture.
I will be surprised if we get it at all though. It took six years last time.
- Lord Voldemort - Friday, May 10, 19 @ 11:44 am:
Okay, credit where due — given the chance, Pritzker opted to pay into the pensions now, when it will do the most good, rather than put things off into the future when the costs will be even higher.
But unless we expect these kind of windfalls to become a regular occurrence, we still need to reform retirement plans, and start to move away from the defined benefit model.
- Sue - Friday, May 10, 19 @ 11:58 am:
Wish the Dept of Revenue could determine the State’s actual revenue projections at the new employment levels. Maybe Durkin is on to something? It’s been like 20 years since the State had this number of people gainfully employed
- JS Mill - Friday, May 10, 19 @ 11:58 am:
=there is effectively zero risk.=
And they know that but still play the games.
=we still need to reform retirement plans, and start to move away from the defined benefit model.=
Only if you want to:
1 increase costs
2 believe in the tooth fairy
3 increase wealth disparity
4 bow down to the financial services industry
- Demoralized - Friday, May 10, 19 @ 12:03 pm:
==we still need to reform retirement plans==
We did. That was Tier II.
==start to move away from the defined benefit model.==
We can do that any time we want for new employees. Everyone is spending their time trying to figure out how to take away from those currently in the system, however.
- Jibba - Friday, May 10, 19 @ 12:09 pm:
==and start to move away from the defined benefit model.==
Everything you can envision literally is more expensive than Tier 2. Why? Because you need to pay social security in addition to any defined contribution. I’m just repeating things that have been said here a million times, figuratively, but I’ve been paying attention.
- Six Degrees of Separation - Friday, May 10, 19 @ 12:17 pm:
===But unless we expect these kind of windfalls to become a regular occurrence, we still need to reform retirement plans, and start to move away from the defined benefit model.===
Fine, as long as we realize there will be short to medium term increased costs for moving new employees (and willing current employees) into such a plan. The new employees would not be adding any contributions to pay into the current system and its debt, and “someone” would be required to make up the shortfall.
- SSL - Friday, May 10, 19 @ 12:20 pm:
JB made the right call. It was an easy call, but that hasn’t stopped his predecessors from screwing those up. Hopefully he’ll have opportunities to make more decisions like this one.
- wordslinger - Friday, May 10, 19 @ 12:49 pm:
=there is effectively zero risk.=
And they know that but still play the games.–
There’d be no point to their state ratings biz (which states pay for) if they just admitted, “yeah, there’s no risk to any state GO bond; never has been, as history shows”).
- Pundent - Friday, May 10, 19 @ 1:36 pm:
=There’d be no point to their state ratings biz (which states pay for) if they just admitted, “yeah, there’s no risk to any state GO bond; never has been, as history shows”=
But if they didn’t do this how would they drive up the yields?
- City Zen - Friday, May 10, 19 @ 1:46 pm:
==Why? Because you need to pay social security in addition to any defined contribution.==
Depends how you value risk. Might be worth the state to pay a premium today to completely absolve themselves of the pension risk tomorrow.
- wordslinger - Friday, May 10, 19 @ 1:54 pm:
–It’s been like 20 years since the State had this number of people gainfully employed–
According to BLS, the high-water mark of Illinois employed was 6.36 million in December 2007.
The low point of The Great Recession was in November 2009 at 5.86 million.
The March 2019 report was 6.2 million.
https://data.bls.gov/pdq/SurveyOutputServlet
- Honeybear - Friday, May 10, 19 @ 2:30 pm:
-start to move away from the defined benefit model.-
It also shifts administrative costs to the employee.
We’ve got enough problems getting folks to work for the state without adding this to the mix.
Seriously
- Jibba - Friday, May 10, 19 @ 2:41 pm:
==Depends how you value risk. Might be worth the state to pay a premium today===
So tier 2 is cheaper in real dollars today. You may have a point that taking a more expensive route now provides some security, but make that case to the public that a larger tax increase is needed to pay for it. Not going to fly with them or legislators, who would have to abstain from additional spending.
- City Zen - Friday, May 10, 19 @ 3:15 pm:
==So tier 2 is cheaper in real dollars today. ==
Only because it hasn’t been enhanced yet. Tier 2 employees are at most 9 years into and a significant amount of years away from full vesting. While Tier 2 will never be enhanced to Tier 1 levels, it might end up as Tier 1.6 and much more expensive than it appears to be today. Be skeptical of any Tier 2 savings.
The more expensive route today may not be as expensive as you think. Immediate payments into SSI and 401k plans would eat into operating expenses, directly impacting salaries. This is much easier to bypass in a pension system.
- Anonymous - Friday, May 10, 19 @ 3:18 pm:
I agree with City Zen, taxpayers should not be guaranteeing investment returns for state workers. We need to end defined benefit plans for all future state and local workers. And eleminate the benefits protection clause so future generations of Illinoisans are saved from our politicians.
- Anonymous - Friday, May 10, 19 @ 3:24 pm:
The employer portion for Social Security is 6.2%, correct? Just don’t match contributions to the 401k. Or match 1 or 2%. And make it a year end decision based upon performance until the State Constitution is amended to end the benefits protection.
- Jibba - Friday, May 10, 19 @ 3:47 pm:
CZ and Anonymous team up to keep all good workers from state employment forever.
If you want to change the employment contract, remember that
State salaries are low relative to the private sector for positions requiring a degree. Be ready to pay more, not less, if you reduce benefits.
Also, tier 2 helps pay off tier one. Plan ahead for tax raises if that funding source disappears.
And Tier 2 may or may not be enhanced in the future, but it will still likely be cheaper than SS plus any appropriate defined contribution. You make a lot of generalities about risk and future changes with your foggy crystal ball.
- RNUG - Friday, May 10, 19 @ 3:54 pm:
== Tier 2 employees are at most 9 years into and a significant amount of years away from full vesting. ==
Only partially true. According to the courts, the employee is locked into (at minimum) the benefits in place when hired.
In terms of bring able to actually collect benefits, for Tier 2 it is a minimum 10 years and 67 years of age without reduction or 10 years and 62 years with some reduction.
As far as ‘fully vest’, that depends on how you interpret the term vest. If you mean to be eligible to collect some level of benefit, then for Tier 2 that is 10 years of employment (service). If you mean to collect the maximum available benefit, then it is 45 years (technically 44 years and 10 months) for the typical employee.
- Anonymous - Friday, May 10, 19 @ 4:20 pm:
I’m fine with Tier 2 as long as we eleminate pension protection going forward.
- illdoc - Friday, May 10, 19 @ 4:26 pm:
As long as you remember that “eliminating pension protection” will not change anything for current employees
- Anonymous - Friday, May 10, 19 @ 4:29 pm:
Understood, but we can’t let this ever happen again. And IL pols will allow it to happen.