Capitol Fax.com - Your Illinois News Radar

The dire consequences of continued inaction

Posted in:

Illinois

* My weekly syndicated newspaper column…

You may have read a news story or two about the latest blistering report from New York-based S&P Global Ratings about Illinois’ fiscal and economic woes.

But it’s far more brutal than anything reported by the media and it pretty obviously lays the blame for much of the morass at Gov. Bruce Rauner’s doorstep while calling on legislators to assert “governing control.”

The title of the report was: “For Illinois, Having A Plan Beats No Plan.” That title refers to the Illinois Senate’s bipartisan attempt to forge a “grand bargain” of a balanced budget and non-budgetary reforms.

The credit ratings agency took no position on the Senate plan itself, but claimed “if lawmakers were to begin asserting governing control over state finances, that could help alleviate some of the pressure currently bearing down on Illinois’ credit quality.”

“Illinois’ fiscal crisis is, in our view, a man-made byproduct of policy ultimatums placed upon the state’s budget process,” S&P analysts wrote, then immediately added, “As we see it, the governor interpreted his election in 2014 as a mandate to pursue various institutional changes that the legislature has steadfastly opposed.”

To my eyes, those two connected sentences blame Rauner and his longstanding refusal to negotiate a real budget that balances revenues and spending until his non-budgetary demands were approved by Democrats who could not ideologically accept most of them.

Maybe you think you haven’t felt any direct effects of the stalemate. But maybe you just didn’t realize that our state’s declining economic well-being of late is related to the inability of our Statehouse leaders to get their acts together.

“We believe Illinois’ distressed fiscal condition and dysfunctional budget politics now threaten to erode the state’s long-term economic growth prospects,” S&P wrote.

The agency claimed residents and businesses had already begun to “vote with their feet” to flee the state’s governing disaster.

“(W)e have viewed the ability in the U.S. of residents to migrate easily from state to state as providing an implicit check on gross mismanagement. The recent outmigration pattern seen in the Census Bureau data suggests this phenomenon may have begun to assert itself in Illinois to the detriment of the state’s economic outlook.”

In other words, lots of people are leaving Illinois because the government is so screwed up, and that’s making our economic situation even worse, which will, of course, worsen our government’s fiscal problems.

With S&P blaming the governor so directly, it should be no surprise that some Democrats and labor union leaders still don’t want to negotiate with Rauner. But here are a few scary numbers for those who insist that the governor shouldn’t be given any political “wins” by acceding to some of his demands for non-budgetary items.

Let’s start with $27.7 billion, the official projection of the state’s unpaid bill backlog for June 30, 2019, the end of fiscal year 2019. The Governor’s Office of Management and Budget projects the backlog will rise about $7 billion a year. So, by January of 2019, when the next governor is sworn into office halfway through that fiscal year, the backlog will be about $24 billion.

Because so many state vendors, particularly social service providers, aren’t being paid on time, the Senate’s grand bargain includes borrowing $7 billion to pay off many of the state’s overdue bills. The plan budgets a billion dollars a year to make the bond payments.

So, a similar plan to pay off vendors by whoever wins the 2018 governor’s race would have to borrow at least three times that amount, pushing the bond payments to over $3 billion per year. That’s equal to about a percentage point increase in the personal income tax rate — just to make the bond payments. It’ll also cost a lot more to equalize state spending with revenues by then, particularly if the economy tanks into a recession, when revenues fall and spending pressures rise.

But even that prediction is optimistic because it assumes financial institutions will actually loan Illinois that kind of money, which, by then, would equal 81.5 percent of total projected revenues. Or, if they do, the interest rates will be usurious because the state’s credit rating will almost definitely be in junk bond territory by then. Can you imagine how high the tax hike will have to go if Illinois can’t get a loan to pay off those vendors, or has to shell out for payday loan-level interest rates?

If a Democrat does defeat Rauner, he or she probably wouldn’t be re-elected because the first thing that new governor will have to do is jack those tax rates up to unheard-of levels.

Food for thought.

The full S&P report is here.

* Related…

* Ahead of Budget Address, Financial Monitors Say They’re Watching: Gabe Petek monitors state finances for S&P Global Ratings. He says he’s not aware of any other state having gone this long without a spending plan. “I think it’s important to recognize that Illinois has separated itself from the state sector, and not in a good way.”

* Crain’s Editorial: For Illinois, there’s only one way out of ‘fiscal quicksand’

* Hinz: Civic Federation sides against Rauner in fiscal plan: Illinois needs a new budget immediately, without conditions about structural change elsewhere in state government. That’s the bottom line of a report out today from the Civic Federation that calls for tax hikes, spending limits and maybe a constitutional amendment to limit pensions, but effectively would defer Gov. Bruce Rauner’s demand for union-weakening moves, term limits and other changes he wants as part of the deal.

posted by Rich Miller
Tuesday, Feb 14, 17 @ 10:47 am

Comments

So true.

Comment by A guy Tuesday, Feb 14, 17 @ 11:05 am
>If a Democrat does defeat Rauner, he or she probably wouldn’t be re-elected because the first thing that new governor will have to do is jack those tax rates up to unheard-of levels.

Not necessarily. He or she could also keep destroying the state economy by refusing to pass a budget. It seems to work for this governor, so long as he can control the messaging. /s

Comment by Earnest Tuesday, Feb 14, 17 @ 11:13 am
I truly believe we’ve crossed the point of no return.

What is there to make me believe otherwise?

Comment by Honeybear Tuesday, Feb 14, 17 @ 11:22 am
I agree with Greg Hinz in part. The Civic Fed report which Rich covered, does just eliminate most of Rauner’s turnaround agenda. But it also eliminates any unrealizable school funding reform plan. What it recognizes is that the State of Illinois has to implement very significant austerity measures and a big tax increase just to keep the state functioning. Neither the Republicans nor the Democrats have gotten to that sense of reality as yet.

Comment by Rod Tuesday, Feb 14, 17 @ 11:27 am
Geez, Rich, I didn’t find that column entertaining at all.

Numbers, programs, independent analysis, consequences — what kind of “budget” story is that? Where’s the simple-minded and contrived ideological conflict, the lame and phony drama?

Why can’t you be like the rest of Illinois media, and just portray it all as the “Mike and Bruce Don’t Like Each Other” reality show? People love reality shows.

You know, if all media stopped phoning it in and got bogged down in numbers and real-world consequences and such, people might get sick of this show.

Comment by wordslinger Tuesday, Feb 14, 17 @ 11:29 am
Point of no return…If not already then definitely by next election? I still wonder if State bankruptcy courtesy of our new Washington Dear Leader is the fall back plan ?

Comment by Anotheretiree Tuesday, Feb 14, 17 @ 11:29 am
I think only a mass movement or crisis will inspire action. Rauner sunk the state’s already precarious finances without much cost to him.

The Dems did a horrible thing, twice, by agreeing to fund k to 12 schools independently of a larger state budget. Then the court ordered that state workers keep getting paid.

Thus, all the brunt of the damage was borne by universities and social services… and Rauner already wanted to eviscerate them and expected few votes from people connected to them.

If the state shut down or K to 12 schools were denied funding the problem would never have gotten this bad.

Shame on Rauner for sinking the ship and shame on the Dems for being lousy tacticians in the budget battle.

Comment by Reluctantly Living in ILL Tuesday, Feb 14, 17 @ 11:30 am
We stand at the precipice and the governor is walking with a blindfold. It’s been 764 days without a balanced budget proposal. Cmon Bruce - time to put on the big boy pants.

Comment by Chicago Cynic Tuesday, Feb 14, 17 @ 11:32 am
@Honeybear

California was in worse shape than this and they were able to turn it around. It’s just going to take a group of people who are concerned with governing. It will be republicans and democrats who actually take their oaths of office seriously and want to make Illinois a better place regardless of their meaningless ideology that only divides us. You know… like Jim Edgar and Mike Madigan… Not snark. It happened.

Comment by Ducky LaMoore Tuesday, Feb 14, 17 @ 11:33 am
Recent reports continue to confirm total incomes in IL remain much larger than border states, median income is higher and the S&P report concludes with very tentative talk about migration ….
“Outmigration As Residents Vote With Their Feet

The recent outmigration pattern seen in the Census Bureau data suggests this phenomenon may have begun to assert itself in Illinois to the detriment of the state’s economic outlook.”

Time to get to real research

Comment by Annonin' Tuesday, Feb 14, 17 @ 11:33 am
== California was in worse shape than this and they were able to turn it around. ==

California also had the ability / luxury to reduce existing pensions, something Illinois does not have. Their pension protection is not as strong as Illinois.

But Illinois does have the ability to raise taxes like California, and some limited ability to cut costs at the state level. The problem is most the state level cost cutting is nothing more than shifting costs to local governments.

Comment by RNUG Tuesday, Feb 14, 17 @ 11:45 am
=I still wonder if State bankruptcy courtesy of our new Washington Dear Leader is the fall back plan ? =

That’s my big fear. Then good-bye to pensions. Sounds like a Rauner plan feature, not a bug.

Comment by MSIX Tuesday, Feb 14, 17 @ 11:55 am
I hope the courts stop the State from spending without an appropriation. That will bring the players to heel.

I am not sure you can get the data to confirm the following hypothesis. I think Illinois has been losing U.S. citizens for some time. Their emigration has been disguised by immigration by non-citizens. That immigration has slowed.

Comment by Last Bull Moose Tuesday, Feb 14, 17 @ 12:07 pm
“The dire consequences of continued inaction ”

Each minute that passes another $2,300 is added to the pile of unpaid medical claims.

Comment by CapnCrunch Tuesday, Feb 14, 17 @ 12:12 pm
Sounds like S & P is fronting for bond underwriters who don’t want to lose the opportunity to clip Illinois a few more times.

Comment by Cook County Commoner Tuesday, Feb 14, 17 @ 12:30 pm
Both S&P and Moodys, as inept at predicting the bond future as a weatherman is to the future of climate change, remind us that spending cuts have to be a huge part of the solution

Comment by blue dog dem Tuesday, Feb 14, 17 @ 12:44 pm
Rauner’s bankruptcy as the only option plan is right on track…

Comment by Liberty Tuesday, Feb 14, 17 @ 12:50 pm
Liberty. I am starting to think that a large portion of Illinois thinks bankruptcy is the only answer. Most are confused at how difficult that is,.because in the private sector it semms commonplace.

Comment by blue dog dem Tuesday, Feb 14, 17 @ 1:09 pm
== I am starting to think that a large portion of Illinois thinks bankruptcy is the only answer. Most are confused at how difficult that is ===

And, in the few examples we have, the retirees have come out mostly whole while the bond holders and other debtors took a haircut.

Plus Illinois would be a really unique situation (like NY and AZ) with the pension clause. Not saying it would protect them in federal bankruptcy, but it would be one more consideration that a judge normally doesn’t have to consider.

Comment by RNUG Tuesday, Feb 14, 17 @ 1:44 pm
The idea that a state fiscal emergency could trump the Pension Clause, in a dire exigency, remains plausible in a worst-case scenario. If the IL Supreme Court won’t agree, we may need to get ourselves a new Supreme Court.

Comment by ZC Tuesday, Feb 14, 17 @ 3:45 pm
== The idea that a state fiscal emergency could trump the Pension Clause, in a dire exigency, remains plausible in a worst-case scenario. ==

To paraphrase, in the SB-1 decision, the IL SC has already said a self-created fiscsl mess does not qualify as a reason to override the Pension Clause … especially since the dangers were well known and the State has lots of actions that can still be taken beyond default.

Comment by RNUG Tuesday, Feb 14, 17 @ 5:04 pm
Ducky, Interesting you should bring up CA. What is the common element? Donna Arduin. California started down this path with Arnold and Donna. But the thing is that Arnold quickly came to his senses and jettisoned Darth Arduin. Rauner is totally destroying the Jedi Temple here in the name of her sith powers. Sorry, I’m a geek. But anyway, CA abandoned her ways of destruction. Arnold had a heart. Rauner does not. He’s fine with the destruction. He embraces it.

Comment by Honeybear Tuesday, Feb 14, 17 @ 5:55 pm
===S&P analysts wrote, then immediately added, “As we see it, the governor interpreted his election in 2014 as a mandate to pursue various institutional changes that the legislature has steadfastly opposed.”===

One could also argue that the citizenry of IL also wanted “institutional changes” despite what half-AFSCME, Madigan and others think.

Comment by Anonymous Tuesday, Feb 14, 17 @ 9:41 pm
== One could also argue that the citizenry of IL also wanted “institutional changes” despite what half-AFSCME, Madigan and others think. ==

More likely, the citizens were unhappy with Quinn’s perceived incompetence in fiscal matters and voted for a person they THOUGHT was fiscally competent.

The voters got fooled; instead they ended up with a bankruptcy / bust-out con man.

Comment by RNUG Tuesday, Feb 14, 17 @ 11:59 pm
RNUG. That was me. Just once can we get a real fiscsal conservative

Comment by blue dog dem Wednesday, Feb 15, 17 @ 2:28 am
The heartless salesman lost his soul long ago

Comment by Rabid Wednesday, Feb 15, 17 @ 6:11 am
== Just once can we get a real fiscsal conservative ==

- blue dog dem - , that would be nice. But unfortunately, the closest we’ve come recently was actually Pat Quinn. And he sufferred the same fate as Olgivie.

Comment by RNUG Wednesday, Feb 15, 17 @ 8:31 am
Word. Close. But didnt do enough to cut spending..In hindsight, he did try to pay bills

Comment by Blue dog dem Wednesday, Feb 15, 17 @ 8:35 am