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* The lede for the latest Bloomington Pantagraph editorial…
It’s well documented that Illinois is technically bankrupt.
Illinois is neither technically nor legally bankrupt. It’s not even figuratively bankrupt. Bankruptcy is reserved for individuals and corporations that have no hope of increasing revenues to pay off their bills. Illinois is far from that point. Very far. Also, Illinois cannot legally declare bankruptcy.
Yes, the state has a huge backlog of bills, but the Pantagraph and other editorial boards have made sure that a solution couldn’t be implemented for that problem. Yes, the state has a large unfunded pension program, but as I’ve written before, we ought to consider abandoning this notion that it must be permanently 90 percent funded when there’s no need to always have anywhere close to that much cash on hand. Yes, the state has a large number of bonds, but most of those bonds have identifiable funding streams.
So, enough with the stupidity, please.
Editorial commentary like that makes me want to demand that the General Assembly get rid of the sales tax exemptions on newsprint and ink.
Come to think of it, yesterday’s report on how Illinois doesn’t connect tax incentives to job benefit requirements fits right in with that idea. You’d be hard-pressed to find an industry that has laid off a higher percentage of its workforce than print media over the past five years, or has stripped them of more benefits.
…Adding… From a commenter…
you’d think the Pantagraph opinion writers would be a little more knowledgeable about bancruptcy, given that they fit the technical and legal definition:
The link…
The owner of the Pantagraph and dozens of other newspapers announced Friday that it plans to file for Chapter 11 bankruptcy to complete a comprehensive debt refinancing plan.
Indeed.
* Meanwhile, check out this fascinating poll from California…
A new poll shows 60 percent of California voters, weary of state spending cuts and unsettled by the prospect of more, are ready to support Gov. Jerry Brown’s plan to raise taxes.
The Public Policy Institute of California poll, released Monday, is the first public measure of voter opinion about Brown’s tax initiative since he announced it this month.
Brown plans to ask voters in November 2012 to temporarily increase the state sales tax and to impose higher income taxes on California’s highest-earners, raising $7 billion annually for five years.
The poll comes amid deep pessimism about the economy and concern about the state budget. More than 80 percent of likely voters think the budget situation is a big problem, and more than two-thirds of likely voters predict bad times financially in the year ahead.
Gov. Brown made huge budget cuts which brutally showed Californians what life is like without the proper revenue streams to fund the services that most everybody wants. There was some thought of doing that here back in 2009. The consequences would’ve been awful in the short term, but Illinoisans might’ve eventually realized that they have to pay for what they ask for.
* And then there’s this…
College Illinois!, which was started in 1998, is supposed to let families lock in today’s tuition rates for their children’s college educations at state universities in future years. But according to the report, the prepaid tuition program could require a $1.6 billion bailout from the state to remain solvent during the next 25 years.
The state hasn’t promised to come up with the money, but it must. Illinois simply can’t stick families with the bill. This is a problem created by the state, and it’s up to the state to solve it.
The families that bought into this program, often with an eye toward sending their son or daughter some day to the likes of University of Illinois or Illinois State University, are generally not folks with enough money to envision sending their offspring to pricey private schools. They had to put cash into the program at the same time they were trying to pay for everything from piano lessons to the mortgage.
If the state doesn’t deliver on its end of the bargain, they’ll be in trouble.
The Illinois Student Assistance Commission, which runs the program, has been criticized for slow sales and its investment decisions. The program’s underfunding rose from 7 percent in 2007 to 18 percent last May. As of March, the commission had 54,275 prepaid tuition contracts, but it stopped selling new contracts on Sept. 30 while it sorts everything out.
While a serious problem, the math shows it’s not quite the disaster that the media is claiming.
The fund needs $1.6 billion over 25 years. Without compound interest, that’s $64 million a year. The fund has 54,275 participants, so that works out to less than $118 per year, per contract, or less than $10 a month. Again, that’s without the magic of compound interest. A very modest fee increase coupled with perhaps an order to Illinois universities to accept what the program gives them, along with some much-needed internal reforms could wipe out that problem quite easily.
* Related…
* Chicago Tribune subscriber sues over rate hike: Cheryl Naedler, whose subscription rate more than doubled to $97.50 per quarter this year, contends in the lawsuit that her credit card and those of other subscribers were charged without their knowledge or consent of the increased price.
* Editorial: Fill void left by loss of legal fund
* Editorial: Time to limit legislative session
* Charter-school agency’s funding raises questions - A new Illinois commission can authorize charter schools rejected by local officials. Its money comes from a foundation that backs charter schools.
* Mental Health Advocates Call Emanuel A Grinch
posted by Rich Miller
Thursday, Dec 15, 11 @ 10:53 am
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Panta-”laugh” says the state is “technically” Bankrupt …
Dan Rutherford is from the B-N area, or at least is tied to the area …
Treasurer Rutherford gets heat for saying state is “basically bankrupt”, gets dinged on phrasing …
Panta-”laugh” tows Rutherford line …
Sneedless to say … this might be a drop by Rutherford?
No exuse for the paper to go down this road, when a state can’t be bankrupt … unless its egged on by someone … or something …
Comment by Oswego Willy Thursday, Dec 15, 11 @ 11:02 am
LOL “So, enough with the stupidity, please. “
Comment by John A Logan Thursday, Dec 15, 11 @ 11:04 am
“we ought to consider abandoning this notion that it must be permanently 90 percent funded”
More broadly, we talk about pensions in really weird ways, like with the “bankruptcy” of the USPS, which has to prefund its pensions in total for decades.
Comment by whetstone Thursday, Dec 15, 11 @ 11:09 am
The big-headline and front-page treatment for the College Illinois story was way over the top.
Geez, compared to where health-care costs are going for everyone — Medicaid, individual, public employee — that’s hardly a problem at all.
Just wait for the federal Medicaid “reform,” when the national government tries to stop its own red ink gusher by dumping the whole program on the states.
That’s what Richard Ravitch and Paul Volcker think is in the long-term mix, anyway. They’re currently studying five states’ fiscal conditions, including Illinois,’ looking for long-term answers.
http://www.nytimes.com/2011/06/24/business/economy/24pension.html
Comment by wordslinger Thursday, Dec 15, 11 @ 11:18 am
Perhaps it was Lee’s newspapers’ understanding of financial law that led them to declare bankruptcy.
I certainly wouldn’t be surprised if Willy’s notion of this being a Rutherford plant is right on. Outside of the Slantagraph’s reputation, Rutherford has been pushing his media staff hard for press interviews.
Comment by Dirty Red Thursday, Dec 15, 11 @ 11:21 am
It’s easy to demand sacrifices when its someone else’s ox that’s being gored.
I’ve been calling for an end to the subsidies for the dead tree industry for years. Take your case straight to the broadcast reporters…theyll eat it up.
Comment by Yellow Dog Democrat Thursday, Dec 15, 11 @ 11:37 am
=Yes, the state has a large unfunded pension program, but as I’ve written before, we ought to consider abandoning this notion that it must be permanently 90 percent funded when there’s no need to always have anywhere close to that much cash on hand.=
This sounds like a great idea, to me, and a way focus on other state priorities. The Chicago Tribune editorial board keeps threatening us with financial “armageddon”. It’s become a crusade. But will the pension funding adjustment be considered when the legislature reconvenes, or will the pension issue flare up again, with the same result?
Comment by Grandson of Man Thursday, Dec 15, 11 @ 11:46 am
you’d think the Pantagraph opinion writers would be a little more knowledgeable about bancruptcy, given that they fit the technical and legal definition:
http://wjbc.com/pantagraph-owner-lee-to-refinance-debt-via-bankruptcy/
BLOOMINGTON – The owner of the Pantagraph and dozens of other newspapers announced Friday that it plans to file for Chapter 11 bankruptcy to complete a comprehensive debt refinancing plan.
Lee Enterprises Chairman and CEO Mary Junck said in a statement that it’s “welcome news for all of us who have a stake in Lee,” adding that there would “no change in our business,” and no impact on employees, customers, vendors, contractors, contracts or company operations.
The prepackaged Chapter 11 filing, which Lee expects to initiate in about 10 days, is designed to force uncooperative lenders to go along with a refinancing arrangement that Lee reached with a majority of its lenders in September. Junck said it will give the company more time to repay its debt while protecting the interests of shareholders.
Junck called it a “favorable, voluntary, prepackaged Chapter 11″ filing.
“While such a filing falls under bankruptcy laws, it differs significantly from most such filings because it preserves interests of our current stockholders and all other parties,” she said. “In our case, the process will simply provide a favorable legal framework for implementing the pre-negotiated refinancing on an expedited basis while business continues as usual with no impact on employees, vendors and customers.”
Lee is far from the only media company in financial straits, and Tribune Co. is among other newspaper publishers that have filed for bankruptcy and stayed in operation. The Pantagraph has been hit with staff reductions, and earlier this month the newspaper announced plans to begin outsourcing its printing and packaging operations in 2012.
Davenport, Iowa-based Lee’s stock rose 10 cents to 63 cents after the company disclosed its plan Friday. Lee said it expects its stock will continue to be traded on the New York Stock Exchange.
The Associated Press contributed to this report.
Comment by Michelle Flaherty Thursday, Dec 15, 11 @ 11:50 am
Btw, all of this crisis language only undermines editorial boards’ purported goal of ensuring sound management of state government.
1. “Crisis” framing drives both selfish and irrational decisionmaking by the public and lawmakers, when we need people making rational decisions about the common good.
2. “Crisis” framing encourages shortsightedness at exactly the time we need people thinking about our fundamental long-term goals.
3. “Crisis” framing undermines the public’s trust in the very institutions of our democracy, not just particular leaders or even one party.
Yes, we have big challenges ahead. But they are solvable.
Comment by Yellow Dog Democrat Thursday, Dec 15, 11 @ 11:52 am
Regarding the floundering College Illinois program, perhaps our state legislators should assign one of their annual freebie state college tuition grants to the programs until it is on better footing.
Comment by Cook County Commoner Thursday, Dec 15, 11 @ 11:55 am
Rich, thanks for reiterating the ridiculousness (is that a word) of the 90% funded target. Achieving that 90% target would mean that (1) if 90% of all eligible participants retired at the same time, and (2) received all of their actuarily-estimated lifetime retirement benefits up front, the funds would have the money to pay that 90%. BUT THOSE TWO IFs WON’T/CAN’T HAPPEN!!!
You’ve previously stated that the TRS has been underfunded since the 1950s, has never missed a payment, and is still underfunded today. So, the backruptcy-is-immenent, sky-is-falling people need to quit spreading that rumor too.
You’re a good guy. I don’t care what anybody says.
Comment by PublicServant Thursday, Dec 15, 11 @ 11:55 am
“College Illinois” I looked into it for my kids and read the “not so” fine print that there were no guarantees or backing by the state. I passed on this “too good to be true” offer. Not taxpayer bailout is warranted. Further, making the schools accept the kids without full funding is the same as a taxpayer bailout.
Comment by Fair Share Thursday, Dec 15, 11 @ 11:58 am
My compliments to Rich. This was an excellent post and should be referenced whenever these topics come up.
Um, not that there aren’t other excellent posts.
So to speak.
Comment by MikeMacD Thursday, Dec 15, 11 @ 12:01 pm
Gov. Brown’s plan in California would establish the following graduated rates:
10.3% on income over $250,000 to $300,000
10.8% on income over $300,000 to $500,000
11.3% on income over $500,000
Of course, in Illinois, these rich folks have always paid only 3%, and currently are paying 5%.
I am confident that AT LEAST a similar 60% of Illinois voters would support an income tax increase on these extremely high incomes, if our Constitution allowed it. It is way past time for the very rich in Illinois to pay their fair share.
The Jerry Brown plan also raises the California state sales tax to 7.75% (currently 7.25). For comparison, the Illinois state sales tax is 6.25%.
Comment by Reality Check Thursday, Dec 15, 11 @ 12:36 pm
=Yes, the state has a large unfunded pension program, but as I’ve written before, we ought to consider abandoning this notion that it must be permanently 90 percent funded when there’s no need to always have anywhere close to that much cash on hand.=
I just don’t think this is a good idea. Even with the 90% funding statute as a goal, the GA & Governor’s have still chosen to stiff the pension systems several times in the last decade. Luckily, Illinoisans are starting to understand this issue, which will help it to not happen as often going forward. I hate to think how much more drastically the systems might be underfunded if there were no such funding requirement. This law is the best way to keep the leaders from being irresponsible with the pension payments.
Another thing you are overlooking is the other problems with carrying a massively underfunded pension system. Bond Rating Agencies have historically hammered Illinois for staggering pension liability. If we were to get rid of the 90% goal, the GA/Gov would certainly begin to underfund the pensions every year by hundreds of thousands of dollars, if not billions. If this 90% by 2045 law were to be repealed, I could see the Rating Agencies drastically downgrading us within months, but if not then, certainly as the pension liability would grow (which it likely would if this law were to be repealed).
I just see this law as a check on the leaders from becoming overly irresponsible. With 2 year terms & constant campaigning as a result, it’s silly to expect these guys to totally police themselves. Spending money in their districts will almost always trump spending on pension payments. Keep the 90% by 2045 law to give us a benchmark to work towards at the very least.
Comment by TCB Thursday, Dec 15, 11 @ 1:10 pm
Also, it should be noted that the SERS & TRS employees are, on average, pretty far along in their careers. In my experience an vast majority of state employees are in their late 40’s, 50’s and 60’s. As for teachers, the state-wide average service time of over 14 years. So, in the next 5-10 years the pension systems are going to get flooded with retirees. Keep in mind that all of these retirees are eligible for Tier 1 pension benefits.
Now is the time to worry about/take care of the state’s pension problem, but repealing the 90% by 2045 law isn’t a way to handle it.
Comment by TCB Thursday, Dec 15, 11 @ 1:21 pm
College Illinois will be fine if:
a. ISAC stops investing in Ponzi schemes
b. Panic peddlers preaching sky is falling are ignored.
c. Someone reins in spendaholics at the University because there is no reason costs grow faster than inflation
Comment by CircularFiringSquad Thursday, Dec 15, 11 @ 1:33 pm
Every single story about the College Illinois program seems to leave out important details and cause needless panic. It is a great example of reporting for emotional effect, which actually leads people to do the wrong thing. No one should have cancelled their contract. Getting out just made their fears a reality: not having their future tuition payments locked-in.
The College Illinois program features prepaid tuition contracts. This is not an investment fund. The investor’s money is not at risk. Also, there are thirteen years’ worth of marketing materials and statements by the State universities and politicians clearly explaining the contract nature of the purchases.
For example, from the program website itself: “When you purchase a contract, the price you pay for the tuition and fee benefits that will be paid out when your student starts college will never change.”
The nature of this program is such that the State will honor all contracts purchased. No other solution would pass a class-action court challenge anyway.
Comment by I Love Springfield Thursday, Dec 15, 11 @ 1:33 pm
The part about having a vote to “temporarily increase the state sales tax” brings back memories. California voters should look to the experience in Illinois. Illinois residents were told that the tollways would become toll free roads once the bonds were paid off (another way to say “temporary”). It looks to me that we will all probably die before the “temporary” period ends. The same “temporary” period will probably apply to the recent increase in the state income tax.
Comment by Left Out Thursday, Dec 15, 11 @ 1:44 pm
===California voters should look to the experience in Illinois. ===
You mean when the 1983 temporary tax increase was allowed to expire? Or was it the 1987 temporary tax increase that was made permanent after a Republican vigorously campaigned for governor on a platform of keeping the tax hike in place?
I’m confused.
Comment by Rich Miller Thursday, Dec 15, 11 @ 1:50 pm
“Gov. Brown made huge budget cuts which brutally showed Californians what life is like without the proper revenue streams to fund the services that most everybody wants. There was some thought of doing that here back in 2009. The consequences would’ve been awful in the short term, but Illinoisans might’ve eventually realized that they have to pay for what they ask for. ”
I am very happy to see Brown pursue the increases, it is a great test case for other states like Illinois in dire financial straits. If he is right, and his citizens remain static, he will largely succeed in starting to right his ship. If he is wrong (and I think he is) then they will start an exodous and his dire straits will rapidly move to catastrophic. Either way, Illinois will benefit by knowing whether folks will flee to avoid unequal tax rates.
Of course, if the latter happens then the federal government will start talking about state bailouts again. Sigh.
Comment by Anonymous Thursday, Dec 15, 11 @ 2:08 pm
–Of course, if the latter happens then the federal government will start talking about state bailouts again.–
I think there’s a much better chance the feds will look to solve some of their own problems by dumping, ie. Medicaid, back on the states.
You want state sovereignty, you might get it .
Comment by wordslinger Thursday, Dec 15, 11 @ 2:18 pm
I think what we will see in the spring session is the state trying to shrug off their liability onto the backs of the employees and universities and agencies. Since many of the participants in the state pension do not participate in social security, their employers are not required to pay the employer’s share of 6.2%, or thereabout. By adding 2 or 3% to the employee contribution (I now pay 8%) and requiring the employer to pay 6.2% the state’s payment to the pension fund is dramatically lowered. In addition some type of hybrid plan will be introduced, that guarantees a lower benefit, but then also has a defined contribution piece that is supposed to get the benefit to where it should be. What the hybrid plan does is shift the market risk to the participant for at least part of the benefit. The problem with the employer cost sharing provision is that it in effect reduces the university’s or agency’s budget by that amount (for most universities payroll is 85-90% of the budget).
So it will be yet another unfunded mandate-like the Legislative scholarships, The Illinois Veterans Grants, POW grants and on and on. Universities get no money (or very little) for providing our services to the groups the legislature decides to grant free tuition to. I also noticed Rich suggested that the Universities take whatever is available in the College Illinois plan once those contracts become due. Another unfunded mandate. Please it is killing us.
Comment by SIUPROF Thursday, Dec 15, 11 @ 2:23 pm
Lord, I was born a Pandering Dan (Rutherford)
Tryin’ to make a livin’ and doin’ the best I can.
Comment by Almond Bros Band Thursday, Dec 15, 11 @ 3:55 pm
Failing to fully fund the pension plans means that the state is borrowing at the rate of return the funds would earn on investments. If that rate is 8%, and your actuarial projections are correct, you can either fund at 100% today or you’ll pay the 100% funding amount, plus 8% compounded per year, later. Since the State can borrow at a much lower rate on its bonds, and the bond market takes the pension obligation into account just as it does outstanding bonds in determining the risk of default, the State would do much better to borrow on the bond market to fully fund the pension plans. It really is that simple.
Comment by JustMe Thursday, Dec 15, 11 @ 8:38 pm