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Question of the day

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Illinois

* Do you think the state should give local government entities the option to declare bankruptcy? Take the poll and then explain your answer in comments, please.

bike tracks

posted by Rich Miller
Wednesday, Jun 29, 16 @ 12:47 pm

Comments

This would be disastrous for credit ratings, driving up costs to local taxpayers if IL municipalities could borrow at all.

Not to mention that walking away from your obligations and breaking contracts is downright immoral.

Comment by Reality Check Wednesday, Jun 29, 16 @ 12:48 pm
Yes, it would give municipalities better ability to negotiate their debt and long term financial commitments. I know the bond houses would then require more financial accountability. Right now we have a major problem with public unions and the bond houses just wanting government to raise taxes instead of being accountable for financial mismanagement and poor lending decisions.

This will force better accountability in government.

Comment by Ahoy! Wednesday, Jun 29, 16 @ 12:50 pm
no, they will just spend like crazy and then use bankruptcy to walk away.

side point, bankruptcy law was changed so consumers cant wipe out debt; they have to live in austerity for 5 years and all money goes to pay down old bills first. no file and flee

Comment by Ghost Wednesday, Jun 29, 16 @ 12:51 pm
Voted yes. It maybe the only recourse we have of correcting politicians mistakes. mistakes mind you,created mostly to get reelected.

Comment by blue dog dem Wednesday, Jun 29, 16 @ 12:51 pm
Bankruptcy is code for decimate unions and pensions so rich guys get richer — and the rest of the people get … well, nothing (or almost nothing).

I know, I know: “But Detroit!” Blah blah blah — but there’s no guarantee that kind of restructuring structure will happen here.

Comment by Formerly Known as Frenchie M Wednesday, Jun 29, 16 @ 12:51 pm
No, if they had that option, borrowing costs would skyrocket.

Comment by PublicServant Wednesday, Jun 29, 16 @ 12:52 pm
Under very, very drastic circumstances only.

Comment by A guy Wednesday, Jun 29, 16 @ 12:53 pm
No, the only thing that it truly does is eliminate collective bargaining, eliminate union pensions and give preferential treatment to investors.

Comment by Honeybear Wednesday, Jun 29, 16 @ 12:53 pm
I can’t pretend to know how it would all shake out, but it sure seems like that would be a recipe for profligacy and eventual abdication of responsibility. “Here are some benefits, vote for me! Oh, sorry, nevermind, peace”

Comment by Johnny Pyle Driver Wednesday, Jun 29, 16 @ 12:54 pm
No.

The local voters can enforce fiscal restraint … if they have the desire to be informed and involved and have the political will to do so. If the voters aren’t willing to do all that, there should not be a “get out of jail free” card as an option. They should have to live with the consequences of their actions / votes; might make them be more careful in the future … but I have to concede the track record isn’t real good in Illinois.

Comment by RNUG Wednesday, Jun 29, 16 @ 12:57 pm
No, and it makes me sick that the “fiscal conservatives” and “personal responsibility” crowd in the GOP advocate this.

Comment by Indochine Wednesday, Jun 29, 16 @ 12:59 pm
Voted no. All governments should be required to meet their fiscal responsibilities.

Comment by Stones Wednesday, Jun 29, 16 @ 12:59 pm
No. Kind of the same reason Ahoy voted yes. Politicians would never make tuff choices like raising taxes or cutting services if they could just promise everything then default and start over. The problem is a lack of leadership when in comes to making those tuff votes.

Comment by Augie Wednesday, Jun 29, 16 @ 1:02 pm
==side point, bankruptcy law was changed so consumers cant wipe out debt; they have to live in austerity for 5 years and all money goes to pay down old bills first. no file and flee
==

Not entirely true. Chapter 7 still exists. If you’re over a certain income threshold it’s just a tougher hurdle to clear. In municipalities cases, Chapter 9s are generally more similar to 13s in terms of reorginazation/partial discharge vs whole discharge

Comment by Anonymous Wednesday, Jun 29, 16 @ 1:03 pm
Don’t pensions receive preferential treatment in bankruptcy proceedings? Just asking b/c I don’t know for sure.

But I do not that as an elected local official, I definitely do not want a bankruptcy option on the table. We need more rigorous policy and financial thinking, more consideration of the future consequences of current actions. A bankruptcy option would make things too open-ended, let people shove consequences off on to others.

Comment by Just Chilling Wednesday, Jun 29, 16 @ 1:03 pm
Take a look at the Puerto Rico vote in the US Senate today. Strict financial controls will be put on them if it passes. It will serve as a roadmap for dealing with situations like CPS and municipal bankruptcies

Comment by Lucky Pierre Wednesday, Jun 29, 16 @ 1:10 pm
“Do you think the state should give local government entities the option to declare bankruptcy?”

No.

Simple solutions to complex problems are neither simple nor solutions, e.g. Brexit.

– MrJM

Comment by @MisterJayEm Wednesday, Jun 29, 16 @ 1:10 pm
No. Government bodies already have the ability to cut spending and/or, raise revenue.

Comment by Joe M Wednesday, Jun 29, 16 @ 1:10 pm
Federal Bankruptcy rules allows local governments the right to declare bankruptcy, however States can’t.

Comment by dk Wednesday, Jun 29, 16 @ 1:10 pm
I echo the concerns about a perverse incentives for communities on the edge that COULD with great effort and discipline “get their fiscal house in order*” to instead maintain unhealthy spending patterns and declare bankruptcy as a matter of convenience.

*I hate hokey phrases like this, but it applies here.

Comment by Name/Nickname/Anon Wednesday, Jun 29, 16 @ 1:11 pm
I say no. What would then give them the incentive to be fiscally responsible? In other words they would simply rack up debt then file every seven years. And it would stunt economic growth. Don’t allow it.

Comment by Anonymous Wednesday, Jun 29, 16 @ 1:11 pm
Sure, they should also call it the “Rauner Option”

Comment by How Ironic Wednesday, Jun 29, 16 @ 1:13 pm
Yes, because we’re going to need to in order to stay solvent. The math doesn’t work.

Comment by DuPage Moderate Wednesday, Jun 29, 16 @ 1:15 pm
No. Assets would be sold to private equity. I do not want my water controlled by Goldman Sachs

Comment by northsider (the original) Wednesday, Jun 29, 16 @ 1:16 pm
Very awful idea
Very popular with 1%ers ( i.e. BigBrain and Trump) who like to P* away other folks money and not worry about a reputation.
Help local government work out problems

Comment by Annonin' Wednesday, Jun 29, 16 @ 1:17 pm
Bankruptcy for units of government is a license for official irresponsibility, incompetence and impropriety.

Comment by IllinoisBoi Wednesday, Jun 29, 16 @ 1:18 pm
Voted “No” for the same reason bdd voted “Yes”.
=It maybe the only recourse we have of correcting politicians mistakes. mistakes mind you,created mostly to get reelected.=

Voters re-elect politicians. The best solution for a responsible and accountable government is educated voters rather than absolving voters of uninformed or unethical choices.

Comment by Qui Tam Wednesday, Jun 29, 16 @ 1:18 pm
We should not encourage local government to abuse the bankruptcy laws as a means to rip people off (as is common practice in the private equity biz, a terrible model for government). We should also not allow state government to use this as a tool to shirk its responsibility to fund education at mandated levels in a more equitable manner than we have at present.

Comment by X-prof Wednesday, Jun 29, 16 @ 1:18 pm
If they are given the option, then what is the value of any of their contracts or agreements? Why would anyone buy any of their bonds or investments?

Comment by Just Me Wednesday, Jun 29, 16 @ 1:20 pm
–Take a look at the Puerto Rico vote in the US Senate today. Strict financial controls will be put on them if it passes. –

The state already has the power to take financial control of local governments and has done so in the past.

Is “Puerto Rico” the new “Greece” for the willfully uninformed flogging a partisan political agenda and pretending that its economics?

Comment by wordslinger Wednesday, Jun 29, 16 @ 1:20 pm
Indochine “No, and it makes me sick that the “fiscal conservatives” and “personal responsibility” crowd in the GOP advocate this.” Disagree. The purpose of bankruptcy is to have an ORDERLY rather than a DISORDERLY insolvency. You bring all the stakeholders to the table before a federal court and hammer it out. Without bankruptcy, municipalities can pick and choose whom and when to pay, when the money is not there. The resulting uncertainty cost is going to drive up cost of borrowing more than a bankruptcy option will.

Comment by Put the Fun in unfunded Wednesday, Jun 29, 16 @ 1:23 pm
This would be a great way to deepen income inequality, so no.

Comment by Dome Gnome Wednesday, Jun 29, 16 @ 1:32 pm
An absolute crock. Only gives Brucie a way to get out of the problems he has caused…just like he made his money as a vulture capitalist. It’s an abuse of the purpose of bankruptcy.

Comment by d.p.gumby Wednesday, Jun 29, 16 @ 1:36 pm
NO… What we should be doing is eliminating ALL unfunded mandates the ILGA passes along to local governments & not add any new ones going forward. If the state cant pay for it why should the locals have to? EVERY under-funded or un-funded mandate is a Tax increase to residents passed along by locals in order to comply with state law.

Comment by the Cardinal Wednesday, Jun 29, 16 @ 1:38 pm
“This would be disastrous for credit ratings,”

Only to the extent that IL munis have already overborrowed. TX and MN are a couple of examples of states that allow chapter 9 and have many, many munis with AAA ratings.

CPS and Chicago are junk, without any chance of chapter 9, so credit ratings, alone, is not a good argument.

Comment by Chris Wednesday, Jun 29, 16 @ 1:40 pm
I voted NO for the same reasons that have already been noted above.

Comment by Mama Wednesday, Jun 29, 16 @ 1:41 pm
God, do I hate defending Rauner, but really unfair @d.p. gumby.

Illinois had $100 BILLION in unfunded pension obligations and $7 BILLION in unpaid bills before anybody ever heard of Bruce Rauner.

Comment by Indochine Wednesday, Jun 29, 16 @ 1:45 pm
Voted Yes.

For businesses negotiating with unions, the balance of union wages to shareholders returns is driven by the company’s profits. Hence, when the automakers were having lucrative years, the union negotiations were much more generous. And in lean years, the unions realize they can’t be as demanding.

There’s no balance or “push-back”, that I can see, when public sector unions are negotiating for wage increases or benefits. The option of a potential bankruptcy provides some balance.

Voters, it would seem, could then decide whether they prefer a tax increase or bankruptcy.

Comment by Downstate Wednesday, Jun 29, 16 @ 1:47 pm
Only with one condition, all elected officials within that unit of goverment must resign, and never run for any elected office again.

Comment by Retired at 126 Wednesday, Jun 29, 16 @ 1:48 pm
Horrible idea - it almost eliminates the accountability local elected officials currently have. It mitigates the concept that they have to live with the consequences of their decisions.

Comment by Johnny Tractor Wednesday, Jun 29, 16 @ 1:51 pm
Yes.

First off, there’s already at least 5 units of local government (municipalities) out there that are functionally insolvent. And that’s likely just the tip of the iceberg because the annual financial reporting by too many units of local government is late, incomplete, or even virtually non-existent. So we as taxpayers really don’t know the full extent of the problem.

Link is: https://mishtalk.com/2015/05/29/five-chicago-suburbs-headed-for-bankruptcy-more-illinois-cities-will-follow/

Here’s reality:

The above listed municipalities didn’t get into these messes because they were “fiscally responsible”. Quite the contrary. They made bad decisions, and they need a way out. To get back to even. Right now these places are buried in a never ending financial nightmare.

Today, those folks (and likely others) are literally without any options, so what’s your plan? Maybe dissolve the municipality and turn the remaining needed functions back over to Cook County to administer? Yeah, that will work. NOT. Toni would end up with no hair…..

I get that since Rauner is for it, a lot of the posters are automatically against it. But again, what’s your plan?

Because, right now, many of the posters here are in denial. What are we going to do if the proverbial dam breaks & some places come to the point where they have zero cash and they just shut down. Talk about DISORDERLY.

We better put in place some additional options while we still have time.

Comment by Anon Downstate Wednesday, Jun 29, 16 @ 1:52 pm
Something will need to be done because the cost of 3% compounding on the coppers and firefighters pensions is not sustainable.

Comment by Jim'e' Wednesday, Jun 29, 16 @ 1:53 pm
Many comments here have said that it will give license to municipalities to spend like crazy and write off debts.

I don’t think that would happen because they all have credit ratings they need to maintain. But THIS WOULD give the General Assembly and Governor an open invitation to raid motor fuel taxes, local government share of income taxes and other money that the state collects on behalf of the cities.

This is a bad idea, I voted NO.

Comment by hockey fan Wednesday, Jun 29, 16 @ 2:02 pm
Absolutely not. If I can’t get out of my student loans, they can’t Welch on their bonds or pensions. If we give them the option we will soon transfer the pension obligations to them. They’ll declare BK to get out of them but it will be the bondholders who take it in the shorts. Then they’ll have a hell of a time bonding anything in the future. It would be better to let them levy an income tax.

Comment by Me too Wednesday, Jun 29, 16 @ 2:06 pm
No, it should not be an option. Cities and businesses must be responsible and operate within their means, don’t give them such an easy out. I fear that the average citizen who is less well off or has few options for themselves will be the ones to bear the brunt of such bankruptcies, while, somehow, the politicians and bankers and lawyers and businessmen will profit from their loss.

Comment by Christopher Wednesday, Jun 29, 16 @ 2:07 pm
Indo
God, do I hate defending Rauner, but really unfair @d.p. gumby.

“Illinois had $100 BILLION in unfunded pension obligations and $7 BILLION in unpaid bills before anybody ever heard of Bruce Rauner.”
Indochi you are correct, although many would like to forget that little nugget of truth. Municipals also get to pay higher debt service because of the States ratings as well. The snow ball effect and mandates are killing local govs.

Comment by Anonymous Wednesday, Jun 29, 16 @ 2:09 pm
Johnny@1:51.it mitigates the concept that they have to live with the consequences of their decisions. Like Jim Edgar? He’s laughing all the way to bank.

Comment by blue dog dem Wednesday, Jun 29, 16 @ 2:09 pm
Voted “No.” Would be a credit-negative for almost everybody except the richest towns.

I could support a provision in the Distressed Community Act or elsewhere that lays out a process by which a muni could request State permission to file Chapter 9, based on certain standards and findings.

Comment by Harry Wednesday, Jun 29, 16 @ 2:25 pm
I think it could actually be a good thing. Right now local governments can borrow and borrow and lenders know they will be paid back because the local governments can just tax more to pay it back. If local governments can go bankrupt maybe we will see lenders be a little more careful. Individuals and businesses are allowed to restructure debt when things go wrong, why not local governments?

Comment by Restore sanity Wednesday, Jun 29, 16 @ 2:26 pm
No. Local governments have taxing powers. They should not be able to use bankruptcy to avoid tough votes. Bankruptcy would destroy what is left of local government credit ratings.

Comment by SAP Wednesday, Jun 29, 16 @ 2:29 pm
RNUG. I have to respectfully disagree. Our children had no say(or vote) in the promises made by corrupt politicians In years past. But yet they more than anyone must pay for others sins. Isn’t it amazing that MJM keeps getting reelected? That tells me how smart, we the voters are. For the kids, for the future. Potential bankruptcy is their only hope.

Comment by blue dog dem Wednesday, Jun 29, 16 @ 2:38 pm
I voted ‘no.’ I believe in personal responsibility and that government should hold itself to a higher standard.

Comment by Earnest Wednesday, Jun 29, 16 @ 2:39 pm
Voted no. However, there might be situations where the state should allow it. This would be case specific. Towns do lose population through no fault of the residents as industries change. Blanket approval in advance would create too much moral hazard.

Comment by Anonymous Wednesday, Jun 29, 16 @ 2:52 pm
One reason communities might be facing financial difficulty is that they have become hard-pressed to meet requirements imposed upon them by the State.

Comment by Keyser Soze Wednesday, Jun 29, 16 @ 2:53 pm
“Yes, because we’re going to need to in order to stay solvent. The math doesn’t work.”

Well, isn’t that the job of elected officials to make sure the numbers work? It’s called responsible leadership….and the electorate can hold them to it any time they wish.

Comment by Galena Guy Wednesday, Jun 29, 16 @ 2:57 pm
Municipality bankruptcy is almost always a bad option. The unions will always cry foul, but they’re inevitably the ones that hasten bankruptcy in the first place. Sound economic policy dictates that municipalities must be allowed to “fail.” Otherwise, elected “leaders” will never have any incentive to right the ship as they go along. Illinois is a perfect example of a giant “ship” that has never been “righted.” And look where we are. If allowed to seek bankruptcy protection, the Madigans of the state will NEVER be incentivized to legislate responsibly. Never.

Comment by Bee Nice Wednesday, Jun 29, 16 @ 3:04 pm
Voted no. And I’m sick to death of all those ‘fiscal conservatives’ who think this is the new salvation! As for those of you who said it will ‘fix the politicians mistakes’ who exactly do you think voted those ‘mistaken politicians’ into office–they didn’t get there by magic!! Edmund Burke is spinning in his grave right now!

Comment by Not quite a majority Wednesday, Jun 29, 16 @ 3:12 pm
@ anonymous2:09 ==$100 BILLION in unfunded pension obligations==

$100 Billion to be paid over a period of 40 years. It can be done, and if they wanted they could adjust the ramp for lower yearly payments over a longer period.

Comment by DuPage Wednesday, Jun 29, 16 @ 3:14 pm
“@ anonymous2:09 ==$100 BILLION in unfunded pension obligations==

$100 Billion to be paid over a period of 40 years. It can be done, and if they wanted they could adjust the ramp for lower yearly payments over a longer period.”
———-

That’s just playing with numbers and avoiding the issue.

Here’s why.

That $110 bil (it’s actually $110 bil, not $100 bil) is TODAY’S estimate of the anticipated liabilities. You increase the payment term, you likely also increase that overall $110 bil amount.

And remember something else, you are also figuring in assumed investment earnings over that overall (current) 40 year time frame. But if you lower the ‘ramp amount’ for each year by extending the term, you also have less money to invest each year of the current 40 year term, so you are probably not going to make as much investment return. So that’s even more money you need to ‘make up’. So one way or another, you will pay.

Math can be kind of unforgiving. You might want to rethink your approach.

Comment by Anon Downstate Wednesday, Jun 29, 16 @ 3:36 pm
Outright abdication of debt obligations…no. Receivership with the ability to restructure payments, debts, taxes…yes.

Comment by thechampaignlife Wednesday, Jun 29, 16 @ 4:05 pm
No,as a local elected official, I have a duty to review revenues and expenses, develop a plan, then implement it. BK would just allow board members to shirk their responsibilities because there would be an out. Go to your local village, park,and library district meetings and let them know that you are watching.

Comment by To Go Fishing or Not Wednesday, Jun 29, 16 @ 4:11 pm
Would vote yes if all the assets (homes, cars, bank accounts, retirement/pensions, stock portfolio, etc) of the current and past administrations could be seized to pay off the creditors.

Comment by Huh? Wednesday, Jun 29, 16 @ 4:29 pm
== Federal Bankruptcy rules allows local governments the right to declare bankruptcy, however States can’t. ==

Only IF the state also allows it.

Comment by RNUG Wednesday, Jun 29, 16 @ 4:33 pm
Paying back a debt over 40 years is already a poor use of money. Stretching it out further does not make much a change in the servicing amount, but drives up the interest costs.

Comment by Plutocrat03 Wednesday, Jun 29, 16 @ 4:33 pm
Yes. Make government revenue available for services and helping the needy. As opposed to honoring corrupt deals the politically-connected minority of “tax-payers” arranged for themselves.

Comment by Robert the 1st Wednesday, Jun 29, 16 @ 4:51 pm
I voted yes. Why should local government be denied the same financial management tools and anyone else? I really don’t imagine wide spread use of bankruptcy protection, but when county and state funding is withheld or diminished, local governments need some sort of relief.

Comment by Jim Wednesday, Jun 29, 16 @ 5:41 pm
Yes, because, simply put, the State has the power to control Local Municipalities, even though HAVING such authority does not make such an action fiscally wise or responsible…!

Comment by Just The Way It Is One Wednesday, Jun 29, 16 @ 5:47 pm
The question is a bit open ended. We don’t even know what the terms of the bankruptcy would be. There are all sorts of bankruptcy chapters that have varying requirements so a state bankruptcy would need to be handled as a whole new animal. I voted yes because infinite borrowing has brought upon the bad financial decisions. If bankruptcy is a possibility then the borrowing would be tightened which is good. States should have to live within their means and right now Illinois has been borrowing way too much.

Comment by Maximus Wednesday, Jun 29, 16 @ 5:57 pm
Simply… Bankruptcy is the cowards way out. Everyone and every government owns their poor and irresponsible decision (sans medical catastrophic issue.. Hello Obama care) so NO excuse or escape to voters who take a passive interest in their election. You own your debt. Bye bye Felicia

Comment by Fedup Wednesday, Jun 29, 16 @ 6:48 pm
Yes. If there’s no real risk of default, why are we paying interest on municipal debt?

Comment by lincoln's beard Wednesday, Jun 29, 16 @ 6:56 pm
No. It is the responsibility of the politicians to be fiscally prudent. Like others said it would also create other costs. It is not about who created the problem, but rather how to solve it. What should be done is to offer the option to restructure the debt so it could be resolved. There should be legislation that forces this type of adult action.

Comment by illlinifan Wednesday, Jun 29, 16 @ 7:59 pm
Next breakout should be votes by =net tax payers= vs =net tax payers= And don’t play silly folks, you know what that means.

Comment by Robert the 1st Wednesday, Jun 29, 16 @ 11:09 pm
Oops. =net tax consumers= for the latter

Comment by Robert the 1st Wednesday, Jun 29, 16 @ 11:10 pm
I’d want to have policy analysts doing some serious evaluation of borrowing costs before we go there. A nice, big-sample regression of interest rates for municipalities in both bankruptcy states and non-bankruptcy states, at the very least.

Comment by Angry Chicagoan Wednesday, Jun 29, 16 @ 11:20 pm
Bankruptcy would hurt too many people.

We need to be responsible and pay our bills.

That goes for individuals, businesses and the government.

Comment by Enviro Wednesday, Jun 29, 16 @ 11:27 pm
voted “No” just because it is just wrong. Several commenters on here have said that local governments can raise taxes- sounds good, except the locals funded by property taxes in PTELL (tax cap) counties have to go to referendum to raise taxes-pretty difficult to do in these economic times.

Comment by downstqte commissioner Wednesday, Jun 29, 16 @ 11:53 pm
==And don’t play silly folks, you know what that means==

Actually, no we don’t unless you’re pulling that “government workers are tax consumers vs. taxpayers” gag.

You continue to amaze me with your anti-state employee nonsense. It’s just sad.

Comment by Demoralized Thursday, Jun 30, 16 @ 8:34 am