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* The Sun-Times editorial board thinks that the special session is a dumb idea…
Now Gov. Blagojevich has called the lawmakers into special session, which started the new tab for taxpayers. Maybe he hopes that will put pressure on legislators to bow to his budget demands. But we expect the voters [will] blame both him and lawmakers for this costly mess.
And why have all lawmakers in Springfield anyway? We know their only role is to approve whatever Blagojevich and the top legislative leaders agree on. Let them go home until a deal is struck.
* As you know, on Monday, Blagojevich’s people were saying that the House’s Committee of the Whole meeting was a fantastic idea and just what the governor wanted. By Wednesday, he was refusing to attend the hearing and claiming that Speaker Madigan was “more interested in playing games and taking solutions off the table than trying to find solutions to solve real problems.”
Curiously enough, none of the TV reporters who were granted interviews yesterday asked the governor about this abrupt switch in attitude…
‘’This is a three-ring circus. It’s not designed to solve any problems,'’ Blagojevich said in an interview with WICS-TV in Springfield.
* And he’s ramping up the vitriol against Madigan, despite the clear fact that he doesn’t have the votes to pass almost any of his legislation through the Senate, either…
Meantime he’s calling Speaker Madigan a “Right wing conservative”
“You can’t be a democrat if you pass a budget that takes healthcare away from 225 thousand kids. Even President Bush wouldn’t be for a budget like that. Mr. Madigan and the house democrats passed a budget like that.” Said Governor Rod Blagojevich, D-Illinois.
Please.
* This is worth noting…
Blagojevich and Senate President Emil Jones, D-Chicago, have proposed a budget that includes a mix of new casinos and higher business taxes to generate $5 billion for health care and education.
The problem is, the Senate has only passed the gaming component of the budget, and that bill was fatally flawed because it locked out south suburban communities that have been vying for a riverboat. The rest of the governor’s package is still stalled in the Senate, a fact that continues to be overlooked or brushed aside by the media.
* Thankfully, the Tribune took a look at opposition in the Senate to the governor’s Lottery proposal, but buried it underneath the much sexier Madigan vs. Blagojevich fight…
Sen. Kimberly Lightford (D-Maywood), who chairs the Education Committee, said the administration failed to explain how it would replace the more than $600 million the lottery provides education each year if it is leased. It provides nearly 10 percent of the state’s annual contribution to schools.
Lightford lashed out at suggestions that replacement funds could be raised by closing more corporate loopholes or by exploring other revenue options.
“I can’t support a concept that does not clearly demonstrate to me how we would make up the revenue,” she said, saying the plan is “totally unacceptable.” […]
Sen. Don Harmon (D-Oak Park) said there is a “great deal of anxiety” in the Senate about a lottery lease, but he said he is prepared to call a vote Friday on the governor’s resolution.
* I told you about that resolution yesterday. At best, it’s an empty gesture - merely calling on the General Assembly to do something about the pension funding situation by the end of the session. John Patterson makes an excellent point today…
The resolution is co-sponsored by state Rep. Jay Hoffman, a Collinsville Democrat and a key Blagojevich ally.
And that leads us to May 10… Here’s what Rep. Hoffman had to say on that date when the Illinois House, by resolution, voted 107-0 to reject Blagojevich’s $8 billion business tax plan.
“We’ve never governed by resolution,” Hoffman told reporters after the vote.
“I have never in the 16 years that I’ve been here ever seen us govern by resolution. I mean the next resolution may be congratulating some football team for winning the state championship.”
Indeed, the resolution filed right after Hoffman’s congratulates a Chicago school principal on her retirement.
The bottom line here is that nothing that has been done so far this week is getting us any closer to fixing the problems. If anything, they’re further away from a resolution than they were a week ago.
* More special session stories, compiled by Paul…
* Lawmakers furious with governor over budget impasse
* Blagojevich skips Illinois House hearing on budget
* Blagojevich misses Illinois House budget hearing
* House fights lottery lease
* Lottery plan compounds animosity
* Pension costs growing sharply for IL government
* Bethany Carson: Many answers, few questions
* Lawmakers in special session without governor
* Plenty of doubt over lottery sale plan
* Lottery sale plan may get nixed
* Editorial: Simmering Mushrooms
* Cost of special session
posted by Rich Miller
Friday, Jul 6, 07 @ 9:51 am
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“…he’s calling Speaker Madigan a “Right wing conservative”
Welcome to the Dark Side, Mr. Speaker.
Comment by Judgment Day Is On The Way Friday, Jul 6, 07 @ 9:54 am
Since there seems to be governing by resolution, why don’t they introduce a “no confidence” resolution against the governor?
Comment by Crimefighter Friday, Jul 6, 07 @ 10:04 am
Why don’t they just pull them out, measure and get this nonsense over with…
Comment by Chicago Cynic Friday, Jul 6, 07 @ 10:14 am
I liked the fax today Rich. Good stuff and in my opinion very accurate. Nobody really seems to be talking about today’s market either. Not exactly the best time to throw $26 billion into the market.
Comment by Truth in Budgeting Friday, Jul 6, 07 @ 10:23 am
How can last year’s budget be a right wing Republican budget? Isn’t this the same budget that Governor Baloneyvich campaigned and was re-elected on just 8 months ago ?
Comment by Napoleon has left the building Friday, Jul 6, 07 @ 10:24 am
Time is running short! They need to start working on the August Budget.
Comment by A Citizen Friday, Jul 6, 07 @ 10:35 am
Maybe the Senate should just pass the Jones/Blago budget(more pay raises and jobs for the jones) and Madigan with members of the people’s house pass their budget. Then let the conference committee try to solve the pouzzle. Oopppps, that did not work before.
The Chicago Civic Federation pointed out what GASB has been saying about pension with great health care plans. Maybe the state should start an universial health care program taxed ( i mean funded) through payroll deduction for all Illinois citizens so that a homeless person gets same health care as the Governor minus the airplane.
Comment by keep up w/ the jones Friday, Jul 6, 07 @ 10:37 am
The sound bite that the House-approved budget “takes away” health care for 225,000 children doesn’t sound right to me. There are only 151,000 children enrolled in KidCare. Is he referring to changes in Medicaid eligibility? Or is he really trying to say that his proposed budget would have covered an additional 225,000 kids?
Comment by the Other Anonymous Friday, Jul 6, 07 @ 10:41 am
This whole issue is exactly like vaporware in the computer world. “I got this great concept I want you to buy into. I cannot really give you a working model or show you details on how it works, but my financial projections look good. Just trust me, it will be very successful. If you disagree then you are an idiot who needs to be forced into buying my idea. Now let’s work together.”
Comment by zatoichi Friday, Jul 6, 07 @ 10:47 am
Sorry to say Rich, but your fax today missed out on some fundamental points-
1) It is a debt of 40+ billion now. Taxpayers are paying interest on that debt of 8.5% per year. That means that whether the state puts money whether the state makes budget payments to it or not, we owe that interest.
So, you have pretty much three options:
1) Pay down the principle to reduce the debt with a big payment.
2) Refinance to an interest rate lower than 8.5%.
3) Make an annual payment that gets you there over time by paying the full interest plus the principal (like a mortgage).
The Governor likes options 1 and 2.
Rich likes option three.
Option 3 will cost us over $5 billion a year starting this year. Where do we get that money?
Comment by incorrect Friday, Jul 6, 07 @ 10:48 am
No, I don’t like option three. Read it again.
Comment by Rich Miller Friday, Jul 6, 07 @ 10:50 am
Here is the funny thing Rich -
All the business and tax groups seem to favor the Governor’s plan.
They keep harping on how you can’t sell/lease an asset to pay for operating costs. But you can sell/lease it to pay for debt.
Nobody has proposed that it pay for operating costs. The Governor’s plan is to put it towards debt.
Even the conservative business groups think this is a good idea. Maybe Madigan isn’t a conservative republican after all.
Comment by incorrect pt 2 Friday, Jul 6, 07 @ 10:52 am
I stand correct. I think Chapin Rose did a very good job of addressing current market conditions.
Comment by Truth in Budgeting Friday, Jul 6, 07 @ 10:53 am
Incorrect, you are incorrect again. The business groups are not all in support of the governor’s plan. Weren’t you listening to the Committee of the Whole yesterday?
Comment by Rich Miller Friday, Jul 6, 07 @ 10:54 am
you said to just make payments, but spread it out longer over time, and not to get to the full 90%.
Guess what - that still costs over $5 billion a year because you are still paying 8.5% interest on the debt each year. You can’t just ignore the interest they charge the state.
Comment by incorrect pt 2 Friday, Jul 6, 07 @ 10:54 am
Rich, I thought the Fax today was dead on. When standard narrative becomes conventional wisdom, it’s time to take another look. It was a real thought provoker.
Problem is, another look from these characters would likely simply be used as a way to punt the ball down the field irresponsibly, rather than figuring out a responsible way to address the issue. Rod just needs to suck it up on the tax increase pledge and stop trying to shoehorn creative revenue enhancesments around his pledge. It’s not going to work for three more years.
BTW - what do think of the idea of having the right of recall in a new state constitution.
Oy vey.
Comment by Chicago Cynic Friday, Jul 6, 07 @ 10:55 am
Rich -
I listened. I understood. Did you?
They are opposed to leasing the lottery if it goes to operating costs. It isn’t. Nobody ever proposed that it would.
They said they support it if it goes to pay off pension debt. The lottery would go to pay off pension debt. Maybe they just weren’t paying attention?
Maybe should actually tell them what the plan is, and then ask them if they support it.
Comment by incorrect Friday, Jul 6, 07 @ 10:57 am
“All the business and tax groups seem to favor the Governor’s plan”
Really? The Commercial Club and the Taxpayers Fed didn’t seem to support it.
Comment by Truth in Budgeting Friday, Jul 6, 07 @ 10:58 am
I listened, and you’re wrong.
But, go ahead, try passing this turkey through the Senate.
Comment by Rich Miller Friday, Jul 6, 07 @ 10:59 am
“Curiously enough, none of the TV reporters who were granted interviews yesterday asked the governor about this abrupt switch in attitude… ”
Perhaps the reason the TV Reporters are not asking obvious questions is because they are planning to pull a “Rebecca Rausch” and go to work for the administration two weeks after softballing Blago for the evening news as just Rebecca did …….
Comment by Larry Mullholland Friday, Jul 6, 07 @ 11:01 am
Wow what a meltdown. This is the first I have heard that President Bush does not spend enough money.
We have a governor with presidential aspirations who is missing in action most of the session, appears to be in violation of the Illinois Constitution’s residency requirements, flaunts hiring policies and spends millions transporting his sorry self to Springfield resorting to namecalling!
I thought that we all learned that resorting to namecalling is the last refuge of one who no longer has any intellectual arguments to make.
Lets buckle down and trim whatever spending needs to be trimmed, and figure out how to run this government with what resources we have.
Grand schemes which are designed to improve the governor’s national chances will do nothing but bankrupt us faster
Comment by Plutocrat03 Friday, Jul 6, 07 @ 11:02 am
Nah. I know most of those people. I could be wrong, but I doubt any are considering that at the moment.
Comment by Rich Miller Friday, Jul 6, 07 @ 11:03 am
I agree the reporters were soft on Blago. Carol Marin’s interview in his office made him look like a leader he is not to average joe schmoe in the Chicagoland area rather than sharing the real Rod.
Comment by Conservatives for Madigan Friday, Jul 6, 07 @ 11:04 am
Rich - I hope they do pass it through the Senate. That would be a good idea if they did. I don’t care what they do - lease the lottery, lease something else. They need to get a big dollar amount to pay the principle down. I like their Lottery plan because it does just that.
Rich - All the business groups read off their talking points. Listen to them now. They all say:
“You can’t sell or lease the lottery to pay for operating costs.”
That is their opposition. But it is a red herring because that isn’t even on the table.
If you don’t understand that, you fell for it too, Rich.
Comment by incorrect Friday, Jul 6, 07 @ 11:06 am
===appears to be in violation of the Illinois Constitution’s residency requirements===
Constitution…
====They shall keep the public records and maintain a residence at the seat of government during their terms of office.===
“Maintain a residence” and “live there” are two wholly different things as far as I can tell. I guess you could interpret “residence” as a local voting presence, but it doesn’t say “primary residence” so I doubt you can make that case.
Comment by Rich Miller Friday, Jul 6, 07 @ 11:06 am
Interesting article in the New York Times and Washington Post that has not appeared in any Illinois publications (to my knowledge). 43 states have a budget surplus this year and are looking at how to either spend it, or remit it back in the form of tax reductions.
The seven states with budget deficits are:
Comment by Downstate Friday, Jul 6, 07 @ 11:08 am
Interesting article in the New York Times and Washington Post that has not appeared in any Illinois publications (to my knowledge). 43 states have a budget surplus this year and are looking at how to either spend it, or remit it back in the form of tax reductions.
The seven states with budget deficits are:
Comment by Downstate Friday, Jul 6, 07 @ 11:08 am
Sorry about that. The seven states with budget deficits are:
Deleware
Illinois
Kansas
Massachusets
Michigan
Rhode Island
Tennessee (suffering from the now discredited TennCare health program)
Wisconsin
Comment by Downstate Friday, Jul 6, 07 @ 11:11 am
Why would a reporter not ask such a critical red meat question about his obvious flip flop on the Thurdsay session?
Does the Gov have a list of questions that a reporter agrees will NOT be asked prior to an interview?
Comment by Larry Mullholland Friday, Jul 6, 07 @ 11:11 am
Chicago IS the seat of government in Illinois.
Comment by Bill Friday, Jul 6, 07 @ 11:13 am
My last word because Rich seems to be getting upset with me.
It’s third grade math:
1) Lottery plan ($10 billion)
Current Plan: Lose 850 million per year in interest.
Proposed Plan: Lose 630 million in lottery revenues.
Result? You come out $220 million ahead under the proposed plan.
2) Pension Obligation Bonds ($16 billion)
Current Plan: Pay $1.36 billion per year in interest.
Proposed Plan: Pay $880 million per year in interest, plus the pensions systems have $16 billion to invest.
Result? You come out $480 million/year ahead under the proposed POB plan, plus any returns on investments from the $16 billion.
Comment by incorrect Friday, Jul 6, 07 @ 11:19 am
Illinois is also one of eight states that has not passed any form of Jessica’s Law to lock up child molesters for a minimum of 25 years.
Comment by Crimefighter Friday, Jul 6, 07 @ 11:21 am
You forgot that you come out behind when you sell the Lottery for two reasons.
1) What about the $650 million a year in education payments?
2) You’re leaving a whole lot of cash on the table by leasing the whole thing.
Comment by Rich Miller Friday, Jul 6, 07 @ 11:23 am
Also, as I recall, when the governor came out with his latest pension bond proposal, his people specifically said it was important that it be done quickly to take advantage of the low stock market. The stock market is hitting record highs lately, so is it too late? And if it is or is not too late, why wasn’t that bill introduced in March or April and passed through the Senate?
Comment by Rich Miller Friday, Jul 6, 07 @ 11:25 am
Rich,
Do we have any info on how the earlier $10 billion pension bond issue performed?
Comment by S. Illinois Friday, Jul 6, 07 @ 11:26 am
By the way, I’ve changed my position on leasing the Lottery since talking to Sen. Cullerton. His arguments make a lot of sense.
Comment by Rich Miller Friday, Jul 6, 07 @ 11:26 am
SI, the bond issue is going well so far, but it was sold during a period of lower interest rates. This one would be slightly riskier because the difference between interest and rate of return is smaller. Still, it’s probably not a horrid idea. My point in the Fax this morning was revisiting 90 percent funding by 2045.
Comment by Rich Miller Friday, Jul 6, 07 @ 11:29 am
Rich is right in the fact that the state is not a corp that could crumble so it doesnt need a funding ratio of 90%. I don’t think the pension system is our biggest worry in Illinois, its Medicaide. With the huge expansions, with no asset testing the last few years under this governor (and lets face it, Radognos senior care and Kid care expansions in the 90’s) combined with the ever escalation of health care costs, Medicaide will consume all of our tax revenue (GRF) in 20 years. Thats the 800 lb gorilla for some reason no one wants to focus on.
Comment by Moderate Repub Friday, Jul 6, 07 @ 11:31 am
So, Filan’s plan to get us out of the pension “crisis” is to sell the cow and take out another mortgage on the house.
Perhaps us skeptics should be sending him empty milk cartons.
As to those $60 billion savings, I’m just a humble
(Papa would say simplistic) taxpayer but could we get a little more data here. $60 billion over exactly how many decades. Were the losses in education funding and the cost of servicing the additional $16 billion in debt accounted for in the 60b. What assumptions did you or the state’s actuaries make as to how much the fund will earn over these decades. Are we sure we aren’t borrowing at more than we’ll earn? And if you can predict the market that precisely….what are you doing in state government. Why aren’t you on Wall Street. Do your Goldman pals know you can predict the future?
Comment by Cassandra Friday, Jul 6, 07 @ 11:32 am
And, “Incorrect,” I’m not at all getting upset with you. But here’s the thing, if you bring it on, you have to expect that I’ll give it right back. Everybody here has an absolute right to self defense, including myself.
Comment by Rich Miller Friday, Jul 6, 07 @ 11:37 am
Selling bonds…………$50,000,000 commission?
Comment by South of I-80 Friday, Jul 6, 07 @ 11:39 am
Wow…reading all this wore me out
Meanwhile Blaggo is calling specials for Sat and Sun both on pension systems….no mention of passing a budget
Comment by Mr. W.T. Rush Friday, Jul 6, 07 @ 11:39 am
Rich, though I’m against the leasing of the lottery, you leave a big thing out of your calculation: risk-adversion. What if people stop playing the lottery so much? Say the day after they lease the lottery, they expanded Casino gambling — one downtown, one at O’Hare, one in Waukegan, etc. What if the anti-gambling folks ever got their act together and made poor people wise up and stop playing the lottery. Indeed, once the lottery is sold, now there’s no need to worry about the tax benefits — people who otherwise wouldn’t have forcefully come out against this horrible regressive tax might do so.
Comment by lake county democrat Friday, Jul 6, 07 @ 11:50 am
Moderate Repub-
The average state/local pension system in the US has a funding ratio of around 88%, according to NASRA (www.nasra.org). Most such pension systems, including the IL Municipal Retirement Fund, do not have a continually swirling crisis as State of IL seems to have. Even to the casual observer, it seems obvious IL is doing something wrong.
Comment by Six Degrees of Separation Friday, Jul 6, 07 @ 11:57 am
Thanks Rich. I guess more to the point, are the investments off of the $8 million left from the first bond issue performing at a level that would provide any confidence in borrowing/ investing with the current, higher rates?
Comment by S. Illinois Friday, Jul 6, 07 @ 11:59 am
And here’s a link from IL Municipal Retirement Fund that “distinguishes” their goals and practices from the apparent goals and practices of the troubled IL state retirement systems.
http://www.imrf.org/employers/100_percent_funding_goal.htm#12
Comment by Six Degrees of Separation Friday, Jul 6, 07 @ 12:01 pm
Don’t ever expect hard-hitting political reporting from WICS TV in Springfield. It’s the “farm club” for recruiting Governor and agency PIOS, has been for many administrations now. Rebecca’s husband works there. The Champaign station is not much better.
Also, don’t expect deep coverage from ANY TV or radio news reporters in general. That’s not their bag: they only do headline-length reportage, process stories, and the “gotcha” (he said/she said) stories, none of which lend themselves to reasoned analysis or in-depth research. Add to that their very short deadlines to file and the need to keep the entire story to 90 seconds or less, and it means the best they do is a gloss of what happened, and not much of “why” it happened. Or what it means.
They are also easier to steer in some ways because their ability to do even that 90 seconds depends on access to the newsmakers. If they get too hard-hitting, they get shut out of the access and are overtaken by competitors who ingratiate themselves with less “hardball” questions. We see this on the national level with presidential coverage as well as statewide with governor soundbite.
The print and blog reporters have differerent sorts of situations, and more time and resources to use in covering a story, by comparison. They have more time to follow-up leads and find the people with the background.
Comment by Reporters too easy Friday, Jul 6, 07 @ 12:04 pm
Rich, three points.
1. You’re right that 2045 doesn’t make sense, but the reality is that we’d be better off moving that date FORWARD rather than backward. If you could pay off your credit card debt with a home equity loan at a much lower rate of interest, you’d be crazy to extend your credit card payments longer into the future. The 1995 plan doesn’t pay ANY principal for decades, and your proposal would make that even worse. The 1995 plan is such a bad debt policy, no credit card company in the world would give you those terms.
The financially responsible thing to do is to pay off as much of your high-interest debt as possible, as soon as possible. The simple math here says the state should issue as close to the full $41B of pension bonds as the market will allow, and get to 90 or 100% funded today.
2. The key “market timing” factor is the interest rate on taxable state bonds, which today would be somewhere in the 6 percent range, compared to the 8.5% cost for underfunded pensions. If you agree that the first pension bond did well (when rates were roughly 5 percent), then it’s true that the benefit of a pension bond today would be less, but it’s 2.5% a year instead of 3.5% a year. That’s still a significant savings. Would you tell a friend not to refinance their home on those terms because they could have gotten a better deal 4 years ago? It’s still a good deal, take it and run.
3. Your point about baby boomers is already incorporated into the actuarial projections used by the state pension plans. The projected pension liabilities in 2045 include not only the earliest baby boomers (who would be in their 90s), but those approaching retirement in 2045 who were born in the 1980s.
Comment by Some right, some wrong Friday, Jul 6, 07 @ 12:25 pm
Am I missing something here? All this talk about paying the interest on the bonds and how this saves us so much money seems to never mention eventually having to actually redeem the bonds. I guess since that is far enough in the future Blago is off the hook and some other guv will have to come up with the $16 billion!
Comment by Sick Of It! Friday, Jul 6, 07 @ 12:35 pm
Rich - you didn’t do a gotcha on “incorrect”.
If you read it again, he/she did take into account the 630 million from the lottery, and you still come out ahead.
We are paying 850 million per year on that 10 billion. By getting rid of that 850 million, we only give up 630 million.
That means we come out ahead, and we can tell our legislators to put that toward good use.
Its simple: we gain 850 million a year, and lose 630 million.
Why can’t you get that? They don’t need a replacement revenue for the lottery to make it work.
Did all our reporters and legislators flunk math?
Comment by hmmmm Friday, Jul 6, 07 @ 12:36 pm
Blago sounds like the “pot calling the kettle black.” I recall that Rod refered to himself as a Reagan Democrat when Reagan died. He didn’t bother to tell us he was a Reagan Democrat before he was elected in 2002. If he had done so, he would not have been elected in the first place.
I believe it would be fair to characterize Speaker Madigan as a conservative Democrattc like most of the white ehtnic politicans from the northwest and southwest sides of Chicago. But I don’t conisder him a “right-winger.”
The Governor looks very bad by not appearing before the House Committee of the Whole yeaterday. Madigan trumped him again after Rod called the special session.
The governor continues to poison the atmosphere by hurling invective at Madigan. His effort to demonize his opponents and escape blame for this debacle is doomed to failure. I guess when the Senators get tired/bored with Springfield this summer, they will demand a budget compromise with the House, and the Governor will simply become irrelevant to resolution of the impasse. As far as I am concerned Madigan looks bad too, he just looks better than the other two. When will they come to their senses?
The Madigan budget is inadequate, but the Madigan party line is that it’s the best we can do since the Republicans now have a seat at the table. I wish it could be otherwise.
All Democratic elected officials should be ashamed of the Democratic trumvirates’ miserable performance this session. They have discredited and disgraced the Democratic Party by creating gridlock, Aa Schnorf observed yesterday the meltdwon has become so bad, it is no longer entertaining. It’s now a lose-lose situation for everyone, especially the citizens of Illinois. Bad politics is bad governmnet and this the post-May 31 budget impasse is the worst that I can ever recall.
Comment by Captain America Friday, Jul 6, 07 @ 12:44 pm
Hmmm… you’re still giving up money for education that isn’t being replaced.
Comment by Rich Miller Friday, Jul 6, 07 @ 12:46 pm
Rich, I think your FAX today probably should provoke some discussion, but on the whole, I think you’re wrong and Filan is right. Rich, just paying the interest on the current debt costs more than we are contributing today, without touching the debt itself, and without funding the new annual normal cost.
90% may not be the right goal, and 2045 may not be the right date, but whatever we do to stop the increasing debt and begin, even slowly, to whittle away at the $41B (and growing) unfunded liability is going to be very, very expensive, and the longer we put off addressing it, the more expensive it’s going to be.
There are two differences between this and Medicaid. First is that the pension is hard debt-it HAS to be paid. Though I hope it never comes to this, we could stop expanding Medicaid, make eligibility more difficult, get rid of non-mandated services, cut rates, etc.
Second, the federal government helps us by paying more than 50% of our Medicaid bill, but they don’t help us pay off pension debt (that’s one thing our Congressional delegation could try to do for us, make POBs tax free rather than taxable bonds).
That’s the whole thing about the problem of structural imbalance. Eventually, any expense growing faster than inflation will consume all of our revenue. Obviously, with small expenses it takes longer, but a classic example is elementary and secondary education. As long as those expenses grow at more than about 4% a year, they will eventually eat up all revenue growth unless we revise our tax policies.
And, BTW, our pension expenses aren’t growing that rapidly, our pension payments are, very different things. Our pension payments are like taking out a 30 year mortgage and paying nothing the first 10 years, and then gradually start paying some of the interest, and working up to paying it all off by the 30th year. Your payments in year 20 are going to feel like you’re living in a MUCH more expensive house than you bought, but you aren’t. It’s just the way you chose to pay for it.
Comment by steve schnorf Friday, Jul 6, 07 @ 12:47 pm
Thanks for shedding some new light on this matter, Steve. I speak for myself in saying that your opinion is of greatest value of any poster on this blog.
Comment by Anon Friday, Jul 6, 07 @ 1:20 pm
Actually, Some Right, etc. has a point. If you believe you get can the right rates, why not refinance the entire pension bond debt and save a lot more.
Well, one reason might be that if most of your pension debt is held by bondholders, it makes it harder to play games with the pension fund. You can’t mess around with the bondholders—they’ll take you to court if you don’t pay. Harder for
Blago and Emil to use the pension fund as a cookie jar by postponing payments, etc. And they want those cookies.
Comment by Cassandra Friday, Jul 6, 07 @ 1:28 pm
Blagojevich only takes interviews when he’s sure that he’s not going to have to answer any difficult questions; and if a reporter does manage to make him uncomfortable, they will be punished by being denied access in the future. It’s media manipulation.
Comment by Squideshi Friday, Jul 6, 07 @ 1:29 pm
Thanks Cassandra. And I appreciate the snark.
I’ve often wondered why the state constitution requires a 3/5ths vote to borrow money from banks (capital bills) and a simple majority to borrow from workers’ pensions (paying less than the actuarially required contribution). Is it any wonder we owe $41 billion to those workers and have a crumbling infrastructure?
Comment by Some right, some wrong Friday, Jul 6, 07 @ 1:57 pm
Six Degrees of Separation - Friday, Jul 6, 07 @ 11:57 am:
I didnt say it wasnt a problem, I think being 49th (i think thats where Illinois is) in liability in the country is embarassing. I’m just drawing attention to looming medicaid crisis on the horizon. I think its something that will drain revenues from much needed priorities such as education funding, and the pensions. Before expanding, be able to pay for existing programs. The incresed cost for health care in Illinois is going to gobble us up. Just think, since Blago has come to Illinois, he has significantly cut govt (by his words anyway, thats a whole nother discussion) but managed to spend a BILLION dollars more every he has been here (except the year repubs got to the table)but the budget crisis was created by previous administrations, come on. Its his medicaide expansions that these billions have gone to, and they cost more and more every year when med inflaction runs at over 8% a year. It can’t be sustained without higher taxes, cuts in other areas, or loss of revenue to education, or combination of some sort. The voters don’t want his new spending plan but he can’t let go.
These discussions are just prequal to his real goal, ILLINOIS COVERED. THe guy jsut can’t let it go. Its really to bad, not that it would have happened, but I think (as do many others) that there was a pretty good climate this year for a form of 750, but it was squandered. It was disapointing that the President of the Senate (who has been vary public about his wish for education FUNDING reform, so much that some thought he wanted it to leave a legacy on it)that he didnt see it (or more likely ignored it)to partner up with Blago on Illinois covered. “Shame on you mister President, shame on you”
Comment by Moderate Repub Friday, Jul 6, 07 @ 2:02 pm
Not to mention right now we are not feeling the bonding program from 2003 yet becuase Blago backloaded the payments. Those payments, along with our intrest, and contribution levels will really hurt us, but thats not for 20 years, so get med spending under control, and make the required payment (not these bond firm payouts,and crazy schems from the GOv, JUST PAY THE CONTRIBUTION and maybe people will be for that. (if you know pensions, you know what I am talking about)
Comment by Moderate Repub Friday, Jul 6, 07 @ 2:05 pm
Rich - why not just put the 850 million you save each year from leasing the lottery toward education?
You get more than you would when you had it in the first place.
Comment by hmmmm Friday, Jul 6, 07 @ 2:05 pm
ok, then where do you make up the rest that you lose from the lottery? you’re netting out 200 mil
Comment by Rich Miller Friday, Jul 6, 07 @ 2:23 pm
To ‘Reporters’ at 12:04-
While not nightly newscasts, CapitolView on WSEC-TV/PBS Springfield, and Statehouse Week in Review on WUIS-FM/NPR produce weekly roundups of Statehouse events with members from the press corps. WUIS also covers the Capitol daily. You’re right though- good, substantial interviews are hard to come by.
Comment by Anon Friday, Jul 6, 07 @ 2:25 pm
Rich - I hate to step in here.
If you add 850 million to education, and then subtract out 630 million, you have 220 million more than you started with.
That’s the same as taking current education funding, and adding 220 million.
Unless you are using some mystery math.
Comment by point of order Friday, Jul 6, 07 @ 3:51 pm
Rich–I don’t think you are listening to hmmmm. If there is $850 million that has to be paid for pension interest if you don’t lease the lottery, then that $850 is going to be paid out of some revenue source. It doesn’t matter which one for this purpose.
Now, if you lease the lottery, you “save” that $850 million in interest expense. But you haven’t done anything to reduce the revenue that was going to be used to pay that interest payment.
So you take that $850 million in revue, use $650 million to replace the “lost” lottery revenue, and you’re still $200 million to the good.
RIght?
Comment by blueinaredstate Friday, Jul 6, 07 @ 3:56 pm
When you are dealing with politicians and numbers, please remember that when a politician says that 1+1=2 you better have one hand on your wallet and the other hand on your nose.
So please don’t get caught up in the $850 mil, $650 mil, $200 mil gerbil cage. All it will do is make you crazy.
Comment by Huh? Friday, Jul 6, 07 @ 4:44 pm
I originally thought they were very wrong to backload the initial POB so much. But after looking at it with a better understanding of what they were doing, I believe very strongly that they did the theoretically correct thing. Whether it turns out that they did the actual correct thing will depend on future circumstances and actions.
Comment by steve schnorf Friday, Jul 6, 07 @ 4:47 pm
On a lot of the POB stuff, pros can become cons, and vice versa. For example, one reason that POBs look good to some people is that they substitute debt that can’t be deferred; the bondholders, unlike the pension funds, have to be paid. Yet at some point you’ve created so much hard debt that the rating agencies will begin to see it as a negative, because you’ve lost a big amount of the flexibility you previously had to deal with temporary revenue fluctuations.
It ain’t simple, but as a general rule, and up to a certain point, POBs are a good idea, and this administration has done them well.
Comment by steve schnorf Friday, Jul 6, 07 @ 5:07 pm
The sale or lease of the lottery, even if it works and creates an additional yearly balance of $200 million, looks like a small part of the solution. $200 million in a 50-something billion budget is a few tenths of a percentage point.
Comment by Six Degrees of Separation Friday, Jul 6, 07 @ 5:42 pm
All this reminds me of our arguments with Bob Mandeville many years ago. Steve’s analysis is correct - to “dot the i’s”, some major influx of cash makes the most sense right now. Selling/ leasing the lottery has other problems and may not be the right vehicle, but if something isn’t done soon, you can call them junk bonds.
Comment by Mr. Wizard Friday, Jul 6, 07 @ 6:44 pm
This whole deal is a fraud. The pension fund isn’t an “obligation” or a debt. It’s a revenue-generating asset. A fully funded pension fund has sufficient assets in it so that those assets, plus the income they are predicted to generate, will pay off the pension we are predicted to owe.
When we talk about selling (or leasing) the lottery to fund the pension, we are talking about selling one income-producing asset to buy another income-producing asset. We are giving up the future lottery earnings for the investment returns we will earn on the pension fund.
When you look at it this way, it is plain as day that an advantage to the State from this transaction could result only if investing the sales price in the pension will produce more income than the lost lottery revenues. That means, if the lottery generates $650 per year forever and investments in the pension fund would generate $850, the deal is worth $200 per year, forever. If you assume a 5% return (pretty low), that’s the same as putting $4 billion into the pension plan right now. Higher investment returns translates into a smaller investment. So how is putting $4 billion or less into a $40 billion+ hole such a big deal or such a lifesaver?
Even for the relatively small value that is really on the table, there are some important questions that need to be addressed:
Why would anyone buy the lottery to earn $650 per year when they can invest the purchase price in the same investment portfolio the pension fund would have and earn $850? Finance 101 says you won’t accept a lower return unless you get lower risk. Is the lottery a lower risk than a diversified portfolio? Doubtful. And even if it is, that means the State is trading one asset for a riskier one.
If the lottery is not lower risk, then the investors will want a higher return. How are they going to get it? Expansion? New advertising campaigns? More interesting games? What can the investors do that the State cannot or has chosen as a policy matter not to?
And, of course, this deal doesn’t even make this minimum dent in the pension obligations unless all the profits go to the pension fund, which means that we’re taking $650 out of education. No two ways about it, that amount has to be replaced and I suspect that the administration’s end game in all this is to force a tax increase to replace that money, and that tax increase is the goal of all this. My only evidence is that the purported crisis and solution are two moronic for anyone to seriously believe.
Although, as Steve Schnorf points out, there is a limit on borrowing to fund the pension, the simple fact is that issuing bonds to fund the pension earns an arbitrage return that is essentially found money. The Gov did a great with the bonding before. Of course, it was probably dumb luck, and to hear the press releases, the administration doesn’t understand what they actually did or thinks we don’t. But that could be a part of the solution.
Comment by Just Me Friday, Jul 6, 07 @ 7:08 pm
Rich, I have one question. Was this governor actually a boxer in his day? I can’t accurately describe him on this blog. No leadership, points fingers, plays to the crowd, incompetent, inept, corrupt, and a total *******.
Comment by anon Saturday, Jul 7, 07 @ 8:41 am