*** UPDATED x1 *** Fitch states the obvious
Wednesday, Nov 4, 2020 - Posted by Rich Miller
* Eric Kim, Head of State Government Ratings, Fitch Ratings…
“Without the estimated $1.3B a new graduated income tax would have brought in this year, Illinois will need to consider other options to balance its budget.”
“Alternatives for Illinois include additional borrowing from previously authorized general obligation debt or the Federal Reserve’s MLF program, spending cuts or revenue options such as an increase in the flat income tax rate or changes to the sales tax.”
“Illinois’ upcoming post-election legislative session could be particularly consequential this fiscal year.”
Forget the Springfield COVID issue, they may want to delay the veto session just for this reason alone.
*** UPDATE *** Moody’s…
Moody’s has issued a short note today (attached) regarding voters in the State of Illinois (rated Baa3/negative outlook) who rejected a constitutional amendment that would have allowed progressive or “graduated” income tax rates. The amendment’s failure makes greater reliance on deficit financing more probable for Illinois and is therefore credit negative, but the state’s likely pursuit of other recurring fiscal strategies mitigates this impact.
The enacted general fund budget for fiscal 2021, which began July 1, addressed a deficit of about $6.1 billion in part through the $1.27 billion of new revenue projected from higher taxes on the state’s highest earners or, if the amendment was rejected, a comparable amount of borrowing under an enacted deficit bond statute. Rejection of the amendment may also increase the likelihood the state will resort to other credit-negative strategies, such as deferring near-term pension contributions, although to date the state has not articulated a contingency plan involving cuts to retirement benefit contributions.
Illinois will likely turn to revenue strategies requiring only approval by a simple majority in the Illinois General Assembly, offsetting the negative credit effect of the ballot outcome. Alternatives include increasing the 4.95% flat tax that applies to individual income or broadening the state sales tax to more services. Raising the flat income tax by 70 basis points, to 5.65%, would generate about $3 billion of additional revenue, the same as had been projected for the first full year under graduated income tax rates that the state had devised in connection with the proposed constitutional amendment. Raising the flat rate or imposing other revenue strategies during November legislative sessions could preclude the need for the $1.27 billion of deficit bonds.
The amendment’s failure also increases the probability of spending cuts, which could generate lasting fiscal benefits. Gov. Pritzker has already asked agency directors to identify spending cuts of 5% in the current fiscal year and 10% for the coming year, with exemptions for any government functions “directly responsible for life, safety and health” in connection with the state’s coronavirus response.
Moody’s declaration of “credit positive” or “credit negative” does not connote a rating or outlook change. It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer.
- Welp - Wednesday, Nov 4, 20 @ 11:38 am:
Governor Junk
- Techie - Wednesday, Nov 4, 20 @ 11:49 am:
There you have it: rather than have the wealthy pay more, either everyone will be paying more or we will see law enforcement, education, and social services cut.
Thanks, Illinoisians - you just got played by the rich (not you, Rich).
- striketoo - Wednesday, Nov 4, 20 @ 11:53 am:
When Rauner refused to institute the cuts necessary to make expenditures he continued the same old same old which led to yesterday’s defeat of the Fair Tax. This will continue until some governor has the guts to match spending with income and force the voters to face reality. It is possible that they actually would accept the cuts but we will never know because no governor (obviously including the current one) is willing to force the issue. Try matching spending to revenue and see what happens.
- Morty - Wednesday, Nov 4, 20 @ 11:57 am:
’ Try matching spending to revenue and see what happens.’
Kansas?
- wondering wendy - Wednesday, Nov 4, 20 @ 11:58 am:
Absolutely striketoo.
- Fishbeak - Wednesday, Nov 4, 20 @ 11:58 am:
Don’t delay or cancel veto session. Show resolve and put together a plan to make some hard choices.
- Really - Wednesday, Nov 4, 20 @ 11:59 am:
Agreed. Time to take the grown up approach and match your spending to your existing revenues.
- Oswego Willy - Wednesday, Nov 4, 20 @ 12:00 pm:
===Try matching spending to revenue and see what happens===
You lose elections.
Yes, Kansas, but Rauner showed… you decide to starve (which is what a cut does) voters don’t like that either.
Pritzker can start in all districts that have both House and Senate Republicans.
You want cuts…
- Oswego Willy - Wednesday, Nov 4, 20 @ 12:01 pm:
- Really -
When your taxes are raised, I will expect you to cheer.
Shared sacrifices and all, lol
- Merica - Wednesday, Nov 4, 20 @ 12:03 pm:
With $180B in unfunded police and fire pensions, huge deficits in local governments, stable or declining real estate values, stable or declining population numbers, and already high sales and real estate taxes, Central and Southern Illinois has no good revenue options. I don’t think there is a path forward without huge cuts or a giant federal bailout or both
- Anon - Wednesday, Nov 4, 20 @ 12:05 pm:
Given that this is what the voters wanted, you have to assume they’re willing to pay more and face cuts to programs. When it affects their program, they might start to understand better what their vote did.
- illinifan - Wednesday, Nov 4, 20 @ 12:13 pm:
Okay since this is what the voters wanted it is now the job of state government to be simple in their transparency. They need to post revenue and expenses for each agency. They need to post how much in cuts are needed to balance the agencies budget. Then cut and clearly state what is being taken away in each agency to achieve the goal. They need to run ads that say this and televise meetings with legislators especially the Rs to ask for their input as to what they want gone. Clear, concise transparency is the only way the message gets out.
- Grandson of Man - Wednesday, Nov 4, 20 @ 12:19 pm:
Democrats seem to be atrocious at messaging. They should have been hammering the ILGOP and the right wing from the moment Republicans voted against the graduated income tax. We will need more revenue because if we aspire to be humane and civilized we must spare as much as possible those who can least afford cuts. Lots of voters across the political spectrum support social services, school funding, etc. Now is the time to get busy with a comms plan to begin messaging and fighting the PR fight. Don’t worry about opponents’ attacks or message framing, don’t live in their narratives.
- AD - Wednesday, Nov 4, 20 @ 12:21 pm:
===You lose elections.===
That’s fine. Between the last two Billionaire Governor’s, it’d be nice if one came in, did all the tough things and then left after four years without having to worry about running for reelection. Then go back to their lives in business or retirement. It would be an incredibly honorable thing to do.
- Don't Bloc Me In - Wednesday, Nov 4, 20 @ 12:25 pm:
Down here in the Bloc, Republican legislative candidates got 75% to 85% of the vote yesterday. They’ve told us we have a spending problem, not a revenue problem. Maybe it’s time to give them what they want. Force them to vote on cuts, to defend those votes when the hurt hits the fan. These cuts will most hurt the ones who can least afford them, but in this part of the state, they also voted against the tax amendment. Maybe in another 2 years a smarter campaign for a graduated income tax will succeed.
- Donnie Elgin - Wednesday, Nov 4, 20 @ 12:30 pm:
=Force them to vote on cuts=
They won’t have to, the Dems will need to put that supermajority political capital on the line for once.
- Cadillac - Wednesday, Nov 4, 20 @ 12:35 pm:
61.5% of Kendall County voters said no to the Fair Tax.
- City Zen - Wednesday, Nov 4, 20 @ 12:41 pm:
==We will need more revenue because if we aspire to be humane and civilized==
We’re not already? Speak for yourself.
- Oswego Willy - Wednesday, Nov 4, 20 @ 12:46 pm:
=== 61.5% of Kendall County voters said no to the Fair Tax.===
Batinick won too, so… whatcha saying?
- RNUG - Wednesday, Nov 4, 20 @ 12:54 pm:
The veto session is the time to railroad through any cuts and new taxes. It won’t get any easier if they wait until the next GA. Plus it gives them 2 years to apologize / explain / hope the voters forget or forgive them.
- Blake - Wednesday, Nov 4, 20 @ 1:36 pm:
I think striketoo has it right. Under Jerry Brown, California had a year where voters experienced the cuts first, then they had a ballot initiative to increase rich people’s income tax.
- anon2 - Wednesday, Nov 4, 20 @ 6:30 pm:
Rich may be right that the thumping of the Fair Tax on the rich indicates broad opposition to higher taxes on everyone. There won’t be a single GOP vote to hike taxes. Will Democrats provide 60? Seems doubtful.
- Really - Wednesday, Nov 4, 20 @ 7:16 pm:
Oswego Willy,
If they get raised they get raised, but it sounds as if the Governor is going to make cuts first. And for those that seem to think everyone will be howling about them, think again. I would be happy ti see an actual balance budget. It’s only been 20 or so years since that happened.
- Oswego Willy - Wednesday, Nov 4, 20 @ 7:23 pm:
- Really -
===- charlie wheeler - Wednesday, Jan 17, 18 @ 7:07 pm
Points of Information re balanced budgets
“When was the last time Illinois actually had a balanced budget?”
Illinois last ended its fiscal year with a general funds budgetary surplus (GF available balance > lapse period spending) in FY2001, when the AB was greater than LPS by some $300 million.
As measured by declining budgetary deficits, Illinois last had a balanced budget (current year spending less than current year revenues) in FY2015, when the deficit declined by slightly more than $1 billion.
If unfunded pension liabilities are included, Illinois likely has never had a balanced budget since the state assumed responsibility for certain public employees’ retirement benefits a century ago. Nor is the state likely to have a balanced budget under this concept for the foreseeable future, as the unfunded liabilities totaled roughly $129 billion as of 6/30/17, roughly three-and-a-half times the estimated general funds revenues for FY 2018.
Sources: Illinois Comptroller Reports, Commission on Government Forecasting and Accountability.
Charlie Wheeler===
Facts matter.
Voting against yourself is still ridiculous and embarrassing, but do not complain either way, it’s funnier.
- Oswego Willy - Wednesday, Nov 4, 20 @ 7:25 pm:
This alone.
=== If they get raised they get raised===
You know you undercut your whole argument why you voted against the Fair Tax right there… right.
Think on that for a bit.
- HighSox - Wednesday, Nov 4, 20 @ 9:53 pm:
IL horrendous financial situation is self inflicted. I would support a fair tax or tax increase if IL had been fiscally responsible in the last several decades. Pension “holidays” by politicians to fund pork projects to get re-elected is not fiscally responsible. IL taxpayers are bitter and don’t trust politicians- prior or current.