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Question of the day

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Illinois

* We’re running late today because of various breaking news items, so I apologize for that. Anyway, let’s get on with it.

Andy McKenna’s TV ads claim the state is “facing bankruptcy.” McKenna repeated the bankruptcy claim to Greg Hinz today…

Mr. McKenna did not say how he’d persuade state workers unions to get their members to pay more [pension contributions], but added, “The alternative is, we go bankrupt. That’s not good for everybody.”

A judge cannot force a state into bankruptcy, and no state has ever technically declared bankruptcy, even during the height of the Great Depression. We’ve had this discussion several times in comments, but I thought we’d front-page it today.

* The Question: In your opinion, is this a gross misstatement that ought to be corrected by the media and the candidate, or is it no big deal and simply a use of dramatic license? Explain.

posted by Rich Miller
Tuesday, Dec 8, 09 @ 1:18 pm

Comments

The media out to challenge him on not being a serious candidate, first and foremost. Second, they should question the ethics of a state party chair who delcares an 11th hour candidacy for governor after using party resources to transfer to his campaign, using information gathered in confidence that would be appropriate to share with the party chair but not a competitor, and so on. Lastly, he should be challenged on the fact that many GOP county chairs will leave the party if he gets the nomination. Several 3rd party candidates for Governor believe McKenna would be the absolute best situation for them. It ensures they get established as a party.

His entire campaign is based on flippancy. He should be challenged on that too.

Of course, he doesn’t make himself available to the media except in controlled settings.

Comment by John Bambenek Tuesday, Dec 8, 09 @ 1:24 pm
I’m sure many will answer with “no big deal and simply a use of dramatic license,” and to some degree that’s true. What I find appalling is that there is no discussion of what, in the absence of bankruptcy, is the legal, logical conclusion to the ongoing impasse over the budget. At what point does someone sue the state for unpaid bills, and what happens to pension obligations, etc.

In the absence of bakruptcy relief, can the courts compel the state to increase taxes in order to pay obligations? Bankruptcy relief would be a boon to Illinois, so I’m not sure why McKenna keeps repeating the line. And since we all know that can’t happen, what is the alternative if no political solution emerges?

This isn’t a rhetorical exercise either. The day of financial reckoning for Illinois draws closer by the hour.

Comment by 47th Ward Tuesday, Dec 8, 09 @ 1:25 pm
I think that the use of the terms “bankrupt” or “bankruptcy” plays on the jerk reaction that most voters have to the words themselves. “Democrats have been in power, they did blah blah blah, now we face a situation of blah blah blah, so if you don’t want THE STATE TO GO BANKRUPT, vote for (insert GOP candidate here) who will KEEP THE STATE OUT OF BANKRUPTCY by blah blah blah.”

Now, does Andy know that the state cannot declare bankruptcy? Not so sure.

Comment by Obamarama Tuesday, Dec 8, 09 @ 1:26 pm
===can the courts compel the state to increase taxes in order to pay obligations?===

No.

Comment by Rich Miller Tuesday, Dec 8, 09 @ 1:27 pm
McKenna discredits and undermines his central claim to credibility–his business experience–with such nonsense.

And he repeats the “bankruptcy” with a straight fact to Greg Hinz.

Chutzpa.

Comment by David Ormsby Tuesday, Dec 8, 09 @ 1:29 pm
It’s a gross misstatement that should be corrected. Bankruptcy is a legal term.

By using it, McKenna implies the state does not have the ways and means to correct the situation. It does. It just hasn’t found the will to enact massive cuts, increase taxes, or a combination of the two.

Comment by wordslinger Tuesday, Dec 8, 09 @ 1:30 pm
OK, so no. But under certain bond covenants, the state can be compelled to pay bond holders. What about the constitutionally protected pensions?

And if the courts can’t order the state to pay its other obligations, does the state simply cease operations as a going concern? Asset forfeiture?

Does anyone know what legal recourse exists to get the state out of debt if no tax increase is approved?

Comment by 47th Ward Tuesday, Dec 8, 09 @ 1:30 pm
The legal recourse would be for Obama to invoke the Insurrection Act and demote Illinois from state to federal territory.

/snark

Comment by John Bambenek Tuesday, Dec 8, 09 @ 1:31 pm
He’s assuming that voters are too stupid to know the difference, which is pretty typical for conservative leaders. It’s a legitimate issue to raise but there are bigger issues not being covered.

Comment by SangoDem Tuesday, Dec 8, 09 @ 1:32 pm
It is one thing in casual conversation to use the word “bankrupt” to mean “broke and can’t pay its bills.” Candidates for higher office ought to be held to a higher rhetorical standard. But what are the odds of that?

Comment by Ray del Camino Tuesday, Dec 8, 09 @ 1:37 pm
That courts can’t order the state to increase taxes… it can order the state to pay bills.

The pension contribution isn’t a “bill”. Pension payments are.

Comment by John Bambenek Tuesday, Dec 8, 09 @ 1:40 pm
Yes. It should be corrected. It is about context.

If he were making a statement such as “our elected officials in Springfield are ethically bankrupt,” it would be clear it is a metaphor. However, the quote in Crain’s and elsewhere clearly communicate he thinks a literal bankruptcy is down the road.

He needs to clarify that that is not possible, and then banish that word from his vocabulary.

Comment by Montrose Tuesday, Dec 8, 09 @ 1:40 pm
This is a very important topic. Chapter 9 bankruptcy applies to municipalities, counties ,and other governmental entities but not states. Can a federal bankruptcy judge raise state and local taxes? Not if you believe in federalism. McKenna raises the issue which there’s no easy answer. McKenna and the media should put it in a different light. Will Illinois, in the future, be able to issue debt? Who will want the debt and at what interest rate? Will higher taxes help Illinois compete against other states?

Comment by Steve Bartin Tuesday, Dec 8, 09 @ 1:40 pm
Let’s see the states debts far exceed the states assets. We no longer have the ability to pay the bills. Saying the state is near bankruptcy seems legit. I am more interested in some ideas as to solving the problem.

Comment by Fed up Tuesday, Dec 8, 09 @ 1:42 pm
In some ways isn’t the state functionally bankrupt now?

If the state was a large company (yes I know there is a difference) and was as late as it with as many payments as it is now and owed as much as it did now wouldn’t it’s creditors be at the courthouse steps?

Obamarama, again, there has not been a need for a single Republican vote in the leg since Rod was elected to do much of anything. Who was the last governor who successfully raised taxes, ummmm Edgar? Yes, everyone needs to wear the coat for this but it’s the democrats in this case who need to wear the big coat. We all saw this coming years ago but everyone let Rod do his stupid budget tricks, the economy hastened this day but we all knew it was coming.

So is the state ‘bankrupt’ no, is it functionally bankrupt. Yes.

Comment by OneMan Tuesday, Dec 8, 09 @ 1:42 pm
Given McKenna’s history with “truth telling” you got to call him on it. If you remember back to when McKenna was running for Senate, him and Oberweis got in a spat about McKenna stretching the truth. The guy will say anything and spend anything to get elected as it was recently mentioned in the Tribune. He robbed the State GOP campaign coffers to poll for himself and now he has been hiding form GOP candidate forums all over the State. He ditched the WVON radio show last week, after announcing he was going to show. Voters deserve an honest debate. His patterns of distortion deserve a proportional response.

Comment by Big Policy Nerd Tuesday, Dec 8, 09 @ 1:43 pm
What is the truth? Is the Sate bankrupt or not? If the answer is no the McKenna should be called out, if it truly is as a candidate how will he fix it?

Comment by Dan S, a voter and Cubs Fan Tuesday, Dec 8, 09 @ 1:48 pm
simply dramatic licsense. On the Firday edition of Chicago Tonigh Joel Weis refered used the term bankruptcy when talking about the state in a financial context. No harm, no foul. For all intents and purposes Illinois is bankrupt.

So, to sit up and whine about the usage of the word “bankruptcy” from a technical legal definition sense is silly.

Comment by Will County Woman Tuesday, Dec 8, 09 @ 1:50 pm
The correct term is when Illinois is in “Default.” The state can fail to make it’s bond payments and default on it’s debt. The last time for Illinois was the 1850s.

Comment by Louis Howe Tuesday, Dec 8, 09 @ 1:50 pm
This is simple to look at … McKenna, “The state is bankrupt.” Reporter, “Mr. McKenna, answer this direct, do you feel the state is in the truest sense of bankrupt, is the state ‘bankrupt’, and if you truely believe that the word ‘bankrupt’ is correct, and not hyperbole, than describe what is next in this bankruptcy since this is a financial matter, not hyperbole”

Then, let’s see how he addresses it. I would be interested to see if he believes the term is being used in a true financial sense what that all means for the state, courts, (since no state has ever been declared bankruptcy), and all whom the state owes money.

Oh, would that be a fun answer explained!

Comment by Oswego Willy Tuesday, Dec 8, 09 @ 1:51 pm
===Obamarama, again, there has not been a need for a single Republican vote in the leg since Rod was elected to do much of anything.===

Apples and oranges. You are talking about governing (reality) and I am talking about campaigning (messaging and perception). I get your point, though.

Comment by Obamarama Tuesday, Dec 8, 09 @ 1:52 pm
The misuse of the term “bankruptcy” is as disingenuous as the candidates phony claims about how they will solve the state’s budget problems by “eliminating waste”, etc, etc. McKenna and his competitors are all down the hole w/ Alice and should be called out for it.

Comment by D.P. Gumby Tuesday, Dec 8, 09 @ 1:54 pm
“that ought to be corrected by the media”

That’s the interesting part of the question, and I don’t think most of the commenters addressed it. Is there an ethical obligation (or an obligation from some other source) for a reporter to correct a candidate when the candidate says something that is not true or that mistates reality or is otherwise troublesome? I’m not sure there is. I would hope that good reporters would ask good follow up questions, but I rarely see it. Reporters seem to view their obligation as asking some question, and the answers often seem to be an afterthought.

The reality is that they rarely do ask decent questions and follow up questions. Which explains why we have the perception among so many voters that a plan to balance the budget without raising taxes is reasonable.

Comment by OdysseusVL Tuesday, Dec 8, 09 @ 1:58 pm
It’s McKenna. Challenge away!

Comment by Responsa Tuesday, Dec 8, 09 @ 2:01 pm
Semantics schemantics. After the primary McKenna will be out of the picture and ignored, if not forgotten.

Illinois will still be in default, however.

Comment by dupage dan Tuesday, Dec 8, 09 @ 2:05 pm
No, it’s a perfectly good use of the term, and one that fits with reality. The State has no money. “Bankruptcy” can be used in different ways. Legally, and in everyday conversation. Even legally speaking, a person can still be bankrupt but not be able to file. Remember, when you file for bankruptcy, you actually file for bankruptcy “protection”…which implies you are bankrupt and seek the law’s protection. In everyday life, if you have no money, you’re bankrupt. A person can be bankrupt in reality, but unable to file for bankruptcy protection for numerous reasons (i.e. they filed within the last 8 years). Doesn’t change the fact that you’re bankrupt, only your legal options.

Comment by Anon Tuesday, Dec 8, 09 @ 2:11 pm
It is drama queenery and should be challenged when it is used by any candidate. Words mean something.

Is the state going bankrupt? No, because it can’t legally. Is it nearing the governmental equivalent of bankruptcy? Yes, and McKenna knows that image will stick in the minds of the populace.

Comment by Fan of the Game Tuesday, Dec 8, 09 @ 2:15 pm
I’d say it depends.

If McKenna just mentions it off-hand during an interview or on the campaign stump, then I think we can call it dramatic creative license and let it stands.

If he makes it a huge campaign issue, claiming that bankruptcy is just around the corner during a candidate debate, then I think that the media would be obliged to knock him down for such gross misstatements.

Comment by TJ Tuesday, Dec 8, 09 @ 2:18 pm
“Is this a gross misstatement that ought to be corrected by the media and the candidate, or is it no big deal and simply a use of dramatic license?”

Perhaps a fee increase on dramatic licensing could help address the state’s budget problems…

– MrJM
http://twitter.com/misterjayem

Comment by MrJM Tuesday, Dec 8, 09 @ 2:22 pm
Question is, if IL goes into “Default”, can then State of Illinois be placed into “Receivership” or have some party (not the political type) assigned to oversee and have final control over the financial affairs of the State of Illinois.

There’s other states that are probably going to force this issue to the table before IL, and it’s likely going to be the bond holders vrs. the pension holders.

And if the bond holders lose (like they did at both Chrysler and GM) and have to take a serious haircut, that’s when it’s really likely to get scary. Because there’s a real possibility that the holders of all types of tax exempt bonds are going to get very, very nervous, and when those folks get nervous, the market for tax exempt securities starts to shrink.

Is his statement a “gross misstatement”? - No. Many of the same effects which might occur in a corporate bankruptcy could also occur here in IL, except it wouldn’t be called a “Bankruptcy”.

It’s just a tough topic to explain, and most people don’t want to face an issue like this one because there’s no good answer, or answers.

Not surprised the news media isn’t touching this one - Imagine calling McKenna out over this “Bankruptcy” issue by some media outlets, and then have this same legal issue blow sky high in someplace like CA, or and one of a number of different states. Could easily happen.

McKenna would end up looking like a Prophet, and if you are the media, he’s accomplished it all at your expense, and with your assistance - do you really want to go there?

Comment by Judgment Day Is On The Way Tuesday, Dec 8, 09 @ 2:27 pm
I agree with what word said, but I would add (look I found a use for the version with two d’s) that the word bankrupt leaves the false impression/implication that the state can just dismiss its debt to be done with the fincial eficit.

Add to this mckennas statement that the State should go to 2006 levels and in a few years we would get this debt paid off, and you have a lot of fodder for somone who does not understand at all the state, its finances or operations.

Comment by Ghost Tuesday, Dec 8, 09 @ 2:30 pm
Actually, at least 10 states at one time or another defaulted on their debts. Mostly in the 1840s. Some states like Pennsylvania, Maryland, Indiana, and ILLINOIS unilaterlally postponed and “restuructured” their debts years later, four others–Florida, Mississippi, Michigan, and Arkansas–repudiated their debts (which was accumulated on 19th century infrastructure projects like canals, roads, and railroads). As a result, Indiana created a constitution that does not allow the state to take on ANY debt. They use that constitution to this day and better off for it. Illinois would be so lucky. Not only can it happen here, it HAS happened here.

Comment by CFA Tuesday, Dec 8, 09 @ 2:31 pm
===Imagine calling McKenna out over this “Bankruptcy” issue by some media outlets, and then have this same legal issue blow sky high in someplace like CA===

I doubt it. There might be default, but not bankruptcy. There is no chapter for a state.

Also, it might be tough for the Trib or Sun-Times to make this a big issue considering their own corporate bankruptcies. Just sayin…

Comment by Rich Miller Tuesday, Dec 8, 09 @ 2:31 pm
CFA, default and bankruptcy are two different things when it comes to states.

Yes, IL did default. State Rep. Abe Lincoln, by the way, was a major proponent of that capital bill.

Comment by Rich Miller Tuesday, Dec 8, 09 @ 2:33 pm
By the way, a default would not be the end of the world. The worst thing would be that Illinois might be unable to borrow for a few years and spending would have to be slashed (and taxes might rise). In the long run, people always let bygones be bygones and go back to lending to countries/states/people who defaulted. If we get an Indian-style backlash against debt, that’d be wonderful.

Comment by CFA Tuesday, Dec 8, 09 @ 2:39 pm
***===can the courts compel the state to increase taxes in order to pay obligations?===

No. ***

Yes. See Missouri v. Jenkins, 495 U.S. 33 (1990).

Comment by Anon Tuesday, Dec 8, 09 @ 2:39 pm
===See Missouri v. Jenkins, 495 U.S. 33 (1990). ===

See innumerable failed attempts to replicate that lawsuit in Illinois.

Comment by Rich Miller Tuesday, Dec 8, 09 @ 2:40 pm
==Yes, IL did default. State Rep. Abe Lincoln, by the way, was a major proponent of that capital bill.==

yes, recommend Paul Simon’s book about Lincoln’s time in the legislature btw.

But if he didn’t you would have to hang out in Vandalea Rich…

Comment by OneMan Tuesday, Dec 8, 09 @ 2:41 pm
I think it’s an acceptable use of wording, to describe the precarious financial situation the state faces.

Comment by Rudy Tuesday, Dec 8, 09 @ 2:54 pm
I find it ironic that McKenna thinks the state is sooo deeply in debt, yet a cut here and a cut there and we’ll be good as new. A reporter should simply ask which is it?

Comment by Pot calling kettle Tuesday, Dec 8, 09 @ 3:06 pm
If the word “bankrupt” means an insolvent person and “bankruptcy” is the state or condition of one who is “bankrupt” (Black’s Law Dictionary) then what is the big beef about McKenna or anyone else using those words to describe the current financial state of affairs of our once great State of Illinois?

He isn’t using these words the way Blagojevich used the word “reformer” or the infamous Quinn usage of “landmark legislation” of an “ethics” bill he later vetoed. He even isn’t using the word “ethics” the way Springfield Democrats have used it the past year!

To me the usage of “bankrupt” or “bankruptcy” to describe our state finances is appropriate.

Comment by Louis G. Atsaves Tuesday, Dec 8, 09 @ 3:13 pm
IIUC, the state cannot seek protection under the bankruptcy laws per that definition of the word, but it can certainly be considered bankrupt under alternative definitions i.e. “any insolvent debtor;” or “Financially ruined; impoverished.” “Insolvent” and “broke” would also be good adjectives.

Comment by TimB Tuesday, Dec 8, 09 @ 3:18 pm
Take some of the 31 BILLION of Capital funds being spent on useless projects and fund the pensions. Just look at some of the things being done with the money. We can spend 31 BILLION to build four and six lane roads that don’t go anywhere. It like the Bridge to nowhere in Alaska.

Comment by Bob Tuesday, Dec 8, 09 @ 4:02 pm
Andy McKenna mentioning bankruptcy is simply sensationalism on his part. Anything to keep his name in the news, and he has accomplished just that with his remarks. The average Joe and Jane citizen has no clue if the state can or cannot file for bankruptcy, and most don’t care as long as it doesn’t affect them personally. Thus, no need to rush into fixing things until after the election. Surely by the then the economy will rebound…..yeah, right!

Comment by Justice Tuesday, Dec 8, 09 @ 4:42 pm
***===See Missouri v. Jenkins, 495 U.S. 33 (1990). ===

See innumerable failed attempts to replicate that lawsuit in Illinois. ***

All(!) you have to do is find a federal constitutional right to hang your claim on, and no Illinois case matters.

Comment by Anon Tuesday, Dec 8, 09 @ 5:04 pm
By the legal definition the State may not be in badkruptcy, but a second definition of the word bankrupt in Webster’s is “unable to pay bills” By that definition he is correct and can not be attacked on this issue. What the press should ask him and every other candiate, Do you have a reasonable idea on how to change this situation?

Comment by downstate hick Tuesday, Dec 8, 09 @ 5:05 pm
===By that definition he is correct ===

Actually, no. He keeps saying we’re heading for it, or facing it, or whatever. By your definition, we’ve been there for over a year. So, he’s not using your definition at the moment. If he was, he’d be claiming we were currently bankrupt.

Comment by Rich Miller Tuesday, Dec 8, 09 @ 5:06 pm
Rich, I’d take it a step further. The state has the ways and means to pay its bills, but by the actions of its General Assembly, is choosing not to.

Comment by wordslinger Tuesday, Dec 8, 09 @ 5:26 pm
Yes, it is a gross misstatement and highly irresponsible. McKenna only shows his desperation for attention and ineptness to lead with this comment. State workers paying more into pensions? What a joke. The state is $13 Billion short of revenue and the state is obligated to pay its pensions funds which are modest and well-deserved to frontline workers. By the way, state employees already pay 4% per year into their pension funds, as of the Blago (now under criminal prosecution) administration.

The only way to solve the state’s budget crisis is to raise revenue, and a progressive tax. The 3% flat tax is 40 years obsolete and insufficient. The top 1% in this state and big business have paid so little portion of taxes in the last 10-30 years that they have sucked all the money from the economy and state.

Comment by concerned citizen Tuesday, Dec 8, 09 @ 5:47 pm
Yes: the state’s liabilities do not exceed its assets.

Comment by steve schnorf Tuesday, Dec 8, 09 @ 5:57 pm
Edgar didn’t raise taxes

Comment by steve schnorf Tuesday, Dec 8, 09 @ 6:08 pm
Yes, the media can take it upon itself to get a quote from a law school prof saying states cannot file bankruptcy. Run it in the same article right after the candidate says Illinois is “facing bankruptcy.” That’ll shut him up.

Comment by Cheswick Tuesday, Dec 8, 09 @ 6:52 pm
== Yes: the state’s liabilities do not exceed its assets. ==

And its ability to bring in more bill-paying revenue.

Comment by Cheswick Tuesday, Dec 8, 09 @ 6:54 pm
How would an outsider like Andy know this?

Comment by ourMagician Tuesday, Dec 8, 09 @ 11:53 pm
Bankruptcy means a person is insolvent and insolvent means you cannot pay your bills on time. Check Webster’s dictionary - end of discussion. We have about 5 billion in medicaid bills the state can’t pay. McKenna’s add does not say the state will file bankruptcy. But we all need to be worried about what the state will do this June with a 13 billion deficit (Hynes’ latest estimate). The state cannot borrow that much short term debt — no one will buy it. That was the whole point of Moody’s downgrade. You simply can’t keep spending more than you collect. At a certain point, the bond markets will cut us off and the federal government will have to step in bailout the state as it did with New York City in the 1970s.

Comment by budget boy Wednesday, Dec 9, 09 @ 8:14 am
As I’ve already pointed out, McKenna isn’t saying we have been in bankruptcy, he says we are facing it. Since we’ve been unable to pay state bills for a year, your explanation, BB, is inoperative.

Comment by Rich Miller Wednesday, Dec 9, 09 @ 8:21 am
You miss my point regarding a federal bailout, Rich. At a certain point the bond markets will shut us off and the only way we will be able to pay those bills will be via a federal bailout. As has become common practice, the state borrows short term debt to pay down medicaid bills. Next June, we won’t have the option to borrow short term of 13 billion. At that point we will be insolvent (i.e., bankrupt) and the only way to get current on the medicaid backlog will be a federal bailout. That is what we are facing…I think you should be a little bit more focused on the financial catastrophe we are facing and a little less focused on the semantics. You have been doing a better job than most in covering this, but the Illinois press corps is about on top of the Illinois financial collapse as Jim Cramer of Mad Money was on top of the market collapse. This is not the typical annual budget impasse… Illinois is running out of options.

Comment by budget boy Wednesday, Dec 9, 09 @ 9:31 am
===At a certain point the bond markets will shut us off ===

Not necessarily. And that would seem a long way off. Even California can get loans, albeit it at higher rates.

Comment by Rich Miller Wednesday, Dec 9, 09 @ 9:33 am
Expenditures/Revenues in FY 2011 will be about the same as FY 2010 which resulted in a deficit increase of about 8 billion, plus FY 2009 of 4 billion = 12 billion gap at the end of FY 2010. When Quinn annouces in January that the FY 2011 budget deficit is projected to be more than 20 billion, it will finally be clear that we are in MUCH, MUCH worse shape than California. Good luck selling bonds at that point… Let’s not forget how quickly the AAA-rated sub-prime bonds went to junk bond status. You seem to be about the only reporter who understands how serious things are… please keep diggin’ in.

Comment by budget boy Wednesday, Dec 9, 09 @ 10:11 am