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* John Kass writes again today about a forensic audit. He’s talking about Chicago, but the idea is part of Bill Brady’s gubernatorial campaign platform as well. Brady uses the proposal to deflect questions about his budget details, saying he needs to see the results of such an intense audit before he can make any decisions.
Now, I am not opposed to the idea at all, but here’s the thing: A normal Auditor General agency audit takes months to complete. A complicated and detailed forensic audit of the entire state government all at once might take years. Whatever the case, there’s just no way I can figure that Brady could launch a complete forensic audit after he’s inaugurated in January and get the results back before introducing a new state budget in March or April, or even May or June.
* Gov. Christie said yesterday that Brady was doing the right thing by not talking in any detail about his budget plans…
New Jersey Gov. Chris Christie, a rising star in the Republican Party, says state Sen. Bill Brady should not offer too many details about how he would cut Illinois’ $13 billion budget deficit if Brady is elected governor.
Christie, who endorsed fellow Republican Brady at Abraham Lincoln Capital Airport Tuesday, said Brady shouldn’t worry about criticism that his budget plan lacks specifics.
“I heard the same things … a year ago right now,” Christie told reporters. “What I said was, ‘I am laying out for the people of New Jersey the direction that I’m going take the state. And I’m not going to sit here now and talk about each and every specific cut and how it all adds up as if I’m a CPA.’
“Candidly, I’m really happy I didn’t. Because the problem I found in New Jersey was much worse than my predecessor advertised, and anything I would have said would have had to have been thrown right in the garbage in January 2010.”
* The good news? Illinois sold a lot of bonds overseas. The bad news? We’re paying a higher interest rate than Mexico and Portugal…
Illinois capital-markets director John Sinsheimer and Citigroup Inc. bankers took a globe-girdling trip from the U.K. to China in June to persuade investors that the state’s $900 million of Build America Bonds were a bargain.
The seven-country visit worked. The state sold one-fifth of the federally subsidized securities abroad the next month, tapping investors who are the fastest-growing source of borrowed cash for U.S. municipalities. Illinois, with the lowest credit rating of any state from Moody’s Investors Service, dangled yields higher than Mexico, which defaulted on debt in 1982, and Portugal, which costs more to insure against missed payments.
To retire the fiscal 2010 bills by the end of the year, [Comptroller Dan Hynes] warned that the state must complete its up to $1.75 billion tobacco bond sale because the budget relies on at least $1.2 billion from the deal. Illinois recently named a finance team for the transaction. The state also must make additional interfund transfers and collect additional revenue from a tax amnesty program.
“A significant failure of any of these sources will place remaining fiscal year 2010 obligations in jeopardy,” Hynes warned. “This would create a scenario in which unsatisfied payees could be forced to seek legal and judicial remedies to obtain payments in amounts unprecedented in the state’s history.”
The comptroller said barring any major changes, the state’s liquidity crisis will continue through the fiscal year and Illinois could end the year with an even larger bill backlog of $8 billion as additional debt service comes due. That number could rise if no action is taken to address a $3.7 billion pension payment. […]
However, Hynes warned: “The structural imbalance in the current budget, combined with higher debt service costs and the loss of federal stimulus revenues, creates the very real possibility that the governor and General Assembly will face a working deficit of $15 billion or more when the fiscal year 2012 budget is crafted early next year.”
Oof.
But, hey, I suppose if Bill Brady is elected we could just sell $50 billion in pension bonds…
Republican governor candidate Bill Brady has been blasting Democratic Gov. Pat Quinn for taxing, spending and borrowing, but Tuesday the challenger refused to rule out borrowing a record $50 billion to shore up state finances.
“All options have to be considered,” Brady said.
Yeah. That’ll be no problem, considering the inflated interest rate, the ever-worsening deficit and still-horrible revenues.
Nobody is gonna buy that many bonds from this state without a definable revenue stream. Brady has said he’d pay them off with “natural revenue growth.” As I pointed out yesterday, there is no revenue growth.
* Meanwhile…
Gov. Pat Quinn’s administration has finalized a deal with the state’s largest employee union that will prevent layoffs until 2012 despite repeated calls from Republican challenger Bill Brady for Quinn to abandon the plan.
The agreement between the state and the American Federation of State, County and Municipal Employees was finalized on Sep. 24, and was signed by union director Henry Bayer and James Sledge, head of Illinois Central Management Services.
Under the deal, the state cannot layoff workers or close facilities until July 2012. In exchange the union says it has agreed to cut costs by at least $170 million by cutting healthcare costs, restricting overtime and other yet-to-be-identified measures. Quinn’s office hopes ongoing negotiations will push savings higher.
Too often, this governor walks right into the punches.
* And kudos to the AP for attending one of Scott Lee Cohen’s much-hyped job fairs…
Martina Love had two words to describe the job fair hosted Tuesday by Scott Lee Cohen, the independent candidate for Illinois governor: “false advertisement.”
Out of work for a year, the 23-year-old said she’s looking for a “real job” at a factory or somewhere else, not selling jewelry or enlisting in the military like recruiters at Cohen’s Rockford-area job fair were offering.
“If he’s supposed to be a governor, I would think that he would have had more things in here knowing how the economy is,” said Love, who used to work at phone customer service company.
The job fairs are a cornerstone of Cohen’s campaign for governor, but the job seekers who lined up Tuesday to talk to more than a dozen companies weren’t necessarily interested in helping him gain employment as Illinois’s chief executive.
* Related…
* Unemployment And The Output Gap
* New Jersey Gov. Chris Christie Endorses Bill Brady
* New Jersey governor stumps for Brady
posted by Rich Miller
Wednesday, Oct 6, 10 @ 11:35 am
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What phonebook salesmen like Adam Andrzejewski and journalists like John Kass don’t understand is that every audit is really “forensic” by definition. And the state already does lots of audits. This uninformed talk about some magic bullet for the budget is just a way to put off taking specific positions now. “Oh we have to wait until the forensic audit is done.” It’s nonsense. If Bill Brady has no idea where to cut after 17 years in the legislature he shouldn’t be running for governor in the first place.
But I did read in Hinz that IL GOP chair Pat Brady moved again to a big accounting firm. Maybe he’s getting ready to get that big juicy “forensic audit” contract for his new employer. Afterall, why be satisfied just paying the Auditor General and his staff when there is pin stripe patronage that can be doled out for the same work.
Comment by just sayin' Wednesday, Oct 6, 10 @ 11:55 am
As has been pointed out here before, the “forensic audit” talk is shorthand for blowing smoke. “Forensic audit” means the “application of accounting methods to the tracking and collection of forensic evidence, usually for investigation and prosecution of criminal acts such as embezzlement or fraud.”
Chicago has had real inspector generals for what, 5 years now? They’ve had dozens of employees (auditors, lawyers, investigators) doing damned fine work, in cooperation with the U.S. Attorney’s Office. They have access to City records. They’ve made a bunch of prosecutions. They’ve issued audit findings. They’ve scratched the surface, and then some. But there is way more for them to do.
Who is going to conduct this “forensic audit” (city or state)? What more expertise will they have than the Chicago Inspector General’s office or the state Auditor General? (Let’s agree that the State IG hasn’t done much lately.) How much will it cost? How many employees? As you point out, how long will it take?
Sorry Kass has fallen for the smoke rings. But calling for a “forensic audit” without specifics is a big fat Kitty by which voters can be distracted.
Comment by Anonymous Wednesday, Oct 6, 10 @ 12:01 pm
I think Kass has himself become a “Chumbelone” or whatever that word was he made up and likes to apply to others. Kass seems to be a one trick pony now with the made up words. He needs a new one for columnists who fall for the latest politicians’ snake oil.
Comment by just sayin' Wednesday, Oct 6, 10 @ 12:08 pm
Each time I hear someone calling for a “forensic audit” it is coming from someone who has never been at a state agency and gone through one of Holland’s audits.
I would rather have a root canel without novocaine done by a blind dentist than go through a Holland audit. They don’t miss anything and you better be able to justify each and every policy or decision if they ask. And if you can’t justify something, it will be a finding and you and your agency will go under the bus at the next audit hearing.
Seems “forensic audit” is the end all answer to all our budget problems from Brady and his gang.
Comment by Give Me A Break Wednesday, Oct 6, 10 @ 12:17 pm
Just when you think Kass can’t get any weirder, he surprises.
He really believes Daley was scared out of a re-election bid by some obscure alderman mouthing the gimmicky words “forensic audit?” Fitz has been circling his administration for years, and he’s a lot scarier than any alderman.
Say what you want about Daley, but no one was ever going to scare him out of office.
Comment by wordslinger Wednesday, Oct 6, 10 @ 12:18 pm
$50 Bn worth of State bonds could be created and deposited with the State Pension Funds at whatever interest rate and maturity or maturities the GA desires. No cash would have to change hands. This would eliminate the expense of going through an underwriter who would have to price the bonds according to the prevailing market, as well as take their cut. It’s very much a gimmick but it would be a step above where the State is now, relying on its Constitutional obligation.
The bonds would be easier to take to court than the Constitution. By that I mean a potential default would be a greater cause for action and if it occurred could be adjudicated whereas underfunding of the pensions could not. Of course that action could be the issuance of still more bonds.
Some other state did or tried to do this recently. For some reason New Jersey comes to mind. I don’t know what happened next.
Comment by MikeMacD Wednesday, Oct 6, 10 @ 12:27 pm
I do not blame Brady for not getting too specific in how he plans to tackle the deficit. I remember four years ago when Judy Baar Topinka laid out what was at the time considered among the most specified plan of any candidate that ever ran for Governor and it seemed as if no one cared.
Quinn does not need to go into too much detail at this time either.
Comment by Richard Afflis Wednesday, Oct 6, 10 @ 12:27 pm
–$50 Bn worth of State bonds could be created and deposited with the State Pension Funds at whatever interest rate and maturity or maturities the GA desires. No cash would have to change hands–
I’m not following that at all. Are you talking about IOUs, basically? What good would that do? I think Harry and Lloyd tried that in “Dumb and Dumber.”
Comment by wordslinger Wednesday, Oct 6, 10 @ 12:34 pm
I am involved in an organization that made endorsements of some state reps and senators. Way too many members of the interview committee totally fell for this forensic audit line by Republican candidates. Short on specifics but big on the call for an audit.
Comment by Who Cares Wednesday, Oct 6, 10 @ 12:37 pm
===$50 Bn worth of State bonds could be created and deposited with the State Pension Funds at whatever interest rate and maturity or maturities the GA desires===
This is called a note. Quinn tried to do that this year with the year’s full pension payment. The idea is to hand an IOU to the systems which they sell on the market. But a freaking gigantic IOU probably wouldn’t go over well on the market.
Comment by Rich Miller Wednesday, Oct 6, 10 @ 12:38 pm
wordslinger,
Bonds are of course IOU’s. When Gov. Balgojevich first came into office he sold bonds, took the cash and gave it to the pension funds who generally used that cash to buy equities and bonds. There was nothing that prevented them from buying those very same Illinois bonds. This scheme would bypass the middle man as well as the markup and interest rate hit.
As I commented, this is very gimmicky and only a step above the situation as it now stands. But since the bonds are an immediate obligation any default could be taken to court whereas “underfunding” of the pension funds haven’t been.
Comment by MikeMacD Wednesday, Oct 6, 10 @ 12:48 pm
Rich,
If the securities are marketable then yes there probably wouldn’t be much of a demand for them at this time, meaning the pension funds would be stuck with them, something they would not like. They don’t have to be marketable meaning the pension funds would be stuck with them, something they would not like. Making them marketable would be more costly though I couldn’t say by how much.
On the brighter side the pension funds could be said to be fully funded.
Comment by MikeMacD Wednesday, Oct 6, 10 @ 12:58 pm
Thanks AP for shining a light on the Cohen job fairs. If you’re looking for a 100% commission based sales job, come on down. Interested in selling Amway? Mary Kay? Door-to-door vacuum cleaner sales? SLC is your ticket to a dream job.
I bet the “real estate” jobs are for those who specialize in short sales and underwater properties. The military? Really? That’s probably the only career-type job opportunity available at these fairs, and the one sector most attendees have already decided against.
Despite the fake jobs, I have to give Cohen credit. It’s a novel campaign strategy and it gives him something on-message to highlight. But “false advertisement” sums it up best.
Finally.
Comment by 47th Ward Wednesday, Oct 6, 10 @ 12:59 pm
I think Cohen got the idea from his media advisors. They’ve likely done a successful commission-based sales job on him.
Comment by Anonymous Wednesday, Oct 6, 10 @ 1:12 pm
MikeMac, you get money, which is as good as cash, as Yogi says, when you sell bonds. You’re trying an accounting trick that doesn’t address the lack of money.
Comment by wordslinger Wednesday, Oct 6, 10 @ 1:25 pm
wordslinger,
Yes, as I commented this scheme would be a gimmick.
However,
The cash comes at maturity, or a default occurs. If the maturities are laddered at say $1 Bn each year, the State would have no choice as it does now of paying or not paying into the funds. That or face the consequences of defaulting on a legally binding contract. States don’t have many choices when it comes to bankruptcy.
Comment by MikeMacD Wednesday, Oct 6, 10 @ 1:41 pm
I think a better description than forensic audit would be an effectiveness and performance audit.
Are agencies and departments and staff fulfilling their primary missions. How effective? Where has mission creep entered into building bureaucracies? What functions can be better served by the private sector at lower costs? What staffers are essential or non essential to the operation?
Many corporations have undergone such audits. Many of these led to downsizing and outright elimination of divisions that once contributed but were no longer performing up to snuff.
I believe that within each agency there is some dead wood that can be trimmed without undermining the essential roles of the organization. In some cases entire departments could be eliminated. Some jobs might be preserved by shifting to essential areas where serious under staffing has happened.
It is hard to imagine that this can occur without the bias of those doing the auditing and without the value judgment of those directing the audits. Special interests will also creep into the accounting. Back to do you want your ox gored or the other guy’s ox gored. For the interests I believe in, I am more fearful of Brady’s sword than Quinn’s sword.
Comment by vole Wednesday, Oct 6, 10 @ 1:53 pm
Before anyone gets excited and runs off to issue more pension bonds, shouldn’t the state advise the public on the performance of the 10 Billion issued under Blago- regardless of investment performance, the state has to pay off the bond debt- does anyone know how the first 10 billion has done- I would think given what happened in the markets between 2007 and 2009, the returns had to be negatively impacted- how much confidence is there in the investment acumen of the Board running all of those pension dollars- given that the state is ultimately on the hook, we might just be better off transferring the investment making authority to someone like Blackrock or Pimco
Comment by Sue Wednesday, Oct 6, 10 @ 2:13 pm
The Illinois constitution’s prohibition on impairng gov employee pensions is perhaps not as lock tight as once thought, based on a recent Sidley Austin opinion. So Brady wants to bolster the fiscal unsustainability of most gov employee pensions by depositing state bonds into the pension plans? Oh, the rating agencies would have a field day with that. Contracts get violated every day. And the injured party often is left with nothing. And it seems that is what is going to happen with overly generous gov employee pensions. Maybe these union folks ought to consider cutting the best dealthey can get. I think Arkansas is theonly state to go into full out default, sometime during the depression. I suspect we’ll be revisiting the process within five years.
Comment by Cook County Commoner Wednesday, Oct 6, 10 @ 2:21 pm
Pension bonds?!? Hmmm, QUITE a stretch to use that quote as a Brady endoresment of pension bonds! But it is your blog, Rich.
Let us not forget that Cullerton, Madigan, Blago & Quinn have ISSUED, not just endorsed five year pension obligation bonds the last couple of years to pass the pension fiscal crisis buck.
Comment by Bubs Wednesday, Oct 6, 10 @ 2:21 pm
The only reason to issue bonds for pension purposes is to obtain the investment spread between what the pensions can generate off of the proceeds vs the interest cost asscociated with the debt- given how Illinois now has to pay higher rates on its debt issuance, it will be harder to justify the practice since the pensions will have to generate even greater returns on the money-of course if they earn less then what the bonds require, the state’s debt position just gets that much worse
Comment by Sue Wednesday, Oct 6, 10 @ 2:35 pm
Let me get this straight…. the union says it has agreed to cut costs by at least $170 million by cutting healthcare costs, restricting overtime and other yet-to-be-identified measures. Wow I wish I could tell me employer what my team is and isn’t going to do, where we are gonna not spend so much money here and more money here.
Once again grip all you want about Brady, but this guy Quinn is over the top, I’ll take the lesser of two evils. Also I believe there might be a lot of people afraid of the audits Brady wants to impose. It cannot be a bad thing….
Comment by dumb ol' country boy Wednesday, Oct 6, 10 @ 2:42 pm
Cook, a few states in the South defaulted on their GO debt in the panic of the 1830s. It was a factor in the inability of the CSA to raise money during the Civil War.
That leads me to recommend another book in the outstanding Oxford History of the United States: “What Hath God Wrought: The Transformation of America, 1815-1848,” by Daniel Walker Howe.
Comment by wordslinger Wednesday, Oct 6, 10 @ 2:47 pm
===I think a better description than forensic audit would be an effectiveness and performance audit.===
Not if you read the actual legislation.
Comment by Rich Miller Wednesday, Oct 6, 10 @ 3:29 pm
Rich, OK, I didn’t read it. Let me just suggest a performance and effectiveness audit with the goals and misgivings I stated above.
Someway we need to get old spending streams in line with new lowered revenue streams. There needs to be some objective means established. A performance and effectiveness audit, preferably conducted by some independent and non biased/interest driven entity, would offer some direction. From there, the interests of those in power can still abuse the decision making on how those results are interpreted. The same old good news/bad news that goes with the territory.
Comment by vole Wednesday, Oct 6, 10 @ 3:44 pm
John Sinsheimer was the CFO at ISAC and could never understand how a student loan worked. Apparently he translates better into other languages.
Comment by Anonymous Wednesday, Oct 6, 10 @ 4:37 pm
Interest on Build America Bonds is pai by the G so becuase they are taxable so the comparison to Mexico et al is useless
The Peoria JS had a coherent bashing on the NoTaxBill forensic audit idea on Sept 24 which noted in part…”…Here’s the reality check: For state spending alone, there are more than 130 million transactions over that period, from checks issued for mere pennies to lump-sum payments in the tens of millions. A thorough review can be expected to take years, not weeks or months. Any politician who implies the results would be in by their January inauguration - or by the start of the next fiscal year on July 1, 2011 - is … well, dreaming. Auditor General Bill Holland - who has repeatedly proven to be one of the straightest shooters in Illinois government…..(said) that the price tag on such an in-depth analysis would be “astronomical,” reaching “hundreds of millions of dollars….”
That should knock down those two issues
Comment by CircularFiringSquad Wednesday, Oct 6, 10 @ 5:15 pm
The Auditor General already audits every Agency on a bienial basis. If the candidates would just read the audits already performed-easily accessed on The Auditor General’s very user friendly website-a forensic audit may not be necessary.
Comment by waitress practicing politics... Wednesday, Oct 6, 10 @ 6:29 pm