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Explaining the pension failure

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* We’ve talked about some of this here and in the subscriber section, but I thought the public at large should know more about it as well. My Sun-Times column…

There are a couple of stories the media isn’t telling you. Both are pretty important to understanding what’s happening in Springfield these days.

Let’s start with Gov. Pat Quinn.

The governor called a special legislative session last week that failed miserably. Quinn wanted pension reform addressed, but the House couldn’t even pass a bill, at Quinn’s request, to eliminate future legislative pensions and reform the system that legislators have. The Senate adjourned before the House even voted, strongly signaling that it wasn’t interested in the bill, either.

To avoid looking like a weak and unfocused leader, Quinn has loudly blamed the Republicans for the failure of that bill and claimed that he plans to “activate” the grass roots come September to put pressure on those Republicans to vote for a reform bill.

So we’ll probably see the governor doing news conferences next month assailing Republican House members for voting against reforming their own pension system.

Up until now, however, nobody has really reported details about that House roll call.

Yes, most House Republicans voted against reforming the General Assembly’s pension fund, but so did a whole bunch of Democrats.

The proposal received 54 votes, which is six short of a majority. Several Chicago area Democrats who are allied with Quinn voted “No,” including some liberals and almost the entire House Black Caucus. If the governor had flipped just half of those Democratic “No” votes, the legislative pension reform proposal would’ve received a majority.

About the only place where Quinn still has support in Illinois is in Chicago and in heavily African-American suburban townships.

“Activating the grass roots” in rock-ribbed Republican DuPage County will be fruitless. Almost nobody there cares what he thinks. If Quinn really wants to pass this bill, he’ll focus on his own party members.

Don’t ever expect that to happen, though. This “grass-roots” effort almost surely won’t be about passing a bill. It’s more about political cover for the fall elections.

And that brings us to the other story you’re not being told.

The Republicans say they want reform, and that’s dutifully reported by the media. But the Republicans also won’t compromise to get something done.

There are some serious public policy reasons for this GOP intransigence, but there are also some very sound political reasons as well that nobody really talks about.

Any success at ending the pension stalemate would mean that the ruling Democrats would finally look like they’re getting something accomplished in Springfield. That would be bad for Republicans because their road to victory this year is painted with claims that the majority Democrats are clueless incompetents. Governmental chaos and voter fury is the order of the day, and solving problems won’t help that aim.

And that’s why the Republicans wanted the governor to call more special sessions on pension reform. The GOP knew that nothing would be accomplished on pensions because the Democrats don’t want to upset the teachers and other public employees with harsh pension reforms before the election.

Several Republicans would rather avoid that scenario as well, by the way. They aren’t stupid.

A long round of do-nothing special sessions would’ve made the Democrats look like idiots.

The Democrats aren’t stupid, either. They bolted town after voting on a mostly symbolic legislative pension proposal that they can use in their re-election campaigns.

Almost nobody is being straight with the public on this pension issue. But now I hope you understand a little more about why they’re not.

* Last night, after the column was posted online, I received an e-mail from the governor’s press office…

The governor blamed Republican leaders because Republican leaders told him no on 4 different proposals. Not the Speaker, not the Senate President. Republican leaders wouldn’t agree to support ANY proposal that was on the table, including one their own leader proposed. It wasn’t the governor’s proposal to abolish pensions for legislators- it was Cross’- the governor just agreed and said, “ok let’s do that too.”

Cross did propose abolishing legislative pensions, but according to the governor, Cross didn’t agree to run the bill on its own last Friday. Basically what happened is that the governor and the Democrats advanced Cross’ idea to prevent him from using that against them in the coming elections.

* I also received a text message from a legislator heavily involved in the pension reform issue…

Finally! Your column today is refreshingly accurate on the reason for inaction. Thank you.

* Meanwhile…

Illinois is edging closer to having its credit rating lowered because officials have failed to address the state’s massive pension problem.

Moody’s Investors Service called the failure a “credit negative” Thursday. That could lead to a reduction in Illinois’ credit rating, which is already the lowest of any state. That would make it more expensive to borrow money.

Standard & Poor’s Ratings Services also says it is evaluating the state’s rating.

* And the finger pointing continues by both sides…

The governor still blames inaction on pension reform on obstructionist Republican lawmakers in the General Assembly.

“The Republican legislators and the leaders last Friday, they refused to do anything,” said Quinn. “They wouldn’t even reform their own pension system.”

“So the minority party in this state are the obstructionists? No, I don’t agree with that,” said Rutherford. “Stop that! Its time for people to stop being politicians and stand up and be statesmen.”

Um, Dan? Yes, they are.

* The full Moody’s statement…

Illinois Fails to Enact Pension Reform, a Credit Negative for the State

Last Friday, the Illinois General Assembly in a special session failed to approve any of several potential state pension reforms, a credit negative for the State of Illinois (A2 stable), which faces material pension funding challenges. Inaction on the state’s pension liabilities will further strain this lowest-rated US state’s finances.

Illinois Governor Pat Quinn, a Democrat who called the special session after lawmakers failed to pass pension reform1 this spring, blamed Republicans for the impasse. Democrats control both General Assembly chambers, but Democrats sought bipartisan support.2 All legislators except those retiring from office face reelection this year, making many wary of action before 6 November elections.

Under current law, the state provides most employer contributions for the Teachers’ Retirement System and State Universities Retirement System, statewide plans covering non-state employees. One of Governor Quinn’s proposed reforms that appeared to polarize the legislature was shifting some of the responsibility for funding teacher and university benefits to school districts and universities from the state itself.
Both sides of the political aisle advocate addressing the state’s pension liabilities, which have become the largest among states, both in absolute dollars and relative to state revenue. Illinois’ reported pension liabilities amounted to $146.5 billion, or $82.9 billion net of assets on a smoothed basis as of 30 June 2011. These figures are calculated using elevated discount rates,3 thus understating the liabilities’ present value.

Without pension reforms or revenue increases, state officials expect the share of operating revenue needed for retiree benefits to keep growing. In the current fiscal year, the state has budgeted for the combination of general fund pension contributions and pension obligation bond debt service to rise to $6.65 billion, or 20% of total general fund expenditures and transfers out. These figures compare with $4.03 billion, or 13% of expenditures and transfers out, three years earlier, as shown in the exhibit.

Rising employee benefits will erode the state’s ability to deliver core services. The governor has warned that as the state struggles to cover Teachers’ Retirement System and State Universities Retirement System normal costs (the value of future benefits accrued by employees in a year), it will need to scale back university and school funding. A consequence of this budget strain in the past has been the growth of a large backlog of unpaid bills. The state’s enacted fiscal 2013 budget provides for a 20% decrease in accounts payable from state general funds. There are six legislative session days in late November and early December, but Illinois may not agree on an approach to pension funding until early 2013. In the meantime, the funding challenge will keep growing.

* In other news, this lede is really misleading…

Illinois’ biggest pension fund is being urged by its own consultant to lower its expected return on investments — a step that, if accepted, could force the fund to cut benefits or raise taxpayer contributions even more than lawmakers have been considering.

The pension fund cannot “cut benefits” nor can it “raise taxpayer contributions.” Only the General Assembly can do that. And you have to read well more than half way through the piece to see that the consultant also says this…

“The most significant of the recommended changes are that the post-retirement mortality assumption is revised to reflect improved longevity, future salary increases are expected to be lower and lower investment returns are assumed,” Buck said of its report.

The article also focuses on a reduction in the expected rate of return to 7.75 percent from the current 8.5 percent. But the consultant provided a range of choices ranging from 8.25 percent down to 7.75 percent.

posted by Rich Miller
Friday, Aug 24, 12 @ 8:22 am

Comments

I read this column on line last night. Great work, Rich. People need to understand that, ultimately, it all comes down to politics. Both parties are guilty of putting the election before the fiscal good of the state.

Comment by anon Friday, Aug 24, 12 @ 8:42 am
Let’s not forget Cross could’t round up 30 votes on his comprehensive pension bill (SB 512) and depending on who you are talking to, he didn’t even have 20! SB 512 did not contain the normal cost transfer and was introduced in a non-election year. Cross is just using the normal cost transfer as an excuse. Republicans don’t want reform as many downstate GOP don’t want to anger teachers. At the end of the day, most legislators do not want have the courage to make this vote, and rightfully so because no matter how you skin this cat, reforms on current members is un-Constitutional. The “Consideration” bill does not circumvent the Protection clause because a choice between Reducing/delaying COLA and “freezing pensionsable salary” is a choice between a benefit diminishment and a benefit dimishment. I concede that this would be a legitimate argument if this were to be limited to a choice between reducing/delaying COLA and retiree healthcare. The proposal as it currently sits, and all other creative proposals to circumvent the protection clause will only be a bad vote for legislators (why most don’t want to vote yes) and a waste of state funds/resources/time resulting from the adjudication process.

Message to legislators, if you want signficant pension reforms, violate your duty and fail to honor the Constitution you swore to protect by amending it so that reform to benefits to current members will be upheld in the Courts.

Comment by dirt diver Friday, Aug 24, 12 @ 9:09 am
Rich, I’ve heard from some budget experts that the actual fiscal impact from a lower bond rating is not that big a deal. Yes, it creates higher borrowing costs, but if those higher borrowing costs are in the order of an extra $4 or $5 million for every billion borrowed, who cares? Do you (or anyone else) know if that’s anything close to accurate?

Comment by Dan Johnson Friday, Aug 24, 12 @ 9:40 am
===Do you (or anyone else) know if that’s anything close to accurate? ===

If Illinois departs from investment grade levels, then lots of big institutions which buy most of the bonds will have to cleanse their portfolios and won’t be allowed to buy any more.

Comment by Rich Miller Friday, Aug 24, 12 @ 9:42 am
The pension is not the reason the credit rating is being downgraded. It is being downgraded because we have spent money on new programs or expanded programs that should not have happened (See KidCare for one). It is easy to blame the pension for this but the current and past Legislature and governors have spent more than we had.

If they would have paid the pension and stayed within thier means we would not be in this prediciment.

Comment by He Makes Ryan Look Like a Saint Friday, Aug 24, 12 @ 9:49 am
Rich, thanks for an impartial presentation of the facts. It is time for the legislators to do what is needed for the state of Illinois. Leadership is about taking the actions and making the decisions that are sometimes not popular. It is sort of like raising children, you have to sometimes say “no”. Your kids will pout and yell but when grown they will let you know they appreciated your taking a stand. Legislators take a stand. You will be appreciated, maybe not now, but in the future.

Comment by illilnifan Friday, Aug 24, 12 @ 9:53 am
Really? Does anyone actually keep a straight face while blaming the minority party for inaction?

Comment by Shemp Friday, Aug 24, 12 @ 9:55 am
Rich-
Great article, and great analysis. My only quibble is this: if the Democrats hold the governorship, House and Senate majorities then they should not need the Republicans to pass the bills. They only do because Madigan refuses to wear the jacket for pension reform.

In my mind that in no way excuses the Republicans for their inaction, but it does put the lie to Quinn’s claim that it’s the Republicans’ fault nothing is happening.

As with everything, it is only about partisan advantage on both sides, not actually fixing the state’s problems…

Comment by Anonymous Friday, Aug 24, 12 @ 9:55 am
Rich: Excellent. Tell it like it is.

One comment - there are more than a handful of reaponsible legislators who do their homework,struggle through the tough trade-offs, try to reach agreement with contending parties, and push for the right solutions, regardless of the heat they take, and where they are in the election cycle. They don’t seem to comprise a majority. And they try to stay away from personal publicity as likely to undercut their efforts.

My best guess: something like the current Nekritz bill will squeak thru after the election, with much gnashing of teeth and throwing papers in the air. The best reps from both sides of the aisle will find a way to vote for it.

Comment by walkinfool Friday, Aug 24, 12 @ 10:01 am
But Rich posters on this forum have stated that state bond issues are oversubscribed to by as much as a factor of 4 times. If that is true…and in the end market conditions will dictate the interest rates. Furthermore, as a sovereign entity, bankruptcy is not an option. In essence, the markets message is this investment is risk free. That’s what drives the over subscription. Taxpayers will simply foot the bill, whatever the amount is.

Comment by Madison Friday, Aug 24, 12 @ 10:05 am
OK, but isn’t there a lot of room between where we are now and investment grade levels? So if we move down but stay at investment grade levels, that really isn’t that big of a fiscal impact? That’s what I’ve heard, at least.

Comment by Dan Johnson Friday, Aug 24, 12 @ 10:05 am
Moody’s lack of understanding is scary given the power they yield.

Do the benefit levels for current beneficiaries really equal $85 billion? Moody’s doesn’t seem to know that the debt amount and payback ramp is the potential problem.

If the fashionable consensus is ad adhered to and benefits are cut for current employees, will the debt be eliminated?

Comment by Crime Fighter Friday, Aug 24, 12 @ 10:14 am
===Any success at ending the pension stalemate would mean that the ruling Democrats would finally look like they’re getting something accomplished in Springfield. That would be bad for Republicans because their road to victory this year is painted with claims that the majority Democrats are clueless incompetents. Governmental chaos and voter fury is the order of the day, and solving problems won’t help that aim.===

Hmmm, that sounds familiar.

Senate Minority Leader Mitch McConnell was honest about his agenda when he said his one and only objective was to make sure Obama was a one-term president. It seems as if some members of Congress have made it their goal not to work with the president, to make sure he fails, and to do just that by any means necessary.

Whatever happened to Country First? Since when did solving problems beome secondary to gaining political advantage?

Comment by 47th Ward Friday, Aug 24, 12 @ 10:22 am
===but isn’t there a lot of room between where we are now and investment grade levels? ===

No.

Comment by Rich Miller Friday, Aug 24, 12 @ 10:25 am
Madison, once it dips below investment grade, the big institutions that do most of the municipal bond buying won’t be able to buy.

Comment by Rich Miller Friday, Aug 24, 12 @ 10:27 am
“Furthermore, as a sovereign entity, bankruptcy is not an option. In essence, the markets message is this investment is risk free. That’s what drives the over subscription. Taxpayers will simply foot the bill, whatever the amount is.”

States cannot file for bankruptcy currently. However, there are currently situations where previously issued Pension funding bond issues (Fremont, CA & San Bernadino, CA) are facing initial proposals from both municipalities where they are going to ’suspend’ payments on both bonds.

Yes, both cases are out of bankruptcy, but the larger point is that these proposed courses of action both breach the overall pension bonding security blanket. You might say because it is a State government in this case that it is secure, but the response will probably be that this ‘reassurance’ is also coming from a state government already behind on $8-9 bil in unpaid bills to service providers on day-to-day work.

Gonna be a really tough sell.

Ok, right now, it looks like the State of IL is two full steps above losing our investment grade status. And these are really small steps.

“So if we move down but stay at investment grade levels, that really isn’t that big of a fiscal impact?”

You are correct, but our existing margin of error is less than paper thin. And we don’t get to make the call.

IMO, there’s a really telling indicator out there right now. Many of the ‘Hedgies’ (Hedge Funds) are sitting with a pretty high percentage of their investment funds in CASH right now - highest on record, and that overall position is growing.

Think about it - the ’smart money’ is heading for the sidelines (preservation of capital). What does that tell you about their appetite for risk in this market?

Comment by Judgment Day Friday, Aug 24, 12 @ 10:33 am
JD, the difference between what’s happening in CA and this situation is there is provision for municipal bankruptcy in the federal constitution. There is no provision for State’s as “sovereign entities”. The ability to raise taxes at will distinguishes a sovereign entity from a municipality, which may have limitations on revenue. If the bond holders went to federal court over a default, the judge would simply order the bond holders paid. A willful refusal to cover an obligation is far different than not having the revenue in the first place.

Comment by Madison Friday, Aug 24, 12 @ 10:46 am
===JD, the difference between what’s happening in CA and this situation is there is provision for municipal bankruptcy in the federal constitution.===

Also, Illinois does not allow municipalities to declare bankruptcy. One tried this year and was thwarted by the courts.

Comment by Rich Miller Friday, Aug 24, 12 @ 10:48 am
Although Miller may have a valid point in that if ratings levels fall below a threshold, and policy prevents large institutions from buying intret rates go up. We are dealing with a structural deficit, and tax rates must go up. No way to cut your way out of this folks.

Comment by Madison Friday, Aug 24, 12 @ 10:51 am
===We are dealing with a structural deficit, and tax rates must go up. No way to cut your way out of this folks. ===

Tax rates already went up. They get raised here about once a generation. Not gonna happen again for a long time.

Comment by Rich Miller Friday, Aug 24, 12 @ 10:55 am
Republicans in DC in 2009-2011 showed Springfield republicans the path to power here. In DC they did absolutely nothing to help democrats and instead became the party of no. 2 years later they won the house back. No reason to compromise.

Comment by Shore Friday, Aug 24, 12 @ 10:56 am
Shore 2010 was a generational watershed election. Just as Newt blew 1994, Romney and his friend Akin are blowing 2010. Illinois is still a blue state. Broke, but blue.

Comment by Madison Friday, Aug 24, 12 @ 11:03 am
Thanks for the discussion Rich (and others).

Comment by Dan Johnson Friday, Aug 24, 12 @ 11:04 am
===We are dealing with a structural deficit, and tax rates must go up. No way to cut your way out of this folks. ===
& Rich
==Tax rates already went up. They get raised here about once a generation. Not gonna happen again for a long time. ==

I think both of the above state two realities. The first states the empirical reality where a service tax and/or appropriately structured income tax could feasibly address the recurring deficit problem that got IL in this hole in the first place.

Rich’s response frames the political and ideological position that; taxes continue to be just right or too high and; current and former state employees will be expected to come up with the money that taxpayers borrowed.

Although the structural deficit over decades caused this problem, Rich’s unfortunate “not gonna happen” prediction looks like it’s going to pan out. Thus, after we finish plundering our employee’s benefits, we’ll find ourselves in this indebted position again.

Comment by Crime Fighter Friday, Aug 24, 12 @ 11:32 am
Due to polarization in the GA, three external forces will bring the IL state and local government employee issue to a real head:
1. Bond rating downgrades;
2. Government Accounting Standards Board requirements set to take effect in 2013 and 2014 regarding acceptable estimated future pension returns and more disclosure; and,
3. The Stockton, CA ch 9 federal bankruptcy which is deciding the issue of whether Stockton’s obligation to contributes to the state pension plan has a priority over other obligations or whether the pension plan will be treated like any other unsecured creditor. Some good rulings all the way up to the US Supremes will come out of this.

None of these factors appear ripe for resolution for some time. The most proximate for timely resoltion is action by the bond rating agencies. They may seek to rehabilitate themselves from their prior conduct regarding rating of mortgage-backed bonds (the jury is out whether this was intentional and criminal or merely negligent).

But people must remember that the Moodys and SP are NRSROs (Nationally Recognized Statistical Rating Orgs). The feds have power over whether their ratings must be followed by pensions and other large institutional investors.

If you aspire to a more cynical view of government, President Obamas election may buy some forebearance from Moodys, SP, et al. At least for a while, until it smells too bad.

In any event, lots of money in the funds to pay off the pensions for a while. Relax. Let it explode in the future. Our “leaders” seem to be comfortable with that.

Comment by Cook County Commoner Friday, Aug 24, 12 @ 12:17 pm
JD, Meredith Whitney must be whispering sweet nothings in your ear. The world is pouring it’s money into U.S. debt — treasuries, munis and corporate.

I’m not in favor of inaction on the state’s fiscal problems or in courting a ratings downgrade.

But let’s not pretend there is not a market for lower-grade debt, whether corporate or munis. In fact, it’s huge.

The idea that Illinois wouldn’t be able to borrow after another downgrade is fiction. The distressed muni investors would scoop it up in a heartbeat.

Comment by wordslinger Friday, Aug 24, 12 @ 12:23 pm
Wordslinger has a point. Although at some point institutional investors may be barred from holding Illinois debt, that doesn’t preclude individual investors from buying into individual issues or especially closed end mutual funds which specialize in low grade municipal debt. There’s a huge market for this stuff.
For an Illinois resident, the income could be exempt from federal and state income taxes. Call it a hedge against government incompetence. And if you qualify for a property tax deferral program, you may have the basis for a novel retirement plan geared to the modern world.

Comment by Cook County Commoner Friday, Aug 24, 12 @ 12:34 pm
“In the current fiscal year, the state has budgeted for the combination of general fund pension contributions and pension obligation bond debt service to rise to $6.65 billion, or 20% of total general fund expenditures and transfers out. These figures compare with $4.03 billion, or 13% of expenditures and transfers out, three years earlier…”
“Rising employee benefits will erode the state’s ability to deliver core services.”
“The pension fund cannot “cut benefits” nor can it “raise taxpayer contributions.” Only the General Assembly can do that.”

How can anyone read the above three quotes and not come to the conclusion that the only possible outcome is the imposition of across the board cuts to current pensions, Medicaid, education and all other significant state programs. The supposed Constitutional protections to pensions will be meaningless in this scenario because as noted above the General Assembly has sole authority to raise taxes and appropriate funds. No court can force the legislature to spend money it does not have, nor to zero out all other state programs. Once this fact sinks in there can be a debate as to whether pensions over say $100,000 per year could be cut more than those under $40,000, as is being discussed in yes, Greece. All of these cuts will become more draconian the longer they are deferred. It is now obvious that there is no politically acceptable alternative to this across the board approach.

Comment by wishbone Friday, Aug 24, 12 @ 12:40 pm
–Although at some point institutional investors may be barred from holding Illinois debt,–

Who are those guys? There are plenty of institutional investors in junk bonds. Everyone’s chasing yields in today’s low rate environment.

Again, I’m not in favor of fiscal irresponsibility. But check out yields. There’s no lack of demand for U.S. debt of any kind.

Comment by wordslinger Friday, Aug 24, 12 @ 12:41 pm
@Shemp -

Yes. Major legislation always requires bipartisan support.

For examples, see TARP, welfare reform, No Child Left Behind, and raising the national debt ceiling at the federal level.

As I’ve said before, if Republicans want to take the position that they have zero responsibility for the future of the state, then they should stop collecting their paychecks, per diem checks, and health benefits.

Comment by Yellow Dog Democrat Friday, Aug 24, 12 @ 12:53 pm
Deep, cleansing breath. Although the pension problem is serious and must be solved, it represents no increased risk to bondholders. Under our state Constitution, our bondholders get paid first — before schools, before state police, before prisons and before pensioners.

As Congressman Barney Frank has pointed out, repeatedly, the rating agencies have a vested interest in dropping the ratings of state and municipal bonds, which results in an unnecessary transfer of millions and millions of dollars from taxpayers to investors. In general, those lowered ratings are justified by public concerns about government spending, not by actual increase in risk of default.

I cannot understand the public willingness to treat the ratings agencies with so much deference and respect, especially given the role that these same folks played in the subprime crisis.

I think we need to reform the whole pension system in Illinois, for a lot of good reasons. But this whole bond rating thing is a red herring. (And the people who buy our bonds know it — that’s why we’re so oversubscribed whenever we go to market.)

Comment by soccermom Friday, Aug 24, 12 @ 1:05 pm
Wordslinger, yes, many institutional investors can buy junk. However, most money market funds cannot purchase low grade municipal debt. Also, organizations like insurance companies, which hold huge investment portfolios, are circumspect with junk debt because it may not count against government imposed reserve requirements. The same holds true for banks and brokerages. Junk debt has little collateral value to institutions which invest reserves. The lower liquidity of junk debt incrementally adds to its cost. But your point is correct. There are plenty of other investors to sop up this credit, especially when the return gets high enough.

Comment by Cook County Commoner Friday, Aug 24, 12 @ 1:16 pm
What Soccermom said.

There are defaults in the muni market, but they’re generally rinky-dink, junk-rated revenue bonds, like the Las Vegas Monorail (wasn’t that a “Simpsons” episode)?

The last state to default on a GO bond was Arkansas in 1933.

Comment by wordslinger Friday, Aug 24, 12 @ 1:19 pm
At least there’s one nice Quinn-cidence that I’m sure never crossed the administration’s mind. Lot’s of folks (I’m guessing mostly “R’s”) have left the state payroll during this slo-mo melodrama. Many will retire at a lower dollar amount since the Gov. cancelled raises that would have increased the final average compensation. Besides, most of the current retirees he proposes to short-change (again mostly R’s) were lost votes anyway.

Comment by sk hicks Friday, Aug 24, 12 @ 1:23 pm
WS is spot on. Has anybody chased yields today? 4 or 5 percent tax free vs a 1.5 percent treasuries. Boys and girls thy will break down the bank doors to get that yield. If these stooges had any sense at all they would bond that pension debt and call it later….if they had a chance. Ladies and gentlemen there is a time to borrow and a time to lend. You will never see borrowing costs this low in your lifetime again.

Comment by Madison Friday, Aug 24, 12 @ 1:41 pm
“Tax rates won’t be raised again for a long time.”

What happens when most of the temporary inc tax hike expires in ‘15?

How about letting voters decide whether to adopt a graduated income tax? Martire’s version would reduce taxes or stay the same for 94% of taxpayers

Comment by reformer Friday, Aug 24, 12 @ 1:51 pm
Wishbone if it ever got there I have no qualms believing a federal judge could order the state to honor it’s own constitution, and for that matter raise taxes if a default is present. The way Springfield is run today? I would even go as far as say this crew could actually See that as the easiest way out. While the federal judiciary can be impeached, they are insulated from the electoral cycle. A way for somebody else to take the heat for our inaction? Somebody else take the bad rap for our next tax increase?that dirty judge…that’s what’s wrong with Washington today! LOL

Comment by Madison Friday, Aug 24, 12 @ 1:51 pm
“Wishbone if it ever got there I have no qualms believing a federal judge could order the state to honor it’s own constitution, and for that matter raise taxes if a default is present.”

Let’s see, a federal judge enforcing a state Constitution. Don’t think so. Of course, that would require zeroing out every state program that is not constitutionally protected (most all of them), firing every state employee, etc, etc. Ain’t gonna happen. Across the board cuts minimize the pain felt by any one party, and that is the essence of politics. I hope Rich keeps a really good archive of his blog cause when it happens I plan to be here to say “I told you so”, and be able to prove it.

Comment by wishbone Friday, Aug 24, 12 @ 2:08 pm
Nope not zero out every state program. Just pay out everybody our own constitution says we have to. Pay the bondholders, the annuitants and whoever else has a constitutional right to be paid. Then split the rest. Now I will give you enough credit to say that the fact that we are supposed to fund the majority of education constitutionally and never have a fact in your corner…but…big money isn’t demanding it. When wall street wants their money they will get it. In any case, I don’t think it will ever get there, but if anybody knows what happened in Arkansas it may be precedent.

Comment by Madison Friday, Aug 24, 12 @ 2:51 pm
INVESTMENT GRADE BONDS 101:

Investment grades bonds have the following ratings (or better): for Moody’s, a Baa3; for Standard & Poors or Fitch, a BBB-.

The State’s current ratings with each agency are: Moody’s A2 with a Stable Outlook; S&P A+ with a Negative Outlook; and Fitch A with a Stable Outlook.

Depending upon the rating agency’s current rating, Illinois is either four steps (Moody’s and Fitch) or five steps (S&P) ABOVE “Non-Investment grade Speculative.”

For more background, see: http://en.wikipedia.org/wiki/Bond_credit_rating#Investment_grade

Comment by Professor of Finance Friday, Aug 24, 12 @ 2:56 pm
Rich- TRS put out its normal press release summarizing Board action but failed to mention June 30 year end investment returns- if the news was going to be good one would think the Board would be releasing the numbers- with the markets putting in an ok year- one will have to seriously wonder what the investment staff at TRS is doing if they fail to come in with a decent number and maybe it is time for the legislature to step in and impose oversight- the taxpayers are at risk for the pension systems’ under performance so perhaps the taxpayers interests need to be better protected from the lay boards who oversee these tens of billions of dollars

Comment by Sue Friday, Aug 24, 12 @ 3:20 pm
“Ladies and gentlemen there is a time to borrow and a time to lend. You will never see borrowing costs this low in your lifetime again.”
Our country is in a mess because of too much debt. See the national political dialogue. So the way out of it is to add more debt!

Comment by capncrunch Friday, Aug 24, 12 @ 4:20 pm