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Batinick floats borrowing idea

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Illinois

* As we saw (again) yesterday, with his vow not to vote for “non-essential” legislation until there’s a balanced budget, Rep. Mark Batinick can be a bit of a grandstander (although he did follow through and voted “Present” yesterday on a bill that he co-sponsored). But he also has some decent ideas. Check out this one…

Anyone following the Illinois budget impasse knows that our pile of unpaid bills is growing; up to $12.9 Billion and counting. This creates added pressure on the state because those bills will eventually have to be paid. In the meantime, we are paying 12% interest on many of those bills. That’s a big amount. We are literally incurring hundreds of millions of dollars of late payment penalties. That is money that doesn’t help balance the budget, fund social services, higher ed, or any of the other things state government does. There is a way to pay off most of our debt, eliminate late fees, and significantly increase state revenue all without raising taxes. Here’s how:

First let me be clear – I don’t like debt. I don’t support unnecessarily increasing it. Yet all debt is not the same. If you have it, it needs to be managed the best way feasible. Right now Illinois has a lot of it. Some of it needs to be consolidated. That consolidation can free up a lot of money.

Our unpaid bills are essentially debt. We also have other debt taken out during the Blagojevich regime and during the last capitol bill. Some of that debt is about to be paid off. Our bond payments drop from $2.418 Billion in FY 2018 to $2.091 Billion in FY19 then $1.536 Billion in FY 2020. If the difference of those debt payments (roughly $1.5 Billion) was essentially consolidated on a 10 year note with the bulk of the unpaid bills we can essentially use the same line item to make the new consolidated loan payment. Because the debt can’t be called early, the logistics would be slightly different, but the effect would be the same. Use the line item for the old debt in 2018 to make the new consolidated loan payment.

Paying off our unpaid bills helps close the budget shortfall in many ways. First, we will stop paying hundreds of millions in late fees. Second, injecting nearly $10B into the economy paying money we owe to vendors and medical providers in the state will have a massive effect on revenues. All of the people and companies will now see gains that have been deferred. Income tax revenue should also increase by hundreds of millions. Third, much of the money we owe is for Medicaid payments. Those Medicaid payments come with a federal match. Our federal source of revenue could increase by as much as $1.5 Billion!

Now there are a couple of things that should be done before bonding out our back bills. First, we need to balance the rest of the budget. Freeing up $2B helps significantly, but there is still more work to be done. Plus, having a true balanced budget plan also should help us get a better rate on any bonds we do get. Second, we need to place a constitutional amendment referendum on the 2018 General Election ballot strengthening the balanced budget clause. Illinois voters should be given the opportunity to hold legislators accountable to follow the state constitution and pass a balanced budget every year so this never happens again.

Thoughts?

posted by Rich Miller
Tuesday, Apr 25, 17 @ 10:57 am

Comments

He definitely has a point about consolidation.

However:

“Second, we need to place a constitutional amendment referendum on the 2018 General Election ballot strengthening the balanced budget clause.”

Specifics? “Strengthen” in what way?

“Illinois voters should be given the opportunity to hold legislators accountable to follow the state constitution . . .”

Again, specifics? State what is meant by “hold legislators accountable”. (Of course, we can do that now - it’s called “voting”.)

Comment by JoanP Tuesday, Apr 25, 17 @ 11:04 am
“hundreds of millions in late fees” really says a lot, doesn’t it?

Comment by JPC Tuesday, Apr 25, 17 @ 11:18 am
Maybe Gov. Rauner can talk to his old friend Barry Saacks, and have him agree to assume all of the debt from the State? After all, he got him to do it for him with the nursing home. /s

Comment by How Ironic Tuesday, Apr 25, 17 @ 11:19 am
This guy is really like a mad scientist. Half the time what he presents is otherworldly ingenious. The other half is what you need to abide to get to the really amazing stuff. This is a good idea.

Comment by A guy Tuesday, Apr 25, 17 @ 11:20 am
This is a good idea but it has some consequences, namely the need to cut spending to prevent future backlogs. It is like declaring bankruptcy - once you do that you can’t get use a credit card for seven years. Does the state have that discipline ?

Comment by Texas Red Tuesday, Apr 25, 17 @ 11:23 am
Certainly not money person, but sounds like a good idea. Don’t know if we need another con amendment (other than graduated income tax), but the rest of it sounds doable. What do money people think?

Comment by downstate commissioner Tuesday, Apr 25, 17 @ 11:25 am
re-organizing debt is not a new idea, not sure any particular person deserves any credit for it. kudos certainly worthy, though, if anyone actually ever makes something positive happen…

Comment by anon Tuesday, Apr 25, 17 @ 11:26 am
On one hand, refinancing debt at a lower interest rate is always a good move.

However, this will just take the pressure off Rauner to come up with a budget. This debt is because Rauner has failed in his duties as Governor and should not be kicked down the road.

Comment by A Jack Tuesday, Apr 25, 17 @ 11:26 am
Hmmm. Wasn’t that the original plan with the Quinn tax hike; dedicate a portion of the increase to finance borrowing at historically low rates to pay off the bill backlog carrying the Prompt Payment Act rates? Repubs would not go along with the “increased borrowing” then. Are they ready now?

Comment by 37B Tuesday, Apr 25, 17 @ 11:33 am
Batinick is on the right track and his idea should be given significant attention.

The “collateral benefits” of IDOR windfall, better bond rates, and basic economic stimulus are worthy.

“…Constitutional amendment referendum on the 2018 General Election ballot strengthening the balanced budget clause. Illinois voters should be given the opportunity to hold legislators accountable” BE SURE the language includes the Governor too.

Comment by cdog Tuesday, Apr 25, 17 @ 11:42 am
Good luck on this..the pension
Debt should have been refinanced years ago

Comment by Foster brooks Tuesday, Apr 25, 17 @ 11:42 am
Converting soft debt to hard debt, such as bonding the bill backlog or pension obligation bonds (borrowing money to make the pension payments when borrowing costs are well below the expected long term rate of return on pension investments) is nothing new. The only new element here is usually the Republicans grandstand against it, this time a Republican is proposing it.

Comment by The Captain Tuesday, Apr 25, 17 @ 11:46 am
===the pension Debt should have been refinanced years ago===

This

Comment by PublicServant Tuesday, Apr 25, 17 @ 11:46 am
This was proposed years ago, at the time they said pensions were at about 8%, the bonds were at a couple percent. The Republicans shot down the idea. Now that Rauner’s non-budget has driven up the interest rate on bonds, they are proposing a similar plan. Their buddies in the bond markets are going to make a fortune!

Comment by DuPage Tuesday, Apr 25, 17 @ 12:17 pm
It was a good idea as proposed in 2011 when the state’s credit rating was higher, overall interest rates were lower and there was a dedicated portion of the income tax increase to pay the bonds.

Last I checked, it’s now 2017. So get on with it, already.

What’s the matter — need some more of that “focus” we’ve been hearing about?

Comment by wordslinger Tuesday, Apr 25, 17 @ 12:55 pm
Yes its a good idea. And hat tip to the commenters who point out that it was a prong of the first income tax increase that the Republicans refused to go along with. They screamed “NO BORROWING” ad nauseam. But we still managed to whittle down our debt significantly without it. All the while they screamed that the tax did nothing. Ralph Martire has been talking about refinancing pension and bill back log for years.

Its just amazing to me that a supposed fiscal conservative is in office who has EXPLODED the debt to damn near 14 billion in 2 years and the business community is silent.

If it were a Dem in office that would be gross fiscal mismanagement and corruption. Period.

Comment by Sideline Watcher Tuesday, Apr 25, 17 @ 1:00 pm
Not so fast on that IDOR windfall. The bill backlog reflects economic activity that’s already occured, often financed by debt or savings. If the repayment is used to pay off the associated debt or replace the savings, the economic impact will be small.

Comment by Philo Tuesday, Apr 25, 17 @ 1:22 pm
–The bill backlog reflects economic activity that’s already occured, often financed by debt or savings. If the repayment is used to pay off the associated debt or replace the savings, the economic impact will be small.–

LOL, the impact will be quite large on those who are owed the money for goods and services already delivered.

And it is their savings and their lines of credit that the state has been tapping.

Geez, the faux philosophizin’ that goes into justifyin’ bein’ a deadbeat.

Comment by wordslinger Tuesday, Apr 25, 17 @ 1:25 pm
This reminds me of one of those “new energy sources” they showcase on morning shows. It may seem like a fool proof idea, but if it was easy to do, someone would have done it.

Comment by BuckinIrish Tuesday, Apr 25, 17 @ 2:15 pm
–This reminds me of one of those “new energy sources” they showcase on morning shows. It may seem like a fool proof idea, but if it was easy to do, someone would have done it–

People, companies and governments all over the world refinance debt to get a lower interest rate all the time, if they have any brains.

Unfortunately, back in 2011 when it was first proposed, a two-thirds super-majority necessary in the GA could not comprehend the obvious benefits of refinancing debt at a lower rate.

Comment by wordslinger Tuesday, Apr 25, 17 @ 2:21 pm
I think the consolidation is a good idea. I am hard-pressed to believe that paying providers is going to have a major influx in state revenues though.

Comment by Boone's is back Tuesday, Apr 25, 17 @ 3:13 pm
I can’t find the vote. How did this guy vote on HB-40?

Comment by blue dog dem Tuesday, Apr 25, 17 @ 3:17 pm
What did 1980 people think of the 1980 Quinn? Go to http://www.lib.niu.edu and check out the Feb. 1980 edition of Illinois Issues. Money quotes “comes from Quincy” …

Comment by Smitty Irving Tuesday, Apr 25, 17 @ 3:55 pm
My thoughts are that the Republicans had the chance to borrow to pay off our backlog of unpaid bills when it was a mere $6 billion and they screamed bloody murder.

Suddenly, they are gonna put 40 GOP votes on a plan to borrow more than double that?

Don’t get me wrong, I think paying down the backlog of bills needs to be part of a fully funded budget. And borrowing IS the smartest way to pay it down.

But I do not see a tax increase passing under governor Rauner, which means you have to think about how you will pay of $18-$20 billion in unpaid bill, and that is gonna require a dedicated, new revenue source.

Comment by Juvenal Tuesday, Apr 25, 17 @ 4:05 pm
Man, at least he put some thought into it, ya know? I’ll read ANY well-thought-out proposal like this!

Comment by Ted Tuesday, Apr 25, 17 @ 5:47 pm
When Quinn wanted to refinance the debt, using many of the same arguments as Batnick, not a single GOP legislator was for it. Not that stops any of them from finding it a great idea now.

Comment by anon2 Tuesday, Apr 25, 17 @ 6:54 pm
Whoa, apparently this Batbrain fella views HB40 as essential legislation….unless a budget was passed and I missed it.

Comment by blue dog dem Tuesday, Apr 25, 17 @ 8:56 pm