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Running on empty and can’t fill the tank

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Illinois

* My weekly syndicated newspaper column…

The state fiscal crisis is only going to get worse, and the solution is becoming more difficult by the day.

As you probably know, the General Assembly and the governor have not yet agreed on a full state budget. But because of various federal judicial orders, a signed education funding bill and several ongoing statutory “continuing appropriations” (debt service, pension payments, legislative salaries, etc.), the government is on pace to spend billions of dollars more than it will bring in this fiscal year.

Guesstimates have been tossed around by various folks that the state could run out of money by March or maybe April if no formal budget agreement is reached. That’s because all the judicial orders, etc. are based on last fiscal year’s budget, but last year’s budget was based on revenue from a 5 percent income tax that automatically fell to 3.75 percent in January.

Long term is grim, but so is the short term.

On August 18th, Federal District Judge Sharon Johnson Coleman gave the state three days to make July’s $120 million payment for services to developmentally disabled people.

But Illinois Comptroller Leslie Munger claimed there wasn’t enough money in the state’s “checking account” to meet state payroll, make required bond, pension and school payments, fund other federal consent decrees and comply with the order.

A partial payment of $70 million was made last week and then the rest was paid a few days later after Coleman threatened the state with a contempt of court citation.

And things are only going to get worse. The comptroller’s people say their office sets aside about $540 million a month for state pension payments. The comptroller’s office estimates that by November or December the state will not have enough money in the bank to make its monthly pension payments.

But they can’t even start working on a fiscal solution until Gov. Bruce Rauner’s demands about his anti-union “Turnaround Agenda” are met.

And the problem with agreeing to any of Rauner’s ideas is that everybody figures he will attempt to hold up next year’s budget for even more anti-labor stuff.

One theory (on both sides) has long been that this thing has to play itself all the way out so that we don’t have to go through it ever again. Therefore, the Democrats may wait to see what the governor does when the state’s prisons run out of food, or the government literally runs out of money. Rauner may wait to see what the Dems do when private human service providers fold en masse.

So they’ll likely keep circling each other, throwing jabs and issuing taunts. They’re basically just attempting to run out the clock on each other, creating diversions until “doomsday” is finally reached.

But every day they wait will make it that much tougher to craft a final budget deal because basic math is not on their side.

Rauner essentially agreed in private months ago to a 1 percentage point income tax hike—from the current personal rate of 3.75 percent up to 4.75 percent–if, that is, they can first reach a deal on his agenda.

Let’s just say a miracle happens and they come to terms by the first week of September. In order to bring in the same amount of revenue as a full-year 1 percentage point hike, the effective tax rate over the fiscal year’s remaining 10 months would have to be significantly higher than 4.75 percent.

And now factor in candidate petition filing, which begins Sept. 1 and runs through Nov. 30. How do you convince Republicans and Democrats to vote for a tax hike while petitions are in the streets?

That’s why Senate Republican Leader Christine Radogno said not long ago that she didn’t see a resolution until December. But if they wait until December, when a three-fifths majority would still be required to pass a new budget, why not just wait until January, when a simple majority would only be required?

If that happens, then the income tax rate on Jan. 1—halfway through the fiscal year—would have to be 5.75 percent to produce the same revenue as a 4.75 percent rate back on July 1.

And what if they wait until the state runs out of money, sometime after the party primaries end? Trust me, you don’t even want to know what the tax rate would have to be.

The other option is to not raise taxes that high and just postpone billions of dollars in state bill payments. I’m not sure which is worse.

posted by Rich Miller
Tuesday, Sep 1, 15 @ 9:22 am

Comments

The state could run out of money by March or April? Sounds like last year, when we actually had a Dem “budget”.

Comment by Anonymous Tuesday, Sep 1, 15 @ 9:26 am
The problem is all the judicial orders, statutory bills, etc.. is that few people see the damage not having a budget does. If basic services like all Secretary of States offices closed, schools not opening, roads not being plowed of snow would happen, then the majority of citizens would realize this needs to be done. The way it is now, the groups that don’t get paid hold a small press conference, go to court, get a court order, and get paid. There is nothing fiscally responsible being done and Rauner and the General Assembly share in that as either could order a meeting until a solution is found rather than running out of town and around the state.

Comment by OurMagician Tuesday, Sep 1, 15 @ 9:28 am
When each side starts the debate with “non-negotiables” it stands little chance of getting resolved.

Comment by Downstate Tuesday, Sep 1, 15 @ 9:31 am
Just asking, but couldn’t the tax increase be passed retroactively to the 1st of the year?

Comment by DE Tuesday, Sep 1, 15 @ 9:32 am
I predicted here a couple of months ago that the full pension payments would not be made. There’s no court order requiring them, right? On the other hand, not making them would require the legislators and the Gov to agree on something….

Comment by UIC Guy Tuesday, Sep 1, 15 @ 9:33 am
In addition to being completely irresponsible, holding the budget hostage to a political agenda is just a fundamentally unsound strategy.

A budget is a necessity for everyone. The necessity of the governor’s political agenda is questionable, to say the least.

You have to build public support for a political agenda. You can’t just try to ram it through on the sneak.

Where’s the demonstrated public support for the governor’s political agenda? Even IMA is telling him to cut a deal on the budget.

You negotiate with hostage takers now, you just get more hostages down the road.

Comment by Wordslinger Tuesday, Sep 1, 15 @ 9:46 am
If there is a retroactive tax increase, that will be the end of Rauner. If there is more than a 1% tax increase that will also be the end of Rauner. If the bonds don’t get paid, that certainly won’t help Rauner.

He is digging his own political grave by digging in on his anti-union agenda.

Comment by A Jack Tuesday, Sep 1, 15 @ 9:47 am
@Anonymous -

A few programs almost ran out of money early in FY 15.

What Rich is describing is the state not being able to make pension payments, provide basic K-12 funding, pay its electric bill, or pay police, prison guards, and other state workers.

@UIC Guy -

Skipping pension payments will not happen. The Comptroller can make school state aid payments on an emergency basis only, delaying payments to districts that have huge surpluses.

Comment by Juvenal Tuesday, Sep 1, 15 @ 9:47 am
Anti-union agenda?

Bruce is giving everyone the Right to Work!

That’s right! It has been illegal for everyone to work…until we get this Right to Work.

/snark

Comment by Jack Stephens Tuesday, Sep 1, 15 @ 9:50 am
Politically speaking, what is the single biggest difference between human service providers and business people who provide financial support to Rauner?
Money. One group has it and one group must be taught a lesson.
That is all.

Comment by Austin Blvd Tuesday, Sep 1, 15 @ 9:50 am
All of these “solutions” are like counter-flooding on the Titanic. The Illinois General Assembly is addicted to overspending and always will be under this leadership.

Comment by Percival Tuesday, Sep 1, 15 @ 9:51 am
@Juvenal: I hope you’re right. But it’s a big chunk of money, and not paying it would hurt no one immediately, so I still have doubts.

Comment by UIC Guy Tuesday, Sep 1, 15 @ 9:51 am
Instead of borrowing from vendors at 12% interest, or from the pension system at 8% interest, why not offer 4% APR to any taxpayer willing to delay getting their refund until after August 30th, 2016?

I’d tell my employer to increase my withholding tomorrow if they did that. Much better than the yield on a six month CD.

Comment by Juvenal Tuesday, Sep 1, 15 @ 9:53 am
Perhaps Rauner should switch agendas to building a wall around Illinois and deporting out-of-staters. Those seem like pretty popular Republican agenda items right now given Trump’s poll ratings.

Comment by A Jack Tuesday, Sep 1, 15 @ 9:53 am
Perceval:

With the expiration of the tax hike in January (that Bruce requested)….he’s pocketing an extra 14k a week.

In a months time he gets what the average ‘Merican earns in a year!

Nice work if you can get it!

Comment by Jack Stephens Tuesday, Sep 1, 15 @ 10:01 am
I guess Rich firmly believes that no reforms or ineffective, unfair or low value cost cutting are necessary, or even desirable. “Reform” of education overspending, bloated administrative costs at state colleges, or low value, politically driven grant programs don’t need to happen, do they Rich? Medicaid doesn’t need to be reformed to reduce the scamming and unfair eligibility rules, right? Don’t bother to empower the state to right size public employee compensation and limit basis for pensions, correct? None of these things will solve the fiscal problems in themselves, but cumulatively they could make a pretty big dent and minimize the tax increases that will unfortunately, be necessary. Madigan could give some and get a 1% increase today, but he’s too greedy and arrogant for that. Just keep giving Madigan his way, keep raising taxes on the businesses to drive them out of Illinois and keep burdening the middle class is the way to go, right Rich? At some point the people who are still in power who are causing these problems need to be dealt with to get a sustainable, fair system in place. The Dem party, and just about everyone feeding at the State trough (and just about all of the posters here) want to keep the gravy train running until the state goes off the cliff.

There needs to be a time of reckoning and reform. If not now, Rich, when?

Comment by Arizona Bob Tuesday, Sep 1, 15 @ 10:08 am
Or maybe learn from other states, at least get an indication from 2012 census data.
On a Per capita basis, Indiana and Missouri State revenues matched State expenditures, while Illinois expenditures exceeded revenue by over 5%.
Two major areas of interest: On a per capita basis, if Illinois State paid salaries were decreased to match Indiana’s, we’d save $1.2B. Again on a per capita basis, decreasing State paid governmental administration costs to match Indiana’s would save $219M. Overall savings if State/Local are taken together are even more pronounced. Local government administration in Indiana runs about $200 vs Illinois at $265….a potential savings of another $839M.
The spreadsheets to derive these numbers and much more are at:
http://factfinder.census.gov/faces/nav/jsf/pages/index.xhtml
….. search for tables LGF001 or SLF001. The data is 2012, but the snapshot gives a good indication of where we pay much more than other, more fiscally responsible States. Maybe we can learn from the past.

Comment by The Whole Truth Tuesday, Sep 1, 15 @ 10:12 am
===I guess Rich firmly believes that no reforms or ineffective, unfair or low value cost cutting are necessary, or even desirable===

Um, just where exactly do you get that from the above column???

I didn’t advocate anything of the kind, dude. Try reading what I wrote instead of what’s jangling around your skull.

Comment by Rich Miller Tuesday, Sep 1, 15 @ 10:14 am
All true Rich. Any rational person would be looking for ways to settle right now, before full recovery becomes impossible.

Comment by walker Tuesday, Sep 1, 15 @ 10:19 am
I’m going to a festival out of state this weekend… at the rate things are going, I might have to consider defecting and not coming back

Comment by Secret Square Tuesday, Sep 1, 15 @ 10:20 am
Where is the mainstream media on this? Aside from Rich and Chicago Tonight, the budget impasse and the implications seem an afterthought. I really do not want this to go all the way until March 2016 but I think Rich is right.

Comment by fed up Tuesday, Sep 1, 15 @ 10:21 am
Wordslinger writes: “You have to build public support for a political agenda. You can’t just try to ram it through on the sneak.”

Elections have consequences…me thinks that Rauner’s win was that public support.

Comment by DuPage Moderate Tuesday, Sep 1, 15 @ 10:24 am
Feel better Bob after your little temper tantrum? I hope so. Being angry all the time is bad for your health.

Comment by Demoralized Tuesday, Sep 1, 15 @ 10:25 am
==Elections have consequences…me thinks that Rauner’s win was that public support.==

There’s still a Democratic General Assembly. The Governor has to deal with them. It would be nice if some of you realized that.

Comment by Demoralized Tuesday, Sep 1, 15 @ 10:26 am
Mayor Rahm seems to be gearing up for a property tax increase too, in addition to the one for the schools. Lots o taxes in the pipeline for Chicagoans. And then there is Ms. Preckwinkle’s sales tax increase. None of these will hit the rich more than a teensy bit of course. Both parties will make sure of this. In Illinois, our political masters haven’t been reading all those articles on income inequality, or if they have, they sure didn’t understand them.

Since Rauner has reportedly caved to a 4.75 state income tax for individuals (not sure where he is on the corporate increase) the suspense now shifts to the temporary surcharge many believe he’ll have to agree to in order to close out the fiscal year. Will he sign a temporary surcharge or make Dems override a veto? Will he borrow to avoid this? How are those special funds looking for the next round of sweeps?

Comment by Cassandra Tuesday, Sep 1, 15 @ 10:32 am
– me thinks that Rauner’s win was that public support.–

You thinks that, Shakespeare? Too bad the governor didn’t campaign on his agenda. Perhaps there would be public pressure to support it.

But he hid the agenda during the election because he was concerned he would lose if he revealed it.

That’s the problem of trying to govern on the sneak.

Comment by Wordslinger Tuesday, Sep 1, 15 @ 10:32 am
Arizona, since when does Illinois invest too much in education? Illinois doesn’t have a spending problem! It has a funding problem. Too many tax breaks have been given to manufacturers, investment firms, developers and retailers. The problem with the pension is because the state has neglected to pay their share. If Governor Rauner wants another trip to our pension trough then it had better cost him. AFSME employees will immediately start paying 8% of our salary towards our pension as soon as the state agreed to an immediate 4 % COLA increase and starts paying a guaranteed 1% additional payment. Steps and semi automatic promotions need to be retroactively reinstated. In the future the most we could lose is the additional 1%

Comment by Triple fat Tuesday, Sep 1, 15 @ 10:37 am
@Rich
=Um, just where exactly do you get that from the above column???=

Sins of Omission, buddy. If you thought they were important, they would’ve gotten a mention on an issue like this…

I’ve read much of your published stuff (not all, of course). You’ve mentioned some reforms, sure. But when you’re advocating tax increases, you might want to mention that revenues are part, but not ALL, of the remediable problem. Reform in exchange for revenue what this is all about, isn’t it? I would think the “reform” part would at least merit a mention.

Comment by Arizona Bob Tuesday, Sep 1, 15 @ 10:38 am
==you might want to mention that revenues are part, but not ALL, of the remediable problem==

He has. More than once. Apparently you don’t keep up with this blog.

Comment by Demoralized Tuesday, Sep 1, 15 @ 10:43 am
==Reform in exchange for revenue what this is all about, isn’t it?==

Also, it has to be ACHIEVABLE reform. Anything that deals with unions is not achievable. Shouldn’t we be focusing on the stuff that can actually get done?

Comment by Demoralized Tuesday, Sep 1, 15 @ 10:45 am
@Triple Fat
=Arizona, since when does Illinois invest too much in education?=

First of all, Illinois does very little “investment” in education. “Investment” infers a commensurate return on increased spending, equal or exceeding the revenue increase. That virtually NEVER happens in Illinois, otherwise the flat ACT and objective student outcome results would’ve resulted in reducing spending.

Who says Illinois education is overfunded”? Try the NAEP and NEA. Test results put Illinois at about the middle of the pack in student outcomes, yet spending per pupil ranks about 15th and teacher salaries rank about 12th. Seems like a bad “investment” was made by the taxpayers of Illinois based on return on investment. Illinois also spends a whopping 17.8% per student more than national average, for average outcomes.

Google “NEA Rankings and Estimates” report. It’ll proved a real education about school funding in Illinois that the media would rather not have the people know. The facts just don’t fit the “underfunded and needing tax increases” narrative.

Comment by Arizona Bob Tuesday, Sep 1, 15 @ 10:47 am
Arizona- let’s figure out a better way of funding our schools rather than relying on property tax revenue. Maybe we should start taxing farmland based on fair market value. Maybe we could do away with Farmers buying billions of $ in equipment without paying sales tax. Take away the dyed fuel… Let them move there farm to Indiana or Missouri… Good ridence. They are the biggest welfare recipients that complain about where the little amount of taxes they pay are being spent. Oh they stood in line to elect Rauner because they have had it so rough.

Comment by Triple fat Tuesday, Sep 1, 15 @ 10:48 am
@Demoralized

=Also, it has to be ACHIEVABLE reform. Anything that deals with unions is not achievable.=

So 15% of the population is controlling near 100% of the government action. That seems to be the problem that Rauner is trying to resolve so that the interests of the 85% are at least as strongly pursued as the 15%.

We has met the enemy, and he is YOU!

Comment by Arizona Bob Tuesday, Sep 1, 15 @ 10:52 am
==teacher salaries rank about 12th==

What would you like them to rank? 50th perhaps.

==Illinois also spends a whopping 17.8% per student more than national average, ==

What a travesty. How dare we be better than average.

Bob, what kind of genius concludes that spending less will make the situation better? You seem to think you can make outcomes better by cutting funding? Genius Bob. Pure genius. I mean, I know cutting funding at my kids school, which would cut teaching staff and take away much of the technology they use, would certainly benefit them. Great plan Bob. Why didn’t anybody else think of that.

Comment by Demoralized Tuesday, Sep 1, 15 @ 10:53 am
==We has met the enemy, and he is YOU!==

I’m the enemy? How to you figure? I’m not in a union and never have been. I’m guessing anybody that doesn’t agree with your goofy ideas is the enemy.

I’m simply pointing out reality and the reality is that anything that is anti-union isn’t going to happen. Period. You can whine and moan about it all that you want but it doesn’t change the facts.

Comment by Demoralized Tuesday, Sep 1, 15 @ 10:55 am
Why are the hard working, tax paying union members being characterized as enemies? Jeez.

Comment by burbanite Tuesday, Sep 1, 15 @ 11:20 am
Bob,
It’s the 1% controlling most of government. In the last 30 years the monied class has done a wonderful job of convincing people that they don’t need union representation… During those years we have experienced stagnate wages, loss of manufacturing jobs, loss of defined pension programs, bankruptcy reform making it more difficult for person people to wipe to start over but people who are corporations can still take advantage of the new rules. For good measure the monied class and their appologists like to project that Unions have too much influence. Looking over the last 3 decades a reasonable person should conclude that Union’s have not had enough influence.

Comment by Triple fat Tuesday, Sep 1, 15 @ 11:34 am
Rauner is making Pat Quinn look good.

Comment by Kasich Walker, Jr. Tuesday, Sep 1, 15 @ 12:15 pm
@ The Whole Truth, what is the cost of living for Illinois vs. Indiana? Shouldn’t salaries reflect the standard of living and therefore IL salaries should be higher due to the differences in the standard of living. That’s the problem w/ your analysis.

Comment by MyTwoCents Tuesday, Sep 1, 15 @ 12:38 pm
To the Post,

Rich really frames what the end game is here, and why there’s trepidation for many on both sides of the aisle;

===How do you convince Republicans and Democrats to vote for a tax hike while petitions are in the streets?===

You have to figure Cullerton and Madigan will require all GOP members be green on it. Does Rauner think so little of the GOP Caucuses he owns that he’d cut a deal for revenue while petitions are on the street?

Cullerton and Madigan only need 40 combined with the 71/36 “asks”. Cullerton puts all not up for re-elect and Madigan puts all “safe” seats up, not a bad trade to damage the GOP GA.

Rich, your whole column, you cover all the angles, thanks!

Comment by Oswego Willy Tuesday, Sep 1, 15 @ 1:49 pm
I get that many Republicans (and Democrats) believe there are so many problems with IL that makes it not friendly to business and the real solution to the state’s problems is economic growth but that requires reforms relative to the business climate… I get it but I am starting to wonder which is better a less favorable business climate or a toxic state government? Rauner is helping to create such a toxic situation in Illinois that I got to imagine even more businesses are looking to leave and not invest in IL as a result of the toxicity Rauner has brought to IL govt…

Comment by WAK Tuesday, Sep 1, 15 @ 2:03 pm
I hate to say it, but the history of Illinois suggests that real reform will never happen in this state until the whole edifice crashes in ruins and the mob is at the statehouse with pitchforks, tar, and feathers. I wish everyone could sit down and work things out but I think we just have to grit our teeth, brace for the crash, and hope somehow that a better system rises from the ashes. With luck, Madigan and Rauner will take themselves down along with everyone else.

Comment by Skirmisher Tuesday, Sep 1, 15 @ 2:08 pm
Skirmisher, what “history” are you referring to?

Comment by Wordslinger Tuesday, Sep 1, 15 @ 2:20 pm
=== The Illinois General Assembly is addicted to overspending ===

Illinois state gov’t consistently ranks among the lowest spending states on both a per capita basis and as a % of GDP. That’s the inconvenient truth.

Comment by nona Tuesday, Sep 1, 15 @ 2:33 pm
Nona-
You might want check out the 10:12AM link above.
Just curious….on what data do you base your assertion?

Comment by The Whole Truth Tuesday, Sep 1, 15 @ 2:43 pm
“The other option is to not raise taxes that high and just postpone billions of dollars in state bill payments. I’m not sure which is worse.” I’ll tell you what is worse - - not getting paid is worse. When the state runs out of money, I won’t care about business friendly reforms, I will only care about getting paid!

Comment by Mama Tuesday, Sep 1, 15 @ 2:47 pm
“Bruce is giving everyone the Right to Work!”

Enough with this…Please…

I appreciate your writings, Rich. Always fair and balanced. A refreshing break from Crain’s know-it-all business columnists and Trib editorial board.

Comment by Politix Tuesday, Sep 1, 15 @ 4:42 pm
TF, get serious….

“Arizona- let’s figure out a better way of funding our schools rather than relying on property tax revenue. Maybe we should start taxing farmland based on fair market value. Maybe we could do away with Farmers buying billions of $ in equipment without paying sales tax. Take away the dyed fuel… Let them move there farm to Indiana or Missouri… Good ridence. They are the biggest welfare recipients that complain about where the little amount of taxes they pay are being spent. Oh they stood in line to elect Rauner because they have had it so rough.”
———-

First off, we get it that you have it hard for the farming community. But a few facts.:

1) Farmland isn’t assessed at FMV (Fair Market Value). It’s based upon farmland productivity. It’s been law since the mid 1980’s. There’s a fairly complex formula, and it’s enshrined in the statutes.

Here’s the link: http://www.revenue.state.il.us/publications/pubs/pub-122.pdf

Like it or not, the farmland assessment law works. And in case you’ve never been outside of Chicago, there’s a lot of farmland in this state. In fact, AG employs a whole lot of people in the state. And it’s a BIG money business here in IL.

2) Sales tax breaks for the farming communities. Go ahead and wipe those out - realize, most of those cuts will impact the family owned farming community. You must really want to put the blocks to any Democrat officeholder located outside of the urban areas. No Democrat officeholder located outside of the urban areas would even consider voting for such legislation.

That’s poison for anybody with any level of farming in their community.

Agriculture is looking like one of our few bright spots in the overall Illinois economy. I sure don’t see much growth elsewhere.

Comment by Judgment Day (on the road) Tuesday, Sep 1, 15 @ 6:00 pm
===Reform in exchange for revenue what this is all about, isn’t it? I would think the “reform” part would at least merit a mention. ===

I’ve written about that ad nauseum. There was no need to write about them here because it was a look ahead at some very real problems, not advocating for any position. It is the governor’s position, after all, which is at the heart of the revenue portion of the column, not mine.

Comment by Rich Miller Tuesday, Sep 1, 15 @ 6:48 pm