Capitol Fax.com - Your Illinois News Radar

Thursday, Jun 8, 2023 - Posted by Rich Miller

Illinois’ efforts to lure a major electric vehicle battery plant here finally may be close to striking gold, as Gov. J.B. Pritzker is personally negotiating with multiple companies to come here.

Among the lures: hundreds of millions of incentives, in part coming from a recently authorized state “deal closing fund,” and in part a willingness by local municipalities to consider the type of long-term property tax breaks that factory owners are demanding. […]

Much of the chatter is about a site just off of Interstate 80 in Morris, 24 miles southwest of Joliet and 62 miles from downtown Chicago in Grundy County.

The deals are serious enough that Pritzker interrupted leadership talks in Springfield on a new state budget a few days ago to travel to Morris and meet with executives of the interested company to tour a site on the east end of town, multiple sources with direct knowledge report. It’s not known if Pritzker joined in the helicopter tour of the land, but he reportedly offered more than $600 million in potential incentives for the plant.

Fingers crossed, but not counting on anything.

* As you’ll recall, Stellantis’ Belvidere plant was idled months ago. From January…

Illinois has submitted what could be its best offer to keep the Belvidere Assembly Plant operating and save what could be thousands of jobs.

U.S. Sen. Tammy Duckworth, D-Illinois, said during a visit to Rockford that her office is supporting local and state officials in their efforts to keep the Stellantis plant open in Belvidere where 5,000 people worked a few years ago. Although details are unavailable because talks are on-going, Duckworth said the state submitted its latest offer Friday night.

Almost five months later and still no word on Illinois’ “best offer.”

* And this is ominous news from Ford…

Ford Motor Co (F.N) on Monday unveiled an ambitious strategy to profitably ramp up electric vehicle sales but faces a challenge to slash $7 billion in costs and regain credibility on Wall Street. […]

Ford, whose shares fell 1% at midday, estimated its total costs are $7 billion higher than its competition.

Also…

One way is to reduce investment in hypercompetitive market segments such as two-row smaller SUVs, [Ford CEO Jim Farley] told industry analysts.

Uh-oh. Ford’s Chicago plant, the oldest factory the company operates, assembles the two-row Ford Explorer. It does, however, assemble the three-row Lincoln Aviator.

And, of course, Rivian is having its own problems. Oy.

* Remember this column I wrote in February?…

Volkswagen filed a federal lawsuit in December describing a bill that overwhelmingly passed both Illinois legislative chambers and was signed into law in 2021 as “crony capitalism at work: redistributive legislation that takes hundreds of millions of dollars from some (but not all) motor vehicle manufacturers and, for no public purpose, deposits that money directly into the pockets of politically favored Illinois [car] dealers.” […]

The manufacturers say the law is costing the industry $240 million a year. Yes, you read that right. $240 million. Per year. They claim Illinois has the highest warranty repair costs in the nation. By far. […]

The subsidies the state can offer simply don’t compare with the gigantic annual cost of that 2021 law. Couple that with our high local property taxes (these electric vehicle plants take up huge amounts of space) and other costs and hurdles (Ohio, like Illinois, is not a “right to work” state but has a new concierge system to quickly clear red tape), and you can see why the state hasn’t yet convinced a national or international corporation to construct an electric vehicle-related facility here.

If Pritzker can lure a big, jobs-rich EV-related plant here, convince Ford to keep its plant open and prod Stellantis into reopening its plant, then he’s a hero. But color me skeptical on all three.

I try hard not to be a negative Nellie, but this state has a well-deserved toxic reputation with the auto industry.

…Adding… According to this article, Georgia gave Hyundai a $1.8 billion incentive package for an electric vehicle plant. North Carolina used $1.2 billion in incentives to land VinFast, a Vietnamese electric vehicle manufacturer. And South Carolina’s $1.3 billion state incentives package for Volkswagen included a $200 million loan from the state. Illinois’ $600 million kinda pales in comparison.

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*** UPDATED x1 - COGFA: Scenarios “are not budget predictions” *** Here we go again

Thursday, Jun 8, 2023 - Posted by Rich Miller

* Jim Nowlan in the Tribune…

Gov. J.B. Pritzker and state lawmakers have recently been trumpeting the great financial shape of Illinois. Balderdash. And they know it. There will almost certainly be state tax increases by 2025. […]

The state legislature’s own budget forecasting agency predicted in March that by one reasonable scenario, the state’s operating funds in calendar 2025 will run at a deficit of more than $3 billion annually, with a whopping $18 billion in unpaid bills (from a total budget of around $100 billion).

A “reasonable scenario”? Balderdash.

I can’t believe we have to do this again, but here we go.

* From COGFA…

Scenario 3 assumes spending increases similar to the spending rates seen over the last five years of 7.1% per year on average. This scenario has the highest expenditure growth rate analyzed and leads to the least favorable results for the State. Expenditures grow to just over $61 billion by FY 2026. This scenario reflects deficits in all three years forecast and has the worst outcome when considering the aggregate accounts payable. After a surplus of $1.9 billion in FY 2023, a deficit of $3.1 billion occurs in FY 2024. This deficit grows to almost $6.4 billion in FY 2025 and $9.2 billion in FY 2026. Under this scenario, the accounts payable rises to $18.2 billion. This example shows that spending patterns seen in the past few years cannot continue without a comparable increase in revenues which is not seen in the Commission’s current estimates.

And this is what I wrote about that very same scenario in April…

Trouble is, that particular COGFA scenario is pure fantasy, likely included merely as a “what if.” Nobody is advocating that. Revenue and spending in that five-year average included huge amounts of one-time federal money to deal with the massive COVID pandemic, which is no longer with us. The spending also included billions of dollars in one-time approps to pay down gigantic amounts of debt, including for pensions and the unemployment insurance trust fund, rather than put the money into the spending base.

That scenario projected FY24 revenues of $50.41 billion and spending of $53.54 billion, for a deficit of $3.13 billion. In the real world, actual projected revenues are $50.6 billion and spending is projected at $50.4 billion.

The current projected spending for FY24, by the way, is lower than all of COGFA’s scenarios, which as I’ve pointed out before were just numbers games played by accountants who should know better than put that stuff into publication.

That current projected spending is even lower than COGFA’s most optimistic scenario, which predicted $50.9 billion in spending and a $495 million deficit with a tiny $37 million accounts payable this coming fiscal year. Accounts payable would rise to $1.455 billion by the end of Fiscal Year 2026. However, a $3 billion accounts payable level is considered a “normal” 30-day payment cycle. Accounts payables of $1.455 billion would mean the state’s bills would likely be paid within a couple of weeks.

* First, he cherry picked the worst possible fantasy scenario, and then he goes on to predict what taxes will have to rise to fill a budget hole that will not exist…

Let’s say Democrats decide they need to raise $3 billion a year to fill that projected deficit. Where to find the money? […]

But we won’t likely tax services and pensions, nor will we abandon the effort, unnecessary in my mind, to build up the pension nest egg — all are too hot to handle politically.

So, I fear Illinois policymakers will revert to the tried, true and simple; that is, raise the income tax rate. This would, unfortunately, encourage further flight of job creators and their wealth from Illinois.

Look, I’m not saying that a revenue enhancement of some sort is not in the future. Subscribers were told about one possible tax reform effort yesterday.

All I’m saying is that using an obviously way-out-there fictional scenario to make bold predictions about the future is not sound reasoning.

*** UPDATE *** Clayton Klenke at COGFA…

Like most of the publications that we do at CGFA, the 3-year budget forecast is driven by a specific state mandate. […]

We had internal discussions when the report was written on whether we should continue to use the same scenarios as we have in the past and in the end we chose to present the same scenarios – which is exactly what they are – scenarios. They are not budget predictions. They are examples of what would occur given certain scenarios. We recognized that scenario (3) included a higher growth rate than we would normally predict, and that is why we included the text to explain why that rate was higher than normally seen. Although we wouldn’t expect those circumstances to occur again, those spending levels were driven by actual needs to pay down a backlog of bills after a multi-year budget impasse, and also to deal with a worldwide pandemic – items not too many would have deemed plausible a few years ago.

As with all of our publications, we will continue to review our methodology as we develop future reports.

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