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Budget hype and budget facts

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Illinois

As of last week, Gov. Bruce Rauner, House Speaker Michael Madigan and Senate President John Cullerton couldn’t even agree on how much money is available to spend in the state’s upcoming budget year. They’re currently fighting about the starting point.

I asked Indiana officials if they argue over revenue projections. They didn’t quite understand the question because, well, no they don’t squabble. State leaders from both parties spend a few weeks looking at forecasts and seeking outside advice. Then they come to an agreement on how much money is available to spend in the next budget cycle. Weird, right?

* The Civic Federation a few days later…

Going into FY2019, revenue forecasts by the executive and legislative branches are $99 million apart—less than 0.3% of expected revenues and among the closest they have been in recent years.

So, it turns out that the revenue estimates started out very close. I mean, 0.3 percent is basically a rounding error on a rounding error. And, pre-Rauner, state leaders from both parties in Illinois also routinely spent “a few weeks looking at forecasts and seeking outside advice.”

Also, the budgeteers began meeting last week shortly after the governor requested sit-downs. So this can’t be classified as a “fight” by any measure. Indeed, it’s the most cooperation we’ve seen since Gov. Rauner was sworn into office. If all goes smoothly, they’ll figure out a revenue projection soon and then start hammering out spending details. And remember that Rauner isn’t making any off-topic demands for this budget. No “right to work,” no 5-year property tax freeze, no nothing. Just a full-year budget with agreed-upon revenue estimates.

* Back to that Tribune column…

Of course Indiana pays its bills on time — that means within 35 days — unlike the deadbeat Land of Lincoln, where extreme late payments and costly interest penalties are the norm. We’ve accepted that too.

Um, which newspaper enthusiastically argued for more than two years on behalf of the impasse? Which newspaper to this day continues to editorialize against the 2011 Democratic tax hike which allowed the state to bring its bill payment cycle down to 30 days? And which newspaper continues to rail against the bipartisan 2017 tax hike which will allow the state to get a handle on its latest mountain of unpaid bills?

* News-Gazette…

Research organization Wirepoints recently examined the state’s debts and the state’s taxpayers and concluded that there are not enough “millionaires and billionaires” to raise the revenue to meet Pritzker’s twin goals.

State debts, according to Wirepoints, include total unfunded pension liabilities of $250 billion, another $56 billion in unfunded health care obligations for state workers, roughly $11.7 billion in debts from ongoing state budget deficits and, finally, plans to spend $3.5 billion in additional K-12 support over the next 10 years.

The analysis pretty much assumes that only higher income taxpayers will pay for every single dime of pensions, health care, bill backlogs and K-12 support going forward - as if current taxpayers no longer exist. It’s a pretty weak argument against a progressive income tax.

posted by Rich Miller
Monday, Apr 23, 18 @ 10:13 am

Comments

There are no strong arguments agaisnt a progressive income tax. The same folks who argue the rich will flee are the ones who claim pensioners won’t if taxed.

Comment by wondering Monday, Apr 23, 18 @ 10:23 am
“There are no successful arguments against a progressive income tax”

Especially if they are blocked

How about the argument that a more progressive income tax has actually made the budget situation worse in other states with a budget crisis like Connecticut.

Chasing out successful businesses like GE and millionaires out of your state is not the way to grow the tax base and convince companies to move or expand in your state. Past is prologue.

Comment by Lucky Pierre Monday, Apr 23, 18 @ 10:28 am
Rauner’s in Europe tryin’ to drum up business for Illinois and the Trib is runnin’ the Illinois is terrible narrative. Very BTIA-like. Keystone Cops.

Comment by Grandson of Man Monday, Apr 23, 18 @ 10:36 am
It doesn’t help when you have the IL GOP via Jim Durkin spreading the falsehood that “none” of the new tax hike revenues are used to pay down the bills.

Comment by Deadbeat Conservative Monday, Apr 23, 18 @ 10:40 am
“pretty weak” such an understatement

Comment by Annonin' Monday, Apr 23, 18 @ 10:41 am
a more progressive income tax has actually made the budget situation worse in other states with a budget crisis like Connecticut.

Chasing out successful businesses like GE and millionaires out of your state is not the way to grow the tax base and convince companies to move or expand in your state.

UBS left Connecticut and moved to… Manhattan.

GE left Connecticut and moved to… Boston.

“Leaving Connecticut because of the high taxes and relocating to Boston is like leaving Connecticut because of the cold winters and moving to… well, Boston.”
https://www.theatlantic.com/business/archive/2017/07/connecticut-tax-inequality-cities/532623/

– MrJM

Comment by @misterjayem Monday, Apr 23, 18 @ 10:46 am
Wirepoints…formerly with IPI. I don’t know where they get their figures but you had the Cogfa report last week and it was 130 billion for pensions not 250. Also one years income of those over 250000 is 100 billion. One year. This is nothing that needs to be paid in one year.

Comment by Not a Billionaire Monday, Apr 23, 18 @ 10:49 am
It’s a pretty weak argument against a progressive income tax.

Mark Glennon is pretty much a one trick pony when it comes to solving this problem. He shows no respect for public employees and wants to renege on pension promises. A progressive tax greatly increases the odds that his “the sky is falling” narrative is proven wrong.

I agree with his assessment that we have a large pension problem and need to do something about it, but the State welshing on this promise is not the answer.

Comment by Ole' Nelson Monday, Apr 23, 18 @ 10:51 am
Can we please stop pretending that Mark Glennon and Wirepoints are anything other than right-wing, IPI-style distorters of information? Why did they suddenly get any respectability?

Comment by Chicago Cynic Monday, Apr 23, 18 @ 10:51 am
==The analysis pretty much assumes that only higher income taxpayers will pay for every single dime of pensions, health care, bill backlogs and K-12 support going forward==

Isn’t that how the progressive income tax is being sold? You need extra money beyond what is currently being collected to make a significant dent in any of those items. If you raise taxes on only the rich folks, are there enough rich folks to pay for all of it. At least that’s how I interpreted the exercise.

Until JB does that math himself on his tax plan, others will continue to do it for him.

Comment by City Zen Monday, Apr 23, 18 @ 10:54 am
An editorial citing an article from a “research organization” I’ve never heard of citing an IPI article citing Moody’s research. This editorial is like 4 degrees away from any actual information.

Also, it’s easy to say it’s a big problem when you use Moody’s ANPL rather than the UAAL. It’s bizarre that they leave out the actual debt the state has - its bonded debt. So we pay off the pension liability, healthcare liability, backlogged bills, and what…ignore our bonds? If you’re going to inflate the pension liability by $120 billion, but forget $35 billion in outstanding bonds, I’m not going to trust your math.

Comment by ImNotTaylorSwift Monday, Apr 23, 18 @ 10:55 am
–As of last week, Gov. Bruce Rauner, House Speaker Michael Madigan and Senate President John Cullerton couldn’t even agree on how much money is available to spend in the state’s upcoming budget year. They’re currently fighting about the starting point.–

That’s a ridiculous statement. A difference of .3% is agreement. It’s literally 97.7% in agreement.

They don’t even bother to try to edit Kass and Katrina for logic or facts. Luckily for them, they are beyond embarrassment.

Comment by wordslinger Monday, Apr 23, 18 @ 11:01 am
Where does the $56 billion unfunded Group Health insurance come from? That number didn’t have a link. That backlog was around $5 billion before most of it was paid off last November, but I think it’s under $2 now.

Comment by Perrid Monday, Apr 23, 18 @ 11:05 am
“The specter of corporate relocations are a key reason why Connecticut still doesn’t have a budget four months into its fiscal year. Facing a two-year deficit of $3.5 billion, Democrats are hesitant to raise taxes, as Governor Dannel Malloy did in 2011 and 2015, out of concern it will only hasten the exodus. As a result, the state’s fiscal problems are likely to ripple downhill, with Malloy poised to cut almost $1 billion from local aid if a budget isn’t enacted.”

More than 30 percent of Connecticut’s budget goes to debt service, pension payments and retiree health-care, all of which will linger for decades, Brennan said.

“It just makes it more difficult for businesses to have confidence in Connecticut,” he said.

Sounds a bit like Illinois don’t you think? Connecticut like Illinois has had an extremely weak recovery from the great recession and raising taxes twice did not solve their problems.

Sane blue states like Massachusetts has a flat 5.15% income tax and can pass common sense reforms like workers comp that are impossible in Illinois

https://www.bloomberg.com/news/articles/2017-10-17/specter-of-corporate-exodus-leaves-connecticut-budget-in-crisis

Comment by Lucky Pierre Monday, Apr 23, 18 @ 11:08 am
===Sane blue states like Massachusetts has a flat 5.15% income tax===

And yet, you opposed a 4.95 percent flat rate here.

Comment by Rich Miller Monday, Apr 23, 18 @ 11:11 am
I have to wonder, City Zen, how will the continuance of the flat tax solve our problems? Sell me

Comment by wondering Monday, Apr 23, 18 @ 11:12 am
If a progressive income tax must be enacted then so-be-it (we need more money!) but make sure it also applies to retirement income. Most states collect taxes on retirees since they are using the same infrastructure as everyone else. Expanding the tax base like that will pull lots more money. Just watch out for angry old people.

Comment by maximus Monday, Apr 23, 18 @ 11:20 am
==That backlog was around $5 billion before most of it was paid off last November, but I think it’s under $2 now.==

But who’s paying off the general obligation bond that was used to pay a portion of the backlog? Debt is debt.

Comment by City Zen Monday, Apr 23, 18 @ 11:29 am
I opposed the budget with the permanent tax increase because it did not contain any of the reforms popular with bipartisan majorities

The Governor also said he would raise revenue with reform because he does not believe just raising taxes will fix Illinois

That has clearly not worked in Connecticut, why would Illinois be different?

Comment by Lucky Pierre Monday, Apr 23, 18 @ 11:33 am
===I opposed the budget with the permanent tax increase because it did not contain any of the reforms popular with bipartisan majorities===

What are you hooting?

“I’m frustrated too but taking steps to reform Illinois is more important then a short term budget stalemate.”?

lol

How’d that go?

Comment by Oswego Willy Monday, Apr 23, 18 @ 11:37 am
==Where does the $56 billion unfunded Group Health insurance come from?==

Pew Charitable Trust: http://www.pewtrusts.org/~/media/assets/2017/09/opeb-liablitly-brief_v5.pdf

Comment by City Zen Monday, Apr 23, 18 @ 11:44 am
==If a progressive income tax must be enacted then so-be-it (we need more money!) but make sure it also applies to retirement income.==

You might (or might not) be surprised how non-progressive so-called progressive folks are on this topic.

Comment by City Zen Monday, Apr 23, 18 @ 11:49 am
== Wirepoints…formerly with IPI. I don’t know where they get their figures but you had the Cogfa report last week and it was 130 billion for pensions not 250. ==

They add in all the county / city / township / local pensions that are owed to get a bigger, scarier number … even though that other $120B is not State debt.

Comment by RNUG Monday, Apr 23, 18 @ 12:06 pm
== Where does the $56 billion unfunded Group Health insurance come from? ==

Short answer … It is the estimated future liability for (primarily) SERS retirees who meet the “20 year” rule and qualify for the premium free health insurance upon retirement.

Comment by RNUG Monday, Apr 23, 18 @ 12:13 pm
== I don’t know where they get their figures but you had the Cogfa report last week and it was 130 billion for pensions not 250.==

“The state’s unfunded pension liabilities, which we estimate at $251 billion for the fiscal year ended June 30, 2016…” Moody’s said in a release.

Comment by City Zen Monday, Apr 23, 18 @ 12:31 pm
=You might (or might not) be surprised how non-progressive so-called progressive folks are on this topic.=

Other than politics there is no reason retirement income over a certain amount should not be taxed. But the reason we are in this predicament is the reason that will not happen and that is the ILGA and the Governors’ refusal to govern responsibly for the last century.

Comment by JS Mill Monday, Apr 23, 18 @ 12:40 pm
No need fo term limits then? Why will the next 40 years be different than the past?

The same leaders elected since the 1970’s, who voted for all the spending and unbalanced budgets and refuse to work to solve the problems now blame all the crisis on the Governor for the past three years.

Comment by Lucky Pierre Monday, Apr 23, 18 @ 12:50 pm
==Other than politics there is no reason retirement income over a certain amount should not be taxed.==

Another qualifier with taxing retirement income. If your pension is $80K, you should pay the same amount in taxes as the working guy making $80K. If your retirement income is near poverty level, then you should be subject to the same tax credits the working guy near poverty level gets.

That said, a progressive plan to tax retirement income could include an exemption that zeroes out. For example, the first $25K in retirement income is tax free, but for every dollar over $25K, you lose an exemption dollar. So at $50K, you’re paying full tax on retirement income, just like the working guy.

A truly progressive tax plan, which means it’ll never fly.

Comment by City Zen Monday, Apr 23, 18 @ 12:53 pm
===The same leaders elected since the 1970’s===

Mike Madigan.

That’s the list of “officials” from the 1970s?

Rauner is 30+ points under water with a 26% approval WITH “Because Madigan”

It’s not working.

Comment by Oswego Willy Monday, Apr 23, 18 @ 12:56 pm
How do term limits affect the state’s financial condition Lucky? It doesn’t

And your continued insistence that the governor shouldn’t be blamed for anything is beyond laughable. It’s trolling at its finest

Comment by Demoralized Monday, Apr 23, 18 @ 12:58 pm
Can we please stop wasting oxygen talking about taxing retirement? It isn’t happening. Stop talking about it already.

Comment by Demoralized Monday, Apr 23, 18 @ 1:00 pm
If we are going to stop talking about taxing retirement income then lets stop talking about a progressive income tax. IL constitution prevents it anyways so this whole thread can just dissapear because we have to stop talking about it, right??

Comment by maximus Monday, Apr 23, 18 @ 1:06 pm
RNUG, no, the $250 billion unfunded liability is for the five state pensions only. That’s Moody’s number, which I said expressly in the article. https://m.moodys.com/Research.html?docid=PR_904021452 It has been widely cited elsewhere. Had I included local pensions the numbers would have looked still more insurmountable. As for the other comments here, use your own numbers and apply some common sense. There are under 5M households in IL. If you are going to raise taxes on only the top 6% or 10% and give a cut to others (as most Dems have discussed insofar as they get specific), that means there are under 500K people to stick it to. How much more can you ask from them before their departure rate accelerates? I think a progressive tax could raise $2 or 3M — initially, which doesn’t help much, and it would probably backfire in the longer run because of further flight.

Comment by Mark Glennon Monday, Apr 23, 18 @ 1:06 pm
One is possible but difficult . The other isn’t happening. If you don’t understand those realities then I can’t help you

Comment by Demoralized Monday, Apr 23, 18 @ 1:14 pm
Yes by all means lets not tax the wealthy retirees whose generation has taken AAA credit rating and passed the worst state credit rating in the nation on to the next generations through a combination of overspending and undertaxing.

Seniors more than any other demographic vote after all and legislators might lose their jobs.

Comment by Lucky Pierre Monday, Apr 23, 18 @ 1:22 pm
= I have to wonder, City Zen, how will the continuance of the flat tax solve our problems?=
If a majority of the economy (service) wasn’t tax exempt, then the flat tax would be fine.
The threat that people will haul their yachts to Indiana for servicing or move to another state to have wealth managment services exempted fails. Indiana taxes services like most other states.

No wonder we’ve had to borrow from our employees for decades and now our vendors, we have an exceptionally narrow tax base.

Comment by Deadbeat Conservative Monday, Apr 23, 18 @ 1:25 pm
Demoralized,
Just because you declare “The other isn’t happening” doesnt make it so. When the money issues become desperate enough anything is possible. The progressive income tax will fail to pull enough money to make Illinois solvent at which point the next step would be taxing retirement income. The majority of other states do it so why is it so impossible again?

Comment by maximus Monday, Apr 23, 18 @ 1:33 pm
I don’t get Moody’s number. COGFA has the latest combined underfunded number at $214,478. http://cgfa.ilga.gov/Upload/FinConditionILStateRetirementSysMar2018.pdf

Comment by Anonymous Monday, Apr 23, 18 @ 2:48 pm
Sorry, that’s $214.478, with a B.

Comment by 37B Monday, Apr 23, 18 @ 2:57 pm
Maximus, you do know that the majority of states have a progressive income tax, right? So, follow the majority and go progressive? You prove my earlier point.

Comment by wondering Monday, Apr 23, 18 @ 2:57 pm
Wondering,
You are correct and I agree. We should do a progressive income tax and tax retirement income at which point the increase in revenue might allow for a balanced budget for the first time in 20 years.

It also may accelerate out-migration from the state but the politicians arent too concerned about that.

Comment by Maximus Monday, Apr 23, 18 @ 3:04 pm
==I don’t get Moody’s number.==

Moody’s uses a lower discount rate.

Comment by City Zen Monday, Apr 23, 18 @ 3:18 pm
Moody’s estimates higher unfunded liabilities because Moody’s believes that the pension funds won’t generate investment returns as fat as pension boards project.
As Mayor Michael Bloomberg scoffed when his city’s chief actuary proposed lowering the assumed rate of return for NYC pension funds to 7 percent from 8 percent:
“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent. If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”

Comment by Moody's Blues Monday, Apr 23, 18 @ 3:34 pm
Wow, I am having a bad day. The $214B is an accrued liability number, not an unfunded number and it’s on page 30 of the report. If I find any further errors in my posts I’m just going to ignore them.

Comment by 37B Monday, Apr 23, 18 @ 3:46 pm
Mark Glennon, I wouldn’t address RNUG in that tone. He’s the best person at pension numbers that I’ve ever known. He knows his stuff and proved it time and again. RNUG thank you for keeping up with this complex stuff. Front rankers like me really rely on you.

Comment by Honeybear Monday, Apr 23, 18 @ 4:51 pm
I have to laugh about how well Indiana is doing…they’ve stopped supplying school buses for children in many areas, their schools have been ripped apart by Pence’s policies (money going to private charter schools, which are doing no better, if not worse than public schools), because of the right to work crap, many people have ended up on SNAP/Medicaid cuz they can’t find jobs that will allow them NOT to be on government programs…cuz jobs don’t need no steenkin’ health plans…but we’re saying we’re the deadbeats????

Comment by Union Thug Gramma Monday, Apr 23, 18 @ 5:58 pm
2017 annual reports except TRS which is more current.

All figures are net, ie, total liabilities minus total assets. In other words, the unfunded liability.

Numbers are rounded and in Billions.

I went though the numbers pretty fast and took the net positions from the summary pages. I made no judgement about the various assumptions used by the pension funds.

SERS - $32.9
GARS - $0.3
JRS - $1.7
SURS - $25.3
TRS - $73.4

Total $133.6 net liability … more or less as of July 1, 2017 (TRS January 1, 2018)
—-

Estimating total liability depends on the various assumptions made by the person(s) doing the projections. Honest people can reach vastly different answers with only minor changes to the assumptions.

Comment by RNUG Monday, Apr 23, 18 @ 6:28 pm