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* That should have been the headline of today’s Capitol Fax, but I sent it out before I came up with the idea. [Reference here.] Oh, well. Such is life.
What I mean by that is the lottery lease and pension bond deal could have freed up a bunch of budet cash, as I told my readers this morning. It could have been an escape route for budget writers. But now yous can’t leave…
Illinois House Speaker Michael Madigan said Tuesday he “strongly rejected” the idea of leasing the lottery to a private vendor so the state can pay down its crushing pension debt. […]
“I think it’s safe to say we aren’t even close, not even close, to having any kind of budget done,” said House Republican Leader Tom Cross of Oswego. […]
Instead, Tuesday’s meeting was devoted to Blagojevich’s plan for leasing the Illinois lottery to a private operator and issuing $16 billion in pension bonds. The bond proceeds and an estimated $10 billion from the lottery lease would be used to pay down the $40 billion owed to the five state-funded pension systems.
* More…
Senate President Emil Jones Jr. said it was “rather foolish” to reject the pension plan. “The other caucuses don’t want to do it, which seems ridiculous to me, because if we do a bond issue and sell the lottery, we’ll cut down on the indebtedness we have with the pension. And we save money,” he said. “Maybe they’ll come to their senses and realize that we have this obligation.”
Senate Minority Leader Frank Watson and his caucus members haven’t taken a final position on leasing the lottery, said his spokeswoman Patty Schuh, but they have “serious reservations.” “Sen. Watson’s concerned that it’s perhaps being proposed not for pension relief, but rather for budget relief, to free up cash for the governor to spend.”
* And…
Madigan said he hopes other legislative leaders eventually embrace the budget approved last month by the House, but Nix said that budget plan is not balanced. Madigan has said his budget plan boosts education spending by 7 percent, but Nix questioned whether it would lead to school cuts.
In fact, Nix flat-out said that the Madigan budget would lead to education funding cuts. The budget, she said, “will actually results in cuts to education.” She repeated that line several times. Here’s the audio…
* This e-mail came from inside the administration yesterday when I asked for an explanation of why the governor would cut education funding instead of other areas of the budget…
By his own admission, the speaker’s budget has a $600-plus million deficit (our analysis shows it at roughly $624 million). The only new spending in his budget that can help close that gap is his $410 million increase for education. Because his budget already underfunds contractual obligations to areas such as union contracts, which we are legally bound to pay, he leaves nothing else on the table to cut other than an additional $200 million in education funds in order to fully eliminate his deficit.
* Meanwhile, this AP story looks at the overtime session squabbling…
If lawmakers had to hang out at the Capitol five days a week with little to do, their frustration levels could climb sharply. Some would be away from their regular jobs. They would miss local meetings. They’d be paying for Springfield hotels and meals out of their own pocket, since daily expense payments stopped after the Legislature’s May 31 deadline.
That might put pressure on legislative leaders to agree to something — anything — to end the impasse. House Speaker Michael Madigan, D-Chicago, has negated that potential advantage for Blagojevich by calling his members to Springfield only two or three times a week.
Um, OK, then what’s Emil Jones’ reason for taking a week off?
More…
But [yesterday’s leaders] meeting did include a 20-minute discussion of who was the better third baseman, the Cardinals’ Ken Boyer or the Cubs’ Ron Santo, said House Minority Leader Tom Cross, R-Oswego.
Gee, I wonder who distracted everyone with that topic?
*** UPDATE *** In case you missed it yesterday, here are my notes from what the leaders told the media as they walked out of the guv’s office…
Madigan regarding the governor’s involvement with the utility rate issue: “The governor has never taken any interest in that issue… To my knowledge he’s never been around the issue.”
Nix: Madigan’s budget “actually results in cuts in education.”
Nix: “Not entirely accurate” that Lottery lease is off the table now. Madigan said that he did not support it, but his members weren’t here today so he wasn’t able to caucus on the issue. The issue has not been surveyed in his caucus, so we think that there may still be open to negotiation. “The other leaders had some questions, but actually did not rule it out.”
Nix: “The House Democrats did not understand what they voted for” (regarding budget), so they should be brought back to town and be informed that they had voted to cut education funding.
Nix: “They’re getting paid to work, so they should be able to be here without a special session.
Watson: “I just don’t know for sure whether the governor really truly wants to get out of here… If he did, we’d be focusing on the budget, we’d be talking about the issues of revenue and spending.”
Watson: Not getting message that GRT is dead. He talked about it “several times” today.
Watson: Too many people in the room. 25 last week, 30 today.
Madigan: House spending is not going to go over the 3 percent in the House-approved budget.
posted by Rich Miller
Wednesday, Jun 13, 07 @ 9:06 am
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Ken Boyer and Ron Santo were equally mediocre, similar to our legislative leaders. What is Watson doing in there anyway? No one needs his votes.
Comment by Bill Wednesday, Jun 13, 07 @ 9:11 am
Bill, Emil Jones couldn’t even get majorities for much of the governor’s proposals. He’s gonna need those GOP votes in overtime to reach 36.
Comment by Rich Miller Wednesday, Jun 13, 07 @ 9:16 am
I hope Rich doesn’t mind, I’m just a little volunteer. I’d like to take this moment to lobby for our Ceasefire Rogers Park funds this year.
Comment by The 'Broken Heart' of Rogers Park Wednesday, Jun 13, 07 @ 9:18 am
How can you compromise with a Governor unable to focus on the issues as hand? These reports paint the Governor as completely disconnected from political reality. He is still trying to sell the GRT? He is still pushing for his health care plan? At what point does this guy get a clue?
Although he is an extremely important person due to the office he currently holds, Rod Blagojevich’s inability to work with other Illinois state leaders may cause them to ignor him completely, even when he has a point to make.
Listen Mr. Blagojevich. WE ARE NOT AMUSED. Playing dumb at the budget table during overtime isn’t a smart move. What little credibility you have left after your State of the State address is gone. You have to earn back what respect your office needs you to have in order to negociate deals today and tomorrow. You need to do your homework. You need to show up on time, and at the right office.
Honestly, the campaigning is over. All your happy talk and silly blathering about John Wayne movies, the Chicago Cubs or whatever catches your mind for a moment is wasted on Mr. Madigan, Mr. Cross, and Mr. Watson. Mr. Jones is simply biding his time with you. You cannot play dumb, sir. They know the real you.
Shut up, get to work, and start acting like an adult - please.
Comment by VanillaMan Wednesday, Jun 13, 07 @ 9:28 am
Why is everyone ripping on the house for their attendance. Am I the only who thinks the governor and the senate should do their jobs as well?
Comment by Leigh Wednesday, Jun 13, 07 @ 9:37 am
Maybe this question has been asked and answered already. Is it constitutionally acceptable to sell or lease a state asset, the magnitude of the Lottery and/or the Tollway? In California these questions are being raised about leasing their Lottery. There they are talking about possibly needing voter approval, and/or 2/3 vote of their legislature.
Just a question, does anyone have an answer?
Comment by Is it even legal Wednesday, Jun 13, 07 @ 9:40 am
Blago is not “playing dumb.” He is for real.
Comment by Patriot Wednesday, Jun 13, 07 @ 9:46 am
How could a Santo v Boyer debate take 20 minutes? Santo was better and it’s not particularly close. At the plate, Boyer’s best season (1960) couldn’t touch Santo’s four best years (’64-’67). In the field, Santo’s edge was even more obvious.
Comment by Reality Check Wednesday, Jun 13, 07 @ 9:50 am
So….somebody is going to pay enough for the lotto so that the proceeds can continue to throw of $600,000,000 a year for schools AND pay down the pension debt. If the potential buyers think they can make that much out of running it, why don’t we hire somebody to run it better and keep the asset AND the dough.
Didn’t Blago borrow a ton of money a couple of years ago to bail out the pension fund. Problems with that? Accountability issues?
And how about racheting down those nice pension benefits for newer and future state employees. However we taxpayers pay this debt, it seems like more than we can afford to provide very low cost defined benefit pensions to legislators and state employees while most Illinoisians will have no defined benefit pension at all.
Thank goodness for Madigan. Blago and Emil want to sell the state store while feathering their post-government nests and those of political and contributor pals. Will all our feckless legislators be getting feathers for their nests too? Otherwise, I can’t imagine why they would be irresponsible enough to vote for this.
Comment by Cassandra Wednesday, Jun 13, 07 @ 9:55 am
Was Blago even present at the meeting? Nix’s name wasn’t on a single ballot last fall, so how is it she’s qualified to play governor in this whole thing? I don’t want to hear from her; I want to hear from the one who was voted in.
All she does is repeat talking points. Repeat, repeat, repeat. Where’s the “REAL” governor? Why won’t he man up and face the people?
Methinks the “testicular virility” talking point was little more than bovine residue. Sheesh. What a scam.
Comment by This Guy Wednesday, Jun 13, 07 @ 10:04 am
we’ve backed ourselves into a revenue generating corner.
think about it.
sell-off state assets: the speaker is opposed to leasing the lottery. not to mention the fact that the guv’s attempts to sell off other state assets (like the thompson center) have failed. if blago had an ounce of leadership in his blood, he’d be talking about our structural deficit and speaking about the state’s budget in a broader, long-term manner. his approach instead is to find ways to plug the holes in the dam.
issue more bonds: we’re probably getting to the point where the amount of debt the state is incurring will affect our bond rating, which will affect our ability to sell debt in the future. however, if we’re selling debt to meet and pay down our pension liabilities and not fund general state operating expenses, then it’s more palatable.
expand gaming: no chance of passing a bill in the house that increases the number of boat licenses. besides, didn’t the guv say a while ago that he was opposed to more boat licenses? years ago, i remember reading an Ec & Fisc report about how the state was reaching its gaming saturation point. while i don’t think we’ve reached that point yet, relying on seniors and people on fixed incomes to sustain or even increase their gambling habits is a gamble itself.
grt: dead.
temporary income or sales tax hike: dead.
budget negotiations: cluster f%*#
its going to be a long summer folks.
Comment by Anonymous Wednesday, Jun 13, 07 @ 10:06 am
These are not tongue in cheek nor a rhetorical questions. Has Blagojevich made a promise to someone that makes the gov greatly fear that he may be unable to keep such a promise? Why would he take a stand that makes him look like the small-western-town-crooked-politician in an old Sam Peckinpaugh movie?
Comment by i d Wednesday, Jun 13, 07 @ 10:13 am
Is it me of is Madigan losing it? Cutting education funding? Presenting a shoddy budget with a 600 million hole? He is against everything. Members are quietly talking. The media is beginning to understand. This is all an orchestrated event by the speaker. We are in overtime because he wanted overtime. People say Blago wont compromise, but either will Madigan. Everyone has their priorities.
Comment by Tina Wednesday, Jun 13, 07 @ 10:35 am
This Guy is right on the money. How come there are no Blago quotes? Why is Sheila Nix saying what Blago, who was re-elected, needs to say? It makes no sense to me.
And while I agree with Watson on the lack of clarity with 25-30 people in the negotiating room, I wonder what he and Cross are thinking by not stating an outright objection to the lottery lease. I really don’t understand why he was allowed to head the GOP caucus (again).
Comment by Team Sleep Wednesday, Jun 13, 07 @ 10:49 am
Madigan losing it?? You can’t be serious. Of the three Dem leaders Madigan is the only one with a brain. He is the only one to propose logical ideas in this session. It is a sad state of affairs when anyone can think Blago and Jones have any credibility at this stage of the game. These two are simply con men and not very good ones at that.
BLAGO MUST GO
Comment by Blago Must Go Wednesday, Jun 13, 07 @ 10:52 am
I too am surprised that Watson is leaving the lottery scheme on the table. It is amazing to me that the scheme would be considered by anyone other than the two idiots (Blago, Jones).
Comment by Blago Must Go Wednesday, Jun 13, 07 @ 11:00 am
I don’t usually weigh in on specific issues, but that lottery lease is a decent idea. It’s been endorsed by a whole lot of people who don’t normally like anything the guv does. I’d much rather use that for the pensions than raise taxes or cut other services/programs.
Comment by Rich Miller Wednesday, Jun 13, 07 @ 11:03 am
Borrow money for the pension? Great idea except for that pesky repayment with interest issue.
25-30 people in a room to negotiate? How many actually said or did anything beside passing out paper? Sounds like an audience to guarantee nothing gets done.
House budget - why put your best stuff out there when there is apparently plenty of time and nothing else being offered?
If the lottery can really make the kind of money being suggested doesn’t that imply pretty bad current performance and a management change needed? But, hey, sell those assets now cause tommorrow is someone else’s problem.
Comment by zatoichi Wednesday, Jun 13, 07 @ 11:13 am
Zatoichi, the idea is to borrow money at lower interest than they’re currently paying.
Comment by Rich Miller Wednesday, Jun 13, 07 @ 11:27 am
The people who purchase the lottery (or lease it-same difference essentially) are not providing charity–they are assuming they can make a profit by running it better. By selling it, we not only have to find another source to replace the 600 mil in school funding (it’ll have to come out of higher property, income or sales, or GRT-type taxes or we’ll have to borrow more), we are also giving up the profits we could earn by hanging onto it and running it better.
Again, the buyers have to make a profit. Taxpayers should not have to fund their profits (and any politician side goodies from the deal) by giving up a reliable source of school funding dollars or through other budget machinations designed to make up the 600 mil.
How awful this deal will be for taxpayers depends on the actual terms of the deal, which we taxpayer will likely have difficulty reviewing before the deal goes through, if it does. And we certainly can’t trust Blago, Emil, Sheila to negotiate competently with savvy potential purchasers. If there is a ride to be taken, they (we) will get taken. But we taxpayers have the most to lose.
Comment by Cassandra Wednesday, Jun 13, 07 @ 11:28 am
The lottery has a total operating cost of three percent. It is, by far, the most efficiently operated agency in the state and the states most valuable single assett. It contributes over 600 million a year. Sales are increasing. Not to mention when the 10Bil is gone, it’s gone and it will be gone!! So no 10Bil and no 600 million every year. Oh yeah!! Selling the lottery is a great idea.
Comment by Blago Must Go Wednesday, Jun 13, 07 @ 11:29 am
“How awful this deal will be for taxpayers depends on the actual terms of the deal”
That is so true…..and just look at all the past “deals” politicians have cut in this state — hotel in Springfield, Thompson center, various state park “investments”, shooting range, maybe a Branson II.
Problem with messing with the Lottery is 1–once sold or leased, it like the other bad deals,it will never go away. 2–the State should be able to maximize its revenue from it without selling or leasing it and keep the profits. 3–it is a short term fix at best, the state needs to increase annual revenue, decrease annual expenses or both.
Comment by anon Wednesday, Jun 13, 07 @ 11:43 am
I have been tending sheep on the hills behind Bethlehem — the manger is now empty. But will someone righteously determine how the State Pension fund system has gotten so far out of sync with revenues?
Comment by Truthful James Wednesday, Jun 13, 07 @ 12:14 pm
Rich, I’m just worried about the long-term implications of such a deal. The short-term looks great, but are we really going to have a gimmick each year to pass the state budget? I don’t care about the refinancing of any bonds or loans, but it seems as though anything that could wind up entangling us in a legal mess would not be beneficial to the state. Plus, to whom are we going to lease the lottery? Will that deal be, ahem, entirely beneficial to us?
Comment by Team Sleep Wednesday, Jun 13, 07 @ 12:29 pm
Like someone said yesterday -
It is surprising that so many people would rather pay $3.5 billion in interest a year than give up $600 million in Lottery revenues.
Ask Suze Orman - the first rule of finances is to get rid of the high interest debt first. You don’t keep a low-interest savings account when you could use it to pay off a high-interest credit card debt.
Comment by steven Wednesday, Jun 13, 07 @ 12:32 pm
Have others noticed the high level of secrecy about the lottery scheme? Who are the bidders? Who will be the operator? There are reasons for the secrecy. Needless to say, none of the reasons for the secrecy are in the interest of the people or the state.
BLAGO MUST GO
Comment by Blago Must Go Wednesday, Jun 13, 07 @ 1:03 pm
In response to truthful james’ question regarding how pension costs got out of line, the answer is pretty simple. Year after year, the state’s political leaders balanced the budget by failing to pay pension obligations. Result over time: massive debt, massive debt repayment costs.
The answer is not excessively generous pension benefits. The average pension for state employees is about $18,000/yr. That puts Illinois squarely in the middle of all the states.
Regarding the sale of the lottery: an investor who pays $10 billion to lease the lottery for 75 years will fully recover their costs after just 15 years (assuming current revenue trends). The remaining 60 years would be gravy. That would be a very nice deal for the private investor, but a huge loss of revenue over time to the taxpayers.
Comment by patient advocate Wednesday, Jun 13, 07 @ 1:06 pm
I never heard anyone say 75 year term for the lottery.
I heard somewhere around 25.
Comment by steven Wednesday, Jun 13, 07 @ 1:12 pm
I’m not sure it would be such a huge loss to the taxpayers. The $10 billion would go into the pension systems and be invested. It would grow over time. It would also correct the serious end-loading structural problem created by Jim Edgar and, as you noted, the lack of state payments into the system.
Comment by Rich Miller Wednesday, Jun 13, 07 @ 1:14 pm
James, the pension systems are out of sync with revenues for one reason. Absent that reason, the pension system contributions by employees, plus a very manageable normal cost state contribution, would be very affordable, and would grow only at the rate of payroll.
Employee contributions have always been paid. Returns on investment over any rolling period measured have been quite satisfactory.
Over an extended period, from the 70s through the mid 90s (and technically since then), the state didn’t contribute all of its share, sometimes falling short by very large numbers. In shorthand, state pension plan contributions were looked at as a plug number; after you’ve spent whatever you decide to spend, give the rest to the pensions.
Over the period while that was happening, a very large unfunded STATE debt to the pension system accrued. Interest on that debt had to be calculated at an interest rate equal to what the money would have earned had in been in the plan where it belonged; 8%-8 1/2%.
Now we have an unfunded laibility of more than $40 billion. So, interest on that is accumulating at about $3.5 billion per year. Look at how much the State has been contributing, and see why the debt keeps growing. We haven’t even been covering interest, much less new liability.
This isn’t this Governor’s fault, though I believe he has done things to exacerbate the problem, but I understand why he has done them. It’s not Ryan’s fault, nor Edgar’s, nor really Thompson’s. It is how the people we elected, executive and legislative branches, chose to finance our government spending. Instead of limiting spending or raising taxes, we skipped or shorted payments to the pension plan.
That’s why pension obligation bonds, done properly, are helpful. Interest rates on those bonds are in the 5-6% range, so we reduce the carrying cost of the existing debt. Unfortunately, there is an almost unavoidable temptation to skim some of the savings off the top, so that we can increase education funding, or avoid raising taxes, or whatever.
Comment by steve schnorf Wednesday, Jun 13, 07 @ 1:20 pm
…Although there has been talk that $4 bil of that 10 would go to education, perhaps in the form of a trust fund.
Comment by Rich Miller Wednesday, Jun 13, 07 @ 1:23 pm
Rich,
regarding Edgar’s back-loaded plan. The law was supposed to create a discipline to the payments, raising them to the level of debt service, so pension contribution was taken off the top, before any new spending. The law was burdensome, but any plan attacking the debt was going to be.
We discussed POBs under Edgar (they were a very new concept), but at the time debt issuances of multi-billions seemed unthinkable (boy were we wrong). We pursued them under Ryan (in the $6B range) but the GA didn’t want to give us the authority. Regardless, the statutorily required increasing payment WAS made for the next seven years. Since that time, the statute has been regularly changed, allowing different contributions to be made that match budget agreements reached.
Comment by steve schnorf Wednesday, Jun 13, 07 @ 1:30 pm
Tina, a wise man told me once, Never try to out-Madigan a Madigan. This is all part of his game. . . he loves this time of year
Comment by N Wednesday, Jun 13, 07 @ 1:37 pm
steve schnorf.
Thank you so much for your input. This is turning out to be a non-rancorous, intelligent discussion.
Would I be mistaken if I were to say that no recent governor wanted to bite the bullet regarding the actuarial obligation accruing each year?
As a result the legislature got to spend the current state revenues for other purposes. leaving huge holes for the future to be filled — one way or another.
The only things I do not remember hearing were the righeous bleats from the pension fund managers. As guardians of the funds, they produce annual reports which show the unfunded accrued liabilities. In this they should be protecting the effective future benefits due retirees. I would think that to have been a fiduciary responsibility.
Comment by Truthful James Wednesday, Jun 13, 07 @ 1:49 pm
James,
There have been bleats from the pension managers, but loud ones only in the past 5 years.
Add the GA to the people not wanting to bite the bullet, and I think you’re very accurate.
Comment by steve schnorf Wednesday, Jun 13, 07 @ 1:54 pm
James, Rich, and Steve, great comments. Another issue that gets overlooked in this discussion is the present structural cash flow deficit at all three systems. Basically, the cash they collect from their members plus the State contribution falls far short of the annual payments to retirees. This problem requires the funds to either use investment income or actually liquidate investment assets in order to pay benefits. There are differing opinions as to whether this is “normal” or cause for concern, but in any case it is occurring and will not go away any time in the foreseeable future.
The implication for the proposed lottery lease and/or more POBs is that a fair amount of the new funds could be by necessity used to pay pensions and therefore never get invested or affect the funded ratio of the systems.
Comment by NumbersGuy Wednesday, Jun 13, 07 @ 2:21 pm
Question:
I have been able to grow my IRA’s quite nicely with contributing what I am allowed. Why is it that the state can’t invest money and get even an average return on it? Who or what is managing the states pension funds?
Comment by Papa Legba Wednesday, Jun 13, 07 @ 3:05 pm
So…how much do we really want to pay to bail out the pension system? And how much would this
as yet poorly described lottery lease really cost us. What is the range of possibilities. We get x billion but we have to find another fund to make up 600 mil a year in school funding. Pension loan payback interest costs are lowered but in relation to what potential loss of income over whatever period of years the lease is in effect?. I don’t know what it brings in over expenses now–say a billion a year?–but if the purchasers recoup their expenses in 15 years and the rest is profit, including increased profits from better management and perhaps a “loosening” of some gaming regs, which is more–the savings from reduced interest on the debt or the lost future profits plus lost ed funding. We haven’t see the assumptions or the numbers.
The past is past, it doesn’t matter whose fault it. What matters is what we have to pay from here on out. And we don’t know. Do we want to trust Blago and Co to tell us?
Maybe it would be cheaper to sell the pension system. Would somebody buy it?
Comment by Cassandra Wednesday, Jun 13, 07 @ 3:13 pm
Pops,
The pension funds get excellent returns on their investments. The revenue from the last bond issue averaged double digit returns each year since. Simple arithmetic makes the gov’s pension proposal a good idea.
Comment by Bill Wednesday, Jun 13, 07 @ 4:11 pm
Bill –
It ia correct that the Pension funds are getting great returns on their investment.
The fact is that over the past several years they should have had a lot more money to invest. The governors and the legislature decided to postpone the day of reckoning in the hopes that some scheme would appear on the horizon.
Now we have a house of cards. Leasing the lottery will not replace the money which the schools are supposed to be getting, so we must raise taxes elsewhere.
We have created a whols system of entitlements from pensions to the CTA to the schools, etc. — Entitlements which are to benefit neither the pensioneers, the passengers nor the pupils. Only the bureaucratic organizations win.
Comment by Truthful James Thursday, Jun 14, 07 @ 8:25 am