By: Mark Glennon*

 

It’s a lesson you learn fast doing insolvency work: The first step towards recovery is admission of  exactly how bad things are. It’s hard, as I learned doing that work as a lawyer. Emotions, outdated facts and ego get in the way. That’s why control of insolvent companies is usually taken away from those responsible and banks with bad loans usually take the initial loan officer off the account.

 

Illinois, at long last, may be accepting reality.

 

Help came last week from the Apocalypse Now report from the Institute of Government and Public Affairs at the University of Illinois, which said the true state budget deficit is roughly twice as big as thought — some $9 billion. Especially encouraging was embrace of the report by two influential political reporters who’ve been telling us for years that the crisis is exaggerated. Greg Hinz at Crain’s summarized the report immediately, with no criticism. Rich Miller actually did an I-told-you-so bit. Whatever. Let’s hope they stay on that track, perhaps by noticing that the report still badly understates the true deficit because it does not include multi-billion dollar annual increases in unfunded pension liabilities.

 

Incumbent politicians have subtle but immense power to set the narrative, and Governor Rauner’s tough language alone also has moved the needle towards realism. Solutions remain to be proposed and fought over, but at least the fog is starting to lift enough to see the true battle line.

 

Credit Rauner for injecting the perfect word into the dialogue, “turnaround.” That term captures realism yet retains optimism that the crisis can be fixed. Despite success as an investor, Rauner had his share of dogs that required a “turnaround team,” as he described his new appointments last week.

 

He was criticized during the campaign for playing “hardball” on one turnaround. Memo to those who haven’t done them: That’s how turnarounds succeed.

 

But in Chicago, the narrative can be summarized as “don’t scare the children.” A sane Chicago mayoral campaign would be debating a 90-day emergency insolvency plan. Instead, Mayor Emanuel recently delivered, before an invitation-only crowed, his detailed economic plan for his next term. It’s as if Pat Quinn wrote it for him — mostly boasting about revival, accomplishments and future “investments.”

 

The words “budget” and “pensions” don’t appear even once in the plan.

 

In other comments he seems to have pinned hopes on getting financial help from the state. Rahm’s political judgement is usually sound, but can anybody really envision that?

 

No hint at solutions from any of his challengers, either — all populists, led by Alderman Fioretti. His idea? Slap penalties on traders who opt to run their transactions through Chicago exchanges and on suburbanites who come into Chicago to work. Oh, sorry, I said that wrong — those are “transaction taxes” and “commuter taxes” that he wants.

 

The Chicago election is a farce, and the wheels on Chicago may fall off very soon. The only hope is that Rahm will be, um, Rahm — that he will forget what he says during the campaign and become a hardball turnaround artist after the election. We will be writing more about Chicago’s crisis, and those of other municipalities, many of which are train wrecks whose stories are not getting out.

 

On that score, one particular town caught our attention. A reader from suburban Country Club Hills yesterday sent an SOS email about their financial straits. To validate the horrible story we tried to find their standard financials — the CAFR, which should be public. Here’s what you get when you search their site for it: “Lorem ipsum dolor sit amet….” Turns out WGN and the BGA have been on them before about shoddy financial reporting, and we will have to dig hard to find out about what may be an imminent meltdown. Some other cities have been open and honest about their crises, particularly Rockford and Kankakee. Others will continue to pretend, extend, deny and delay.

 

But here’s a safe prediction: 2015 is the year that authorization from Springfield for Illinois towns and cities to file for bankruptcy becomes a leading, headline debate. They cannot do that without state authorization. Let’s get on with that debate. The inevitable is here.

 

*Mark Glennon is founder of WirePoints

 

Update, January 28, 2015: Our follow-up piece on Country Club Hills is linked here.

 

 

 

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Mike

I know, typo, meant to say, Note not all municipalities in Illinois are home rule.

Mike

That should be $40.331M.
Total Capital Assets, Net, May 1, 2007: $40.331M.
And note note all municipalities in Illinois are home rule.

Jim Palermo

Mike, not all Illinois municipalities are home rule. A population exceeding 25,000 person automatically qualifies a municipality as home rule and smaller villages and cities may go to referendum to request home rule powers. Incidentally, in the last couple of years a Chicagoland municipality (the name escapes me) lost its home rule status when the population fell below 25,000

Mike
The last bond Official Statement found on the EMMA MSRB website is for $8.765M Series 2009. Here’s a notable statement from that document for property owners and bond holders. “The City is a home-rule unit of government under the 1970 Illinois Constitution and as such has no tax rate limit or debt limit, nor is it required to seek referendum approval to raise its tax rate or to issue debt.” And… “The City is a home rule unit of local government, by virtue of its population under the Illinois Constitution and, as such, has no general obligation debt limit, nor is it required to seek referendum approval… Read more »
Jim Palermo

Curiously I find no 2013, 2011, 2009, or 2007 election results for the Country Club Hills City Council on the Cook County Clerk’s web site. http://www.cookcountyclerk.com/elections/results/Pages/default.aspx. Results for the Mayor, Clerk and Treasurer do appear for 2011 and 2007.

Mike

The village website has an Agenda and Minutes for Board meetings, but no Board Packet, no Attachments, no calendar of upcoming meetings, and no video recordings of board meetings posted on the village website.
The board has been meeting meeting every other week or sometimes weekly Mondays 7PM, there was just a meeting agenda for Monday night January 26, 2015.
There is no salary and benefit information posted on the village website as required by Public Act 097-0609.

Mike

Country Club Hills also strikes out on the section of the Cook County Treasurer website titled, “Taxing Districts’ Financial Statements and Disclosures.”
Most taxing districts have 2013 & 2014 filings.
Country Club Hills most recent filings: 2009 & 2010.

Mike
The Illinois Comptroller website contains no AFR reporting for Country Club Hills for 2014 & 2013, only 2012. The Illinois Comptroller website also has no TIF Reports for Country Club Hills’ two TIFs for 2012, 2013, & 2014. The Illinois Comptroller website draws a blank on Annual Audit reports for Country Club Hills for 2013 & 2014; 2012 says, “Annual Audit awaiting approval.” Now the Delinquent Reports section of the Illinois Comptroller website, Country Club Hills hits a home run. Eight (8) Delinquent Reports as listed above. Maybe put some teeth into the required financial reporting from the municipalities to the State Comptroller.. You don’t file required… Read more »
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