By: Mark Glennon*

The debate consuming Springfield has now drifted into something hopelessly misdirected. With no real reforms even under consideration, history will treat the “budget debate” over the last couple weeks as a footnote.

Illinois has a financial crisis, not a budget crisis. That’s how former Illinois State Rep. Ron Sandack perfectly summarized it last week. The difference is everything.

Our crisis didn’t begin two years ago when the last budget expired. It began in 2001, which is when the last of the revenue gush from the roaring late nineties economy dried up. We haven’t had a balanced budget since then. I first wrote that Illinois was broke in 2002. Others saw it, too, but were ignored or didn’t speak up.

Yes, failure to enact a budget will cause massive, immediate harm. But that failure in fact would only speed up and concentrate what became inevitable in 2001 without drastic reform. Reform never came so it was just a matter of time.

The budget the General Assembly now appears ready to pass is just plain silly. It does nothing to address the $15 billion unpaid bill backlog. It doesn’t deal with the recent court order to pay Medicaid bills. It doesn’t fund the new school aid formula passed by the General Assembly. It doesn’t eliminate most of the spending cuts social service organizations have endured. Most importantly, even ignoring those things and more, it pretends to close a deficit that’s in fact two or three times larger than the obviously phony numbers used by Illinois to measure deficits.

What the budget would mean is a tax increase of about $5 billion dollars per year, roughly the same as was raised during the earlier temporary income tax increase. The tax increase is in separate legislation House Speaker Michael Madigan now says will be put to a vote today, Sunday.

If the budget and tax increase pass, expect the euphoria to last no more than a few weeks, maybe less. Illinoisans then will see that nothing has changed except the tax deduction from their paychecks.

They’ll see that nothing was really done about pensions. The pension reform bill now floating is a gimmick that will let unfunded liabilities continue to soar. They’ll see that worker’s comp costs weren’t reduced enough to keep employers here. They’ll see no term limits, which an overwhelming majority want, but that topic apparently has been dropped from the debate. They’ll see nothing on dozens of other reform items floated in recent years. Most importantly, they’ll see that the property tax freeze being discussed, even if it passes, is full of holes.

In short, they’ll see only a few bits of window dressing on a tax increase. The exodus of people and employers will accelerate and the tax base will shrink more rapidly. The credit downgrade everybody now fears from the budget impasse will just come a little later.

If, on the other hand, the budget and tax increase don’t pass, or if Governor Rauner vetoes them, well, let’s put it this way. “Just blow it up” has always been an option — a bad option but one with an important advantage. The deny-delay-extend-pretend crowd would be shut up once and for all.

What Illinois needs is a genuinely believable, comprehensive, five-year recovery plan. To be believable, that plan should include pretty much every reform mentioned in recent years. More importantly, it would have to include debt reduction, including unfunded pension liabilities, and there’s only one way legally to do that — bankruptcy. The United States Congress has to authorize bankruptcy for states.

To those who think otherwise I repeat my standard challenge. Show me the alternative. Show me a rough outline of a financial plan that truly puts Illinois on a path to financial stability without the debt reduction only bankruptcy offers. There is none.

*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.

 

 

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John
I’ve suggested bankruptcy for several years now. Illinois will never be able to pay it’s debt. It’s just not possible math-wise. And even if we got BR, there needs to be a major cut in spending. The pensions, sadly, need to be jettisoned. This means past retirees need to be cut off entirely. I’m sorry, I know that’s rough and I hate it. But it’s killing the state. Illinois also under BR could have a supervised 5 year recovery plan. Cuts but also increases in areas that create jobs, like infrastructure. Teachers would also need pensions deep sized. They’ll have to get 401b plans or similar vehicles… Read more »
Doug

Wow, this is depressing, some Republicans like Steve Andersson were paid off. Veto to be overridden by 3/5 of both chambers. Back to the death spiral. Fresh start will have to wait at least several more years.

Tough Love

Hardly. In short order, no Private Company will provide service to Ill w/o cash UP FRONT ……… which it doesn’t have.

bob oriole park

Note a few days ago Greg Harris said there would be an amendment to come dealing with the bill backlog. If the 1.25% income tax increase is going to bring in $5 billion as stated, seems to me the answer would be an additional 3.75% increase to pay off the backlog.

Doug

If Illinois filed for BK in 2002, maybe the pensioners get 70% on the dollar. Right now, maybe 45%? In another 10 years 5% In other words, the sooner the better.

Tough Love

Quoting …………….

“Show me a rough outline of a financial plan that truly puts Illinois on a path to financial stability without the debt reduction only bankruptcy offers. There is none.”

Not just true in Ill, but also in CA, NJ, NYC, CT, KY, PA, and a few others.

And ludicrously excessive Public Sector pensions & benefits is always the ROOT CAUSE of the problem.

nixit
While some people will leave Illinois, many will stay due to jobs or family or being underwater on their mortgage. Indentured servants to the state, if you will. The legislature will consider this a victory of sorts. Some things are just out of your control. But there are things in your control. Encourage your kids to attend out-of-state universities. Unless your kid gets a scholarship or has to stick around to work through school, I see no need to give the state institutions any more of my money. Send your out-of-state acceptance letter to your local reps, showing them the $100K they’ll be losing out on. And… Read more »
LandOLinkin
Excellent points! I may steal some for twitter! At this point, AFSCME and SEIU aren’t quite the California Nurses Union (which tends to be at the forefront of everything out there, as long as they get their $100 per hour rate protected), but we’re already feeling the affects of one-party rule and Madigan waiting until the last minute and then shoving everything down our throats. Rauner probably won’t win in 2018 due to Union vote, non-income tax payer vote and non-property tax payer vote. Eventually – as stated in the article – we’re going to be back in the same position, only it will be a deeper… Read more »
Crabcakes

Fantastic writing-thank you. Don’t know if she came up with phrase, but K. McQueary in Trib coined the term–“The Too late State”, that’s how I feel as a home owner and taxpayer.

Rick

Yes the taxpayers will wake up and see no reforms structurally. Just a revenue bill retroactive. Why no bill to cut expenses by 5 billion?

Jeff Carter

Tell me again why I should support or vote for the Republican Party in Illinois. Yesterday they rolled over and showed their belly. Clearly, they don’t know negotiation. Clearly they don’t understand math or finance. Crime is on a big upswing in Chicago. My friend’s son was dragged into a car at gunpoint 11PM Southport and Fullerton. We had a shooting in the evening on Monroe and Michigan. Not at 2am, in the evening when there were people about. Some people will tolerate mismanagement and the outright corruption. No one will tolerate violence.

Steve

Excellent, well written article. Every GA member should read this now, before Madigan’s phony vote.

Michael

The stampede begun quietly years ago. The students leave for universities outside of IL and don’t come back, the young families find jobs elsewhere and don’t build houses, people who have kids still in schools or getting close to retirement are making plans, and some retirees go to no-income tax states since they expect the socialists to tax their retirement pensions soon and find the property taxes a huge burden. The Illinoisans don’t protest, they just leave quietly and return just to visit.

I’m convinced the demo(c)rats want the high-tax structure to be in place to make it harder for reforms even in bankruptcy.

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