Capitol Fax.com - Your Illinois News Radar

Stimulus, schmimulus

Posted in:

Illinois

* This is somewhat misleading…

Illinois could stand to gain a big piece of the stimulus pie - if Congress passes the approximately $800 billion spending package.

Illinois US Senator Dick Durbin says some money for school construction projects and discretionary spending has been cut back, but there are still plenty of dollars that could go to his home state.

DURBIN: If the state faces a $9 billion deficit as Comptroller (Dan) Hynes has indicated, I’m hoping that the stimulus package will infuse some $3 billion into the state, at a time to give the legislature and governor some relief, and I hope that over the next year or two, they can use that relief to put our state back on sound footing.

Durbin says Illinois stands to get around $2.5 billion for Medicaid with another $1 billion tagged for education programs.

First, the federal money will be doled out over two years.

Second, as I told subscribers this morning, the really big hit to the Illinois budget will come from a reported Senate elimination of a $25 billion US House-approved program that would’ve given states significant flexibility to deal directly with their own budget deficits, which are pretty darned high right now…

Illinois is hardly alone in its budget shortfall. Nationally, states are expecting an average shortfall equal to 17 percent of their operating budgets, but in Illinois it is 28 percent, said Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities in Washington, D.C.

Get that? 28 percent of our operating budget. Yeehaw.

The education money mentioned by Durbin is essentially a pass-through that goes straight to school districts. It’ll help take pressure off state budgeteers, but it won’t directly patch holes.

* Here’s another explanation of what the Senate “moderate” deal cut out of the original House plan…

The original House-Senate “State Fiscal Stabilization Fund” was set at $79 billion over two years. After a small rakeoff for territories and administration, it was divided roughly into $39 billion to the states (with a pass-through to school districts for unused funds) to restore prior state education cuts; a $15 billion “state incentives grant” program keyed to progress towards state education goals (presumably those set by No Child Left Behind); and then a $25 billion fund that could literally go to any state function, including education. This last flexible fund is basically general revenue sharing, though unlike the old Nixon-era program, it all goes to the states.

The amendment killed the flexible fund entirely; cut the “state incentive grant” fund in half (to $7.5 billion); and then left the remaining $31 billion in the fund distributed to offset state education cuts. So in the state fiscal stabilization section alone, the $40 billion cut everybody’s talking about involves $25 billion in flexible money and $15 billion in education funding.

posted by Rich Miller
Monday, Feb 9, 09 @ 2:57 pm

Comments

Explain to me again how bailing out years of irresponsible over-spending and **unconstitutional** budgets is stimulus? It won’t generate new spending, it simply stenches the bleeding from spending that’s already happened, good chunks of which no one knows where it went (like the $2 billion secret senate dem slush fund from the 07 budget which, despite FOIAs, has never been disclosed).

Comment by John Bambenek Monday, Feb 9, 09 @ 3:02 pm
I really detest the strategy of getting the Bum’s Rush or quick, make a panicky decision - they are almost always wrong and wasteful and achieve the opposite of what was intended publically. The states need the help Now and it has been clearly demonstrated. I oppose any stimulus until the states are stabilized, period!

Comment by A Citizen Monday, Feb 9, 09 @ 3:04 pm
That’s pretty easy to explain.

Most states are having huge budget problems. Unlike the feds, they cannot borrow longterm to patch those holes. So, they’re faced with monstrous cuts to employment, human services, education, etc. and/or tax hikes. Both of those choices would either be undesirable during a steep recession or possibly make the recession worse. Or both.

So, the idea was to help the states avoid those choices, even though the original plan would’ve helped with only about half the state deficits for this fiscal year.

States will spend the money from the feds almost right away. Without that influx, the money wouldn’t be spent, or it would be spent after tax hikes.

You’re just not looking at the overall picture here.

And the “secret SDem slush fund” you speak of was for a capital bill, I believe, which was never enacted.

Comment by Rich Miller Monday, Feb 9, 09 @ 3:07 pm
No, the slush fund was the member initiatives for that caucus. I suppose they could have been for capital projects, but it was never disclosed, only the lump sum amount.

And while I can’t speak too much about the other states, Illinois’ problem, while exacerbated by the economy, is purely a factor of continual unconstitutional overspending. When did it become the federal governments moral imperative to fund a state’s illegal and unconstitutional spending?

As for employment, for the last two weeks we’ve been hearing that illinois has one of the lowest per capita of state employees… Now all the sudden if there is any cuts they’ll suffer? Which is it?

I’d rather they cut the waste, institute a top to bottom forensic audit to see what the programs are, where the money is going, recommend elimination of deprecated programs, merge duplication and increase efficiency.

I’ve talked to several experts on the state budget… The thing is incomprehensible. The solution to that problem is not to throw the money down the rabbit hole to see what happens. We already know, they’ll spend 125% of whatever they get.

Comment by John Bambenek Monday, Feb 9, 09 @ 3:13 pm
BHO’s first trip up the Hill won’t remind anyone of FDR or LBJ.

It’s curious to me as to why he let the House take the lead on this. They gummed up the works with easy targets like STD testing and contraceptives access that could only be related to “stimulus” in the very broadest terms. That left their bill open to ridicule and trashing in the Senate.

You only get a first 100 days once. You should be ready to rock n’ roll on Day One.

Comment by wordslinger Monday, Feb 9, 09 @ 3:16 pm
===I’d rather they cut the waste===

You skipped our budget-cutting exercise last week, John. Please, don’t just say cut the waste. There will be cuts, but you’re gonna find $6-9 billion in waste?

Ain’t gonna happen.

Comment by Rich Miller Monday, Feb 9, 09 @ 3:22 pm
Considering the comments about “bloated” payrolls, the Quinn Administration might find a lot of waste by simply performing a Physical Warrant Delivery project. That’s where you actually hand the paycheck to the identity verified employee. If you can’t find them (ghosts) then remove them from the payroll! Direct deposit might make it a bit more work but it can be done. I recall that being done in DCFS many years ago - lots of ghosters and six or seven pay warrants going to the female director’s home in Chicago.

Comment by A Citizen Monday, Feb 9, 09 @ 3:22 pm
I’m not going to say this again: Your little pet projects won’t cut diddly in real terms.

Stick to the topic at hand, please.

Comment by Rich Miller Monday, Feb 9, 09 @ 3:23 pm
John, what’s your solution? Have most of the states cut services to the bone while simultaneously raising a litany of taxes to plug the budget deficits? Aid to states would definitely prevent either scenario from coming to fruition, or, in the case of IL, easing the pain of both a likely service cuts and tax increases.

No doubt IL needs to make some very tough choices in short order. That’s obvious and inevitable. But we’re talking about GOP senators and moderates on both sides that are going to see massive layoffs, service reductions, and tax increases in their home states.

Isn’t the point of stimulus to avoid these things? Haven’t the last several months shown definitively that all the tax breaks in the world will be allocated to household debt relief, and that any leftover spending would likely be on goods made overseas?

How much more evidence do you need?

Comment by The Doc Monday, Feb 9, 09 @ 3:28 pm
===I’m not going to say this again: Your little pet projects won’t cut diddly in real terms.===

Deep breaths, please

Comment by Johnny USA Monday, Feb 9, 09 @ 3:34 pm
The other way to look at the IL situation is that we’re in a post-war crisis. The leaders have been battling each other to the death for the past two years. Three of the five combatants are now gone (RRB, Jones, Watson) and the war appears to be over.

The problem is, the war (which some claim was fought for very good reason) destroyed government. And now we need help to pick up the pieces.

Extreme analogy, I know, but we’re in sorry shape and need a way out. Nobody I know of is asking that the feds patch all of Illinois’ budget holes. Cuts are imperative. But more is needed than this US Senate plan provides.

Comment by Rich Miller Monday, Feb 9, 09 @ 3:35 pm
Rich: Are you saying there is still 31 billion for education pass throughs?

Comment by SIUPROF Monday, Feb 9, 09 @ 3:37 pm
It’s about that, yes.

Comment by Rich Miller Monday, Feb 9, 09 @ 3:39 pm
And I’ll also make this perfectly clear one more time: Nobody, but nobody is saying that the US government ought to completely bail out Illinois, or any other state for that matter.

To argue that scenario is to argue dishonestly.

Comment by Rich Miller Monday, Feb 9, 09 @ 3:40 pm
I’m disgusted with the amount of spending being thrown at an economic situation we have experience in handling. We have not had a recession last more than 18 months since Roosevelt. This recession started a year ago. So, all this clamor over spending trillions we do not have in order to save us from some monster economic fall is ridiculous.

Yeah, things stink right now. GM and Chrysler are doomed to bankrupsy. Giving them billions right now is not the answer. Let them go belly-up and use money to cushion the blow. It would be cheaper and fairer to the other manufacturers. Auto prices will not fall to reflect their actual value as long as we use our neighbor’s money to keep costs artificially high. Doesn’t work with health care, doesn’t work for anything, really.

Stop the panic! We are watching newly elected politicians fall over one another panicking over their own political futures. A trillion? How long do you want to pay for this six-month fix? 40 years? Are you nuts?

Did you hear about our share of the spending package? It is a fraction of what we were expecting - and what we think we need. But the pressers today talked about how much help is coming, not how far short the new bill falls.

Instead of leading, Obama is campaigning in Indiana. Is he a one-note Nelly that has only campaign skills in his holster during this tough time? What about that record…oh, wait - he doesn’t have a record…I guess campaigning is the only experience he has, right?

Obama is being led by the nose by Pelosi and Reid, or allowing himself to be led by the nose. This is a worse case scenario for the US. If Obama doesn’t halt these loonies’ tunes, then looney tunes is all we will be hearing from Washington regarding domestic and international issues.

Get back to Washington Mr. Obama, and learn your job!

Comment by VanillaMan Monday, Feb 9, 09 @ 3:45 pm
Exactly where do you think the federal money comes from? That’s right, taxes. Sure, they can borrow, that just means we pay interest on top of the tax increase.

You’ll pardon me if I don’t think indiana, ohio, alabama, utah and the other state’s taxpayers should foot the bill for the negligence of leaders *we* elected. Its our problem, we ought to stop looking to others to clean up our messes.

And no I didn’t miss the exercise, I made several suggestions. The problem doesn’t need to be fixed in one calendar year, you know. DCEO can be gutted, the hundreds of state programs that the auditor general can simply find no info on can be cut, the fleet of aircraft can be sold and the air courier service to high level bureaucrats can be ended. Public employe salary caps can be placed which don’t affect the rank-and-file workers at all. Most of the items in the piglet book can be cut (ill even concede for the sake of argument some programs in there may be legit, but not all). Innovation measures can be put in place to streamline state services and functions. A truly competitve bidding process can be put in place. Many more than just the list.

Will it fix it in a year? No… But it gets us on the path to recovery instead of putting us on the path of enabled addict of free federal dollars and unconstitutional overspending.

Why do people keep overlookingthis fact? The spending of the state has been unconstitutional. No debate there, even by those involved… Do I need to file a lawsuit just to get them to abide by the clear and unambiguous language in our constitution against unbalanced budgets?

The reason that clause is there is to prevent this exact situation we find ourselves in, which is why itd be good for someone to go to court and enforce consequences.

Comment by John Bambenek Monday, Feb 9, 09 @ 3:48 pm
John, you completely misunderstand state budgeting. Since there is a balanced budget requirement, problems do, indeed, have to be fixed in a year.

Comment by Rich Miller Monday, Feb 9, 09 @ 3:49 pm
An infusion of federal money to the states may also head off or preempt attempts by the state to balance their budget on the backs of municipalities. In the past whenever the state experienced cash flow difficulties they always looked at reducing the funds sent to the local governments thru the LGDF. If the federal monies help relieve the stress on the states, the states may not be so inclined to pull local funding. If the states do choose to reduce local funding then local taxes may have to go up. The whole thing is a vicious cycle.

Comment by One of the 35 Monday, Feb 9, 09 @ 3:57 pm
John Bambenek,

The U.S. spent about $860 billion on the war and reconstruction in Iraq and Afghanistan, about the same as what Obama is proposing to spend in this country. Why does your party prefer US investment in the middle east but not here?

Second, since I have no idea how many Nobel prizes you’ve won in economics, take a look at Paul Krugman’s piece in the Sunday NYT. At least you can agree with Krugman about something, ie., that Obama isn’t getting this done properly.

www.nytimes.com/2009/02/09/opinion/09krugman.html?_r=1&ref=opinion

Comment by 47th Ward Monday, Feb 9, 09 @ 4:01 pm
As someone who reads this blog to try to gain in increased understanding of the workings of state government, I found the suggestion/description of “Physical Warrant Delivery” very interesting. I had never heard of that before.

Rich, perhaps for the benefit of newer readers some time you could have a post that specifically asks for everyone’s “pet projects.” I would be interested to see what they were, even if they didn’t add up to that much $. Maybe to put it in perspective you could ask commenters to estimate a $ amount for their project.

Comment by Engineer Monday, Feb 9, 09 @ 4:01 pm
Here’s the relevant passage in case the link doesn’t work John:

“One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.”

Again, from Paul Krugman, Nobel Laureate, Economics.

Comment by 47th Ward Monday, Feb 9, 09 @ 4:03 pm
John, could you please clue us in on this “unconstitutional” spending? What unauthorized purpose was it spent on? Or was it only “unconstitutional” because the budget was out of balance?

Rich, in response to your QOTD last week, did anyone locate $4 billion in budget cuts that didn’t resort to the ongoing fiction of underfunding the state pension systems, which helped put us in this mess in the first place?

Comment by cover Monday, Feb 9, 09 @ 4:04 pm
I’m skeptical of the feds sending money to states anyway. In my opinion, it always results in more money coming out of IL and going to other states than vice versa. Sorry, I don’t feel like helping the citizens of Alabama or Oregon out. They can help themselves and we should be able to too.

Comment by cermak_rd Monday, Feb 9, 09 @ 4:12 pm
There are nobel laureates on both sides of the stimulus. It’s just that only one of them is commonly read by non-phds.

Comment by Greg Monday, Feb 9, 09 @ 4:13 pm
I found this estimate on McClatchy for how the remaining $39B for State Stabilization breaks out - looks like we’d have more flexibility for the “other state stuff” than you say here, but maybe this is outdated? Help.

Page 8 of http://media.mcclatchydc.com/smedia/2009/02/09/13/Lightman-Senate-stimulusbill.source.prod_affiliate.91.pdf)

“$39 billion State Fiscal Stabilization Fund includes $26.7 billion to local school districts and public colleges and universities, distributed through existing State and federal formulas; $2.5 billion to States as incentive grants as a reward for meeting key education performance measures; and $9.5 billion to States for other high-priority needs such as public safety and other critical services, which may include education.”

Comment by loha Monday, Feb 9, 09 @ 4:17 pm
Greg, feel free to offer the stimulus analysis from your favorite Nobel economist. This is a site dedicated to the free exhange of info and whatnot.

As a non phd myself, yes, I pay attention to what Krugman has to say. That doesn’t mean I don’t also pay attention to those disagreeing with him either. Can you recommend any articles, or are you simply trying to dismiss Krugman?

Comment by 47th Ward Monday, Feb 9, 09 @ 4:20 pm
If waste and corruption are curtailed I will welcome a income tax increase to solve budget crisis. If not curtailed I would oppose.

Comment by Silverback Monday, Feb 9, 09 @ 4:25 pm
The Senate still has to vote on this amendment and pass the bill, then it all has to be conferenced - so none of this is close to final.

Comment by anon Monday, Feb 9, 09 @ 4:37 pm
As far as I know Illinois State Government cannot declare bankruptcy and reorganize. But the choice is pretty close to that. No union contracts, no vendor contracts, no employees, no services? When you don’t have money you cannot operate, you can’t ‘funny money’ the books because bills must be paid or those providing the services simply stop. You raise taxes or start an ambitious shut down, while laying people off by the thousands. You can’t pull enough money out of the feds, or the sky for that matter. There will be lots of pain for everyone but hard, hard choices are all that is left. No magic, no savior, just teeth gritting choices. Blagojevich helped get us here but we helped as well. While we’re at it, resend all raises for all of the legislature.

Comment by Justice Monday, Feb 9, 09 @ 5:02 pm
Rich-

Even if the feds come through with the money, our hole is $6 bil and not $9 bil and we both know that deficit won’t be paid back this year. Previous deficits, by and large, weren’t paid back in the same year either. Sure, by the constitution they should be… Its gonna take a lawsuit to force that issue.

47th ward-

Why does “my party” support spending $800b in Iraq and not $800b here? I don’t know… When Michael Steele and Rep. Boehner start returning my calls I’ll let you know but the short answer is because they don’t listen to my sage advice

Let’s for the sake of argument accept for the moment that the state bailout is stimulus. We’d be taking short-term gain for long-term harm. A one-shot aid check does not fix our structural deficit that will persist long after the check is passed. Further, it enables the bad behavior that got us into this mess. Third, it forces others to pay the price for this mess.

While capitalism has many flaws, its the best system to explain how people behave economically and when you take away risk, people do even more stupid things.

And I do disagree with Klugman that bailing out states by paying their overdue bills is “efficient stimulus” compared to, say, actually funding projects and letting failed systems end.

I’ll allow for the possibility we can’t cut our way out of this mess, but I don’t support a bailout or tax increases until there is a full forensic audit of the entire budget, all programs and all agencies… Until wasteful programs are eliminated, duplicate programs merged, the budget made comprehensible, and other common sense reforms are put in place so we never get here again.

Comment by John Bambenek Monday, Feb 9, 09 @ 5:17 pm
Senators Nelso and Collins and company should be ashamed of themselves. Slashing for the purpose of what exactly? Just because?

And Bambi - we’re footing the bill for States like Indiana and Alabama to get their bailout money.
Illinois is net tax exporter. States like Alabama and Alaska and Utah are net tax importers.

And given how low interest rates on treasuries are now, we should be borrowing. Boost the GDP, boost tax receipts, and borrowing at 2% or less will pay off a lot. Once you adjust for the time value of money, that’s free borrowing. You’re paying back less principal over the life of the loans than dollars would be once adjusted for inflation.

Of course, the House Republicans seem to want to destroy the economy so thoroughly that we’ll have massive deflation.

Neo-Hooveritis isn’t going to help anyone, anywhere.

Comment by jerry 101 Monday, Feb 9, 09 @ 5:18 pm
Rich, I like the “post war” Illinois State Government example. It precisely states how we got into this mess. It isn’t as extreme as you claim it might be.

There are too many bricks being thrown at too many heads in Washington right now over the stimulus package to make complete sense out of what is going on.

Like in Illinois, the facts are slowly emerging.

The average taxpayer won’t reach into his pocket and hand someone say $100.00 because someone is shouting that the sky is falling. Those pushing this stimulus package (and the last one) need to understand that “the sky is falling” arguments aren’t selling it.

What we need on a national and local level is a little less shouting and finger pointing and a little more thoughtful analysis of the problems facing us.

Once that is all done, THEN throw the bricks! : -)

Comment by Louis G. Atsaves Monday, Feb 9, 09 @ 5:24 pm
Yes, there is a state balanced budget requirement. But who is kidding who that we have had a balanced budget? It has been only to look as though the budget is balanced on paper. Can anyone honestly say that the budgets passed in the past few years have had real revenues to pay for the spending? I hope none of us are that gullible. The Speaker, the former President and the former Governor, as well as anyone who cared to pay attention, knew that those budgets wre nowhere near balanced. If they were, why do we suddenly have a $9 billion shortfall? Please.

Comment by Captain Flume Monday, Feb 9, 09 @ 5:55 pm
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
Laurence J. Peter

Comment by wordslinger Monday, Feb 9, 09 @ 6:24 pm
the federal stimulus is a boondoggle. it only exacerbates the problem by bailing out states. they do not reduce spending or make the necessary spending reforms.

my question is: where does IL get the money to continue its spending prgrams wen the federal stimulus package ends?

Comment by 4 percent Monday, Feb 9, 09 @ 7:13 pm
Bill Holland is way ahead of you guys. Every external audit should include a test identical to “external warrant delivery” wherein the auditor accompanies the person who distributes paychecks/direct deposit receipts and requires verification of ID from each employee. In large agencies, the test may be done on a sample basis.

Good internal audit programs do the same thing.

Comment by Arthur Andersen Monday, Feb 9, 09 @ 7:23 pm
For someone who claims to hate dc issues, politics and “talking heads” - you sure do write about them a lot.

Comment by anon Monday, Feb 9, 09 @ 7:53 pm
Can Hynes’ deficit numbers be trusted? I don’t doubt we’re in a deep hole, but we’ve been down this road before, where something is termed a crisis and immediate, drastic action is needed like, oh, raising taxes or instituting a graduated income tax. Then, after the solution is implemented, we learn that well, the problem was as extreme as described only if one looks at it in a certain way. My most recent reference points on this is more on recent issues on the federal level, but state politicians are cut from the same cloth as their federal counterparts.

Comment by Peter from Bloomington Monday, Feb 9, 09 @ 8:31 pm