Illinois...a sad State of affairs

[doctorwho]

Apr 8, 2010 9:01:43 GMT -6 asmodeus said:

It was just released that 47% of Americans pay NO federal income taxes (or actually get credits). The top 10% of earners pay 73% of the taxes. Of course, most of the people paying no federal income tax pay other taxes such as sales taxes. But do we really want a society where half of the population pays NO FEDERAL TAXES and yet has a vote on how much to tax the rest of us?

It's just sickening.

finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0&.v=1

and guess which way they vote ? If I hear the term Robin Hood one more time I may scream...
it's becoming a lot easier to sit back on one's ass and do nothing - if you work hard and bust your backside- somehow you "owe' to to everyone to take care of them.
Yes I realize there are those who are truly needy thru sometimes no fault of their own- there are equally as many if not more who just look to someone else to foot the bills

and people wonder why the word socialism is used when one hears Biden talking about redistribution of wealth

Kruschev may prove right after all -- we will destroy ourselves from within

[southsidesignmaker]

Doc,
"Yes I realize there are those who are truly needy thru sometimes no fault of their own- there are equally as many if not more who just look to someone else to foot the bills"

_______________________________________________________________________________

Sorry to disagree but there are many more doing nothing and getting a free ride.

All one has to do is go to the local grocery store and ask how many link card customers arrived today. Better yet go to the 7-eleven and ask the hard working clerk the same question. The answer may surprise you.

[asmodeus]

From Bloomberg:

U.S. Decline, Sloth Look a Lot Like End of Rome: Mark Fisher

March 30 (Bloomberg) -- Historians cite the late second century as the turning point of the Roman Empire, when the once- proud, feared society began its descent into infamy.

As the ruling class was undermined by civil wars and attacks by outsiders, the Romans’ respect for law and social institutions began to erode. In the end, a combination of political and economic mistakes led to the empire’s downfall.

The U.S. today is a mirror image of the Roman Empire as it tipped into chaos. Whether we blame our bloated government, a greedy elite or a lethargic population, the similarities between the two foreshadow a gruesome future.

The Roman economy grew fat from the plunder of conquered territories and the added productivity offered by new lands. The waning of expansionism didn’t bode well for the empire.

While the U.S. ascended quite differently, it also used its position as a superpower to fuel economic expansion. Because the country had the strongest military and economy in the post-World War II era, the U.S. dollar became the de facto global reserve currency, ensuring endless competitive advantages -- which have vanished in the last decade.

Americans have become less productive while relying more on social safety-net programs such as Medicare, Medicaid and Social Security -- and now expanded health-care insurance. Worse, like the ancient Romans, a sense of entitlement has replaced the drive and motivation we once championed. With easy access to abundant government handouts, it’s no wonder so many jobless people have stopped looking for work.

Bread and Circuses

In the fifth century, the Roman political elite began searching for ways to distract its population from the hopelessness at hand. Bread and circuses postponed the ultimate fall. The tactic stopped working when people realized their bread tasted stale and sensed the true scope of the impending disaster.

The U.S. government’s version of bread offerings proliferated throughout the fiscal crisis, in which collapse was averted only by a massive financial bailout and an endless supply of paper money, along with the rest of the seemingly endless sustenance being shoved down America’s throat.

Meanwhile, the administration hasn’t yet tackled the most pressing issue: job creation. Given the current state of the labor market, American workers can’t possibly provide enough tax revenue to support the government’s swelling debt.

Even more unsettling is the government’s inability to fix the financial crisis. After a stream of stimulus programs and bailouts, the Federal Reserve continues to print enormous quantities of dollars and buy the nation’s debt.

California Like Greece

Many state governments are in even worse shape. With California’s 10-year debt currently yielding about 4.5 percent (municipal debt typically yields less than 10-year Treasuries, which now yield about 3.9 percent), the state poses the same sort of danger to the U.S. that Greece does to the European Union. If the federal government decides to bail out California, what happens when Michigan and New York start demanding the same treatment?

The burden of underfunded pension liabilities will cause states’ budget deficits to further balloon. Since defined state benefit plans assume an unrealistic 8 percent rate of return -- zero percent, at best, is more likely -- we can only imagine the catastrophe to come once states have to make good on their obligations.

As our society becomes increasingly immobile and sits on the couch doing nothing but surfing the Internet, using iPhones and watching “Jersey Shore,” the hopelessness of the situation becomes clear.

Fear Mounts

Unless the government creates a massive jobs program, cuts spending and taxes, and gains control of the national budget and the balance of payments crises, we should fear for our future. Unless our fellow Americans relearn the value of hard work, no government plan stands a chance.

Once the world realizes that the U.S. is the new Rome, the traditional tenets governing asset correlations will no longer hold, and we can expect a breakdown in traditional stock-bond portfolio theories.

Since paper assets are ultimately shoved down to zero, expect hard assets to benefit -- especially gold, energy and grains -- along with commodity-related equities.

The name of the game going forward -- let’s say the next five years -- will be buying ahead of whatever China and other developing nations are trying to accumulate and diversifying away from the U.S.

The China Factor

Consider the trading relationship between the U.S. and China. When the U.S. funnels its unfinished products to China, the Asian nation is able to send back manufactured goods -- thanks to its abundant supply of cheap labor -- in return for dollars. While the American people are busy tinkering with their newly manufactured playthings, the Chinese continue to use their new wealth to buy energy and commodity assets.

Thus, China and the other developing countries that are amassing dollars, euros and pounds basically play a game of global hot potato, trying to pass the potato -- worthless paper currencies -- to others in exchange for energy, water and valuable food assets.

As China continues to thrust its dollars at all things commodity-related, it’s hard not to laugh when hearing President Barack Obama speak about trying to identify “environmentally sound” opportunities in energy.

Meltdown Ahead

It’s only a matter of time before the mechanism that has allowed the government to sustain its trade deficit for longer than it should have -- similar to the Asian dollar peg of the 1990s -- causes a simultaneous decline in the U.S. currency, asset prices and the economy.

Once people begin to realize that their paper currencies, stocks and bonds are all garbage, we can expect a meltdown.

Although it may be too early to predict an impending collapse in paper assets and an immediate need to acquire hard assets, it’s clear that we’ve reached a turning point. The ship has begun to sink. As I await a global re-set of asset values and prices, I will continue to monitor the swelling federal and state tax revenue levels, the rising animosity between Main Street and Wall Street and the progress made by commodity-hungry nations as they continue to eat our lunch.

While I continue to hope for the best, it’s far wiser to prepare for the worst.

www.bloomberg.com/apps/news?pid=newsarchive&sid=apWu9PvexGoE

[doctorwho]

Apr 8, 2010 9:42:53 GMT -6 southsidesignmaker said:

Doc,
"Yes I realize there are those who are truly needy thru sometimes no fault of their own- there are equally as many if not more who just look to someone else to foot the bills"

_______________________________________________________________________________

Sorry to disagree but there are many more doing nothing and getting a free ride.

All one has to do is go to the local grocery store and ask how many link card customers arrived today. Better yet go to the 7-eleven and ask the hard working clerk the same question. The answer may surprise you.

we really don't disagree SSSM- I was trying to be PC ( not like me I know) - and make sure I acknowledged those who do not fit the stereotype- you're right in that more fit the profile of 'someone owes me' -

[macrockett]

www.chicagotribune.com/news/opinion/editorials/ct-edit-illinois-20100411,0,1505174.story
chicagotribune.com
The Illinois spiral

April 11, 2010

History often occurs with such bombast that we couldn't miss it if we tried: a climactic battle, a pivotal court decree, the inauguration of an African-American president. Other times, history evolves quietly via the Law of Accumulation: Little things add up.

Illinois is suffering one of those subtler but game-changing passages today. Our state is in a downward spiral that, yes, still can be reversed. First, though, we have to admit that we are not the Illinois that was — the muscular producer and processor and manufacturer that could stare a stranger in the eye and convincingly boast: Move here and prosper!

Few of us, or our ancestors, gravitated to this state for its prairie scenery or bipolar climate. Illinois instead promised near-unrivaled opportunity: its rich soil, its wealth of industries, its human hustle frenetic to make a buck.

Today, though, we are losing employers. Nearly half a million of our jobs are gone. We export many of our educated young people to futures out of state.

We can wait, paralyzed, and hope that economic recovery eventually means full employment recovery. Or we can make structural changes now that would welcome the makers of jobs.

We need to lower costs. Our governance infrastructure has become overgrown and overpriced. We have 7,000 often redundant governments, far more than any other state. We populate those governments with armies of employees, and give them duties — some essential, some make-work. Many politicians of both parties enlist these workers as their allies in a cozy paradigm: If you help us win re-election, we will reward you with adequate salaries today — and fabulous retirement benefits tomorrow.

Those pols treat the public sector with fawning reverence while ignoring, or even scorning, a private sector that supplies their lifeblood revenues. Why so? Because the pols and their allies have a good thing going, and no incentive to disrupt it. So, unlike in scrappier states, there is precious little talk in Illinois of curtailing teacher tenure, or reducing benefits for current public employees, or capping government expenditures, or exterminating townships and other costly relics, or demolishing obsolete institutions, or ...

Recession, though, has forced a reckoning: Our shrinking and salary-squeezed private sector work force cannot adequately support many of our state's households — let alone sustain our antiquated overlays of taxing bodies.

This should be a time of tremendous opportunity for leaders who, rather than hiding from recession, exploit it to reinvent Illinois. To radically reshape the state's present and its future. To capitalize on employers' problems in other high-cost states by making Illinois their low-cost place to do business. To grow jobs.

Instead, our Statehouse brims with defensive, small-think pols hoping to survive another election.

•••

We speak of this Illinois spiral not as fatalistic Chicken Littles but as true believers who fiercely don't want this to be New Michigan or New California. Those places tried to stem their declines by marshaling taxation, regulation and future spending obligations in ways that left many employers thinking: Hmm. Expense and hassle. Plenty of other states would rather have these jobs.

Employers tend to be harder-headed in deciding where to invest their money than our lawmakers are in spending other people's money. The employers see Illinois pols dithering through a crisis, inviting an even more bleak future with their refusal to reform government spending and reduce what it costs to have a payroll in Illinois:

• You haven't heard Illinois leaders confront a November warning from advisers to the legislature's economic think tank — the Commission on Government Forecasting and Accountability — that while half the states would recover from their job losses by mid-2013, "Illinois would not recover its peak employment level until 2014 or 2015." In the meantime, " … 10 states, including Illinois, are expected to suffer unemployment rates in excess of 9 percent."

• Nor have you heard Illinois leaders, in their to and fro over an income tax hike, confront a 2009 report by the American Legislative Exchange Council: A decade's worth of hard data suggests that states with no individual income tax created 89 percent more jobs, and had 32 percent faster personal income growth, than did states with the highest income tax rates. The report also analyzed 15 policy factors that influence a state's growth prospects — tax burdens, debt service, tort climate, mandated minimum wage, spending limits if any — and ranked Illinois' economic outlook as an alarming 44th in the U.S.

• Nor have you heard Illinois leaders confront this state's devastating rank in job creation, 48th, and ask how they can be friendlier to present and potential employers. Illinois — with its overspending, its borrowing and its worst-in-America pension crisis — faces massive obligations that give potential employers pause. Add to this toxic mix Illinois' high cost of workers compensation and its 49th-in-the-U.S. bond ratings. How surprised, then, are we that since 1990 Illinois has underperformed the U.S. in job growth?

•••

Illinois needs a new paradigm.

Illinois needs leaders who unwind the terrible indebtedness that lawmakers past and present have bequeathed to taxpayers and their grandchildren.

Illinois needs an end to the mutual admiration society of public officials and public employees coddling one another.

Illinois needs fewer governments and, in Springfield, one government scared straight by so much lost employment.

Most of all, Illinois needs leaders who see that, across this nation, concerns about the public sector's size, cost and reach is the domestic issue that most rivets Americans.

We, like Illinois lawmakers frozen in delay and denial, hope recovery creates enough jobs to rescue struggling families and to fund crucial priorities. Unlike the pols, though, we're not content only to hope. We urge them not to flee Springfield until they've made spending and structural reforms to attract employers.

Above all, we expect voters exercised about education and other causes to elect lawmakers who'll end the Illinois spiral. Watch this little calendar:

Copyright © 2010, Chicago Tribune

[macrockett]

www.suntimes.com/news/maxedout/2151293,CST-NWS-tax11.article#

Towns brace for financial holes if state cuts funding
$300M | Essential services would be delayed, municipalities would face raising taxes
Comments

April 10, 2010

BY STEVE CONTORNO Sun-Times Springfield Bureau

SPRINGFIELD -- Cities and counties across the state could be handcuffed into slashing police and fire forces, cutting back on waste removal and raising taxes under a proposal by Gov. Quinn to cut funding for local governments by at least $300 million.

Chicago would lose $68 million at a time when the city is already reeling from its own budget crisis, and 45 other local governments stand to lose at least $1 million each from Quinn's plan, according to figures obtained by the Chicago Sun-Times.

Quinn's push would decrease the amount of income tax proceeds the state shares with cities and counties. Currently, the state doles out 10 cents of every dollar raised through the income tax to local governments. Quinn wants to lower that share to 7 cents on the dollar.

The idea isn't popular among legislators or city officials who suspect it could have ramifications for the governor in the fall election.

"We've been sharing the burden. Where has [Quinn] been?" said Schaumburg Village President Al Larson, whose community would lose $1.79 million from Springfield under Quinn's plan.

"That's what local governments have been doing. They've been reducing budgets, eliminating festivals, salary freezes, furloughs -- where's he been?"

But Quinn hasn't backed down, insisting that municipalities must help the state climb out of its gargantuan budget hole.

"The state has a $13 billion budget deficit and everyone needs to do their part. Tough decisions have to be made, and local municipalities are not immune," said Kelly Kraft, the governor's budget spokeswoman.

Mayor Daley has not specified how the city would react to the potential cuts but has been outspoken in his opposition, accusing Quinn of going back on a pledge he made before the primary election not to touch the funds. Messages left with the mayor's budget spokesman were not returned.

If the plan goes through, cities and counties would have to make even more cuts to their budgets. Firefighters and police officers wouldn't be immune to layoffs in Elgin and Aurora, affecting crime-prevention programs and impacting public safety, city officials said. Aurora is facing nearly $4 million in cuts while Elgin faces a potential $2.5 million loss in state funding.

"When you cut fire and emergency services, you're talking about longer time to get to people in need. You're talking about less police on the street so they have to patrol a longer time. If someone calls in a break-in, it would take longer for the police to get there," Elgin Mayor Edward Schock said.

He added that Elgin recently eliminated 80 jobs from the city's payroll in a cost-cutting move, including management and non-union positions. "We have empty offices, and we're a community that's growing. So it's not like you don't need those people," Schock said.

Des Plaines, looking at a shortfall of nearly $1.4 million, has already gone from four ambulances to three and cut 50 employees in the past two years, but additional reductions could be on the way because of Quinn's plan. "To think about doing more, it would be very tough," said Des Plaines acting City Manager Jason Slowinski. "With all our other revenue sources down, you add that on top, it just becomes devastating."

Joliet is considering hauling away recyclables once every two weeks instead of once a week to make a dent in the $3.6 million it stands to lose. Tinley Park, facing a reduction of $1.38 million, may slow response time for snow removal and stop mowing along Harlem Avenue, which is a state road that goes through that southwest suburb.

Quinn has stood firmly by his plan. But with mounting pressure from the outside, the chance of it moving through the General Assembly is slim, with the top Senate Democrat warning the idea has little support in that legislative chamber.

"There's some realization that there are going to be tough choices and shared burden to get through this crisis, but that plan would face a lot of hurdles in the Senate," said Rikeesha Phelon, spokeswoman for Senate President John Cullerton (D-Chicago).

To settle the differences, Quinn has lobbied members of the Metropolitan Mayors Caucus, a consortium of 272 Chicago-area mayors, to back his 1 percent income tax surcharge by offering them a portion of the $3.1 billion it's expected to raise to offset what they'd lose in income tax proceeds, said David Bennett, executive director of the caucus.

Quinn spokesman Bob Reed would not confirm the governor offered such a trade-off.

But Bennett cautioned support would be contingent on seeing the plan in writing, and if the cuts pass but the surcharge doesn't, mayors won't be shy about identifying who is responsible. "The mayors aren't going to stand for that. They're going to let their citizens know who is to blame for any local tax increases if this gets adopted," Bennett said.

Many local officials wonder how Quinn could threaten to keep even more money from them when the state is already three months behind in paying funds that have already been appropriated.

"We keep hearing 'Well, you don't have skin in the game.' I'm sorry, I think we do," said Tinley Park Village Treasurer Brad Bettenhausen.

[macrockett]

civicfed.org/sites/default/files/Civic%20Federation%20FY2011%20Illinois%20Budget%20Analysis.pdf

Civic Federation Opposes Unbalanced $52 Billion FY2011 Illinois Budget

April 26, 2010

application/pdf icon
IMMEDIATE RELEASE FY2011 State Budget Analysis Press Release.pdf

CIVIC FEDERATION OPPOSES UNBALANCED $52 BILLION
FY2011 ILLINOIS BUDGET

Spending Plan Would Make Fiscal Crisis Worse

(CHICAGO) The Civic Federation’s Institute for Illinois’ Fiscal Sustainability released today its analysis of Governor Quinn’s recommended FY2011 State of Illinois budget. The Federation opposes the Governor’s budget because it is unbalanced, relies too heavily on borrowing, doesn’t address $6.2 billion in unpaid bills, and would exacerbate the State’s structural deficit. The full budget analysis, including a review of the deficit, capital program, and the pension reform bill, is available on our website, www.civicfed.org.

“Unfortunately, the Governor’s recommended budget falls short of the goal that must be a top priority for all state leaders: to stabilize the State’s finances,” said Laurence Msall, president of the Civic Federation. “Borrowing five to six billion dollars for operating expenses neither balances the budget nor helps ensure next year’s budget crisis will be any better. The Civic Federation urges our leaders in Springfield to produce a full-year, balanced, and sustainable budget for FY2011 that does not make the situation worse.”

The Civic Federation has serious concerns about many aspects of the Governor’s initial recommended FY2011 operating budget, which calls for borrowing $4.7 billion. The Governor and his budget team have now also indicated that the State will seek to borrow up to $5.7 billion.

Borrowing for operations increases the cost of government by adding hundreds of millions of dollars in debt service payments to future budget years and by allowing government expenditures to exceed revenues generated by the State. The Civic Federation strongly opposes borrowing to balance the State’s budget because debt is not a sustainable funding source. Borrowing could trigger downgrades to the State’s debt by the rating agencies. A lower debt rating would further increase the State’s cost of borrowing and therefore the cost of government to taxpayers.

The Governor’s original recommended budget does reduce some spending by state agencies—primarily on education—by $2.2 billion, but the reductions are partly offset by $636 million in proposed increases. The Governor also proposed a reduction to local governments’ share of income tax revenues. The Civic Federation has strong reservations about these recommended cuts and formula changes because they shift costs to other governments, increasing pressure on those governments to raise property and other local taxes.

Moreover, in his budget address the Governor proposed a one percentage point income tax increase to avert the education and local government funding cuts. Notably, the revenues from the tax increase would not be spent to fully fund the pensions or to significantly reduce the $6.2 billion backlog of unpaid bills that are threatening state service providers.

Recent alternative budget proposals floated by the Governor’s Office of Management and Budget would increase total borrowing for operations by $1 billion and call for funding the entire pension contribution through debt. The new plan also makes unspecified additional cuts and suggests raising additional revenue through consumer and business tax changes. The Civic Federation opposes the Governor’s alternative proposal because it relies even more heavily on borrowing and still proposes to raise taxes primarily to avert spending cuts rather than pay down the deficit or reduce the State’s other liabilities.

The Governor’s budget recommendation also includes a reauthorization and expansion of spending on capital projects. The Civic Federation continues to oppose the $30.5 billion capital budget approved by the General Assembly last year because of our belief that it is irresponsible to borrow $19 billion of new debt to fund capital projects over the next five years without a strategic plan for those investments and while the State cannot afford to pay its bills.

In the analysis, the Civic Federation commends Governor Quinn and the Illinois General Assembly for enacting a two-tiered pension system for state and some local government employees hired after January 1, 2011. The legislation is a significant step toward meaningful pension benefit reform. However, the Federation further urges the State to implement additional pension reforms, including a two-tiered system for police and fire pensions and changes to the funding of all public pensions. The continued failure of the State to adequately fund its actual pension costs from current revenues will only expedite the need to reduce benefits for existing employees.

“Setting Illinois on the path to fiscal sustainability will require deeper spending cuts, rejection of borrowing and debt to fund operations, fully funding the State’s pension obligations, and a real commitment to eliminating Illinois’ unpaid bills,” said Msall. For a full description of the Civic Federation’s recommendations to end Illinois’ fiscal crisis, read A Fiscal Rehabilitation Plan for the State of Illinois, available at civicfed.org/iifs/illinoisrehab.

[macrockett]

www.chicagotribune.com/news/opinion/editorials/ct-edit-budget-20100426,0,6009876.story
chicagotribune.com
Quinn’s bad Monday

April 26, 2010

Back on Feb. 22, Gov. Pat Quinn got unexpected good news, and his staffers were elated. Chicago's Civic Federation, a fiscal watchdog group historically opposed to tax increases, said it could stomach an income tax hike — under certain conditions and for certain purposes. Most of the news coverage focused not on those contingencies but on the man-bites-dog angle: Here was the business-oriented Civic Federation expressing tolerance for raising the income tax rate from 3 percent to 5 percent.

That was then. As Monday dawns, Quinn is an increasingly lonely proponent of a tax hike. The Civic Federation comes out Monday with a 95-page rejection of the governor's proposed budget for the fiscal year that starts in 10 weeks. The support for a tax hike? Gone. Laurence Msall, the federation's president, sounds exasperated with Quinn and Democratic legislative leaders. "They haven't lived up to our expectations," he says. "They haven't cut spending. We see no evidence that they've tried."

Back in February, Msall's group made its key points in boldface type: Illinois taxpayers shouldn't just get today's overspent, overborrowed government at tomorrow's higher price. Any tax increase "must be linked to deeper spending cuts" and "substantive reforms that will reduce costs and liabilities in the future." Even then, new revenue had to be "used to pay for the State's outstanding liabilities, including its woefully underfunded pension system." This wasn't some vague call to reduce expenditures. The federation's 103-page "Rehabilitation Plan for the State of Illinois" mapped out billions of dollars in potential savings.

In other words: First reform how you do business, promise to pay your bills and cut debt, and only then we can begin to talk about a tax increase.

That's not terribly far from the message this page has been advancing for well over a year.

In response, Quinn and legislative leaders have done … next to nothing. They passed pension legislation that will lower pension costs decades from now, but not by one penny today. The report the Civic Federation issues Monday says Quinn's budget isn't balanced, relies too heavily on still more borrowing, doesn't address $6.2 billion in outstanding bills and will worsen the state's deficit. The report notes that the governor doesn't want to use his proposed new tax revenue to pay bills or to reduce pension liabilities, but rather as one more excuse to avoid spending cuts.

Newly added to the federation's prescription for salvaging Illinois government: "To reduce its substantial unfunded pension liabilities, the State needs to reduce the pension benefits of current employees."

The document — available at CivicFed.org — reiterates earlier calls for reform of retiree health insurance, Medicaid and other programs. It also repeats the group's previous criticism of many lawmakers' pride and joy: a $31 billion capital program that will let them puff out their chests for the cameras at ribbon-cuttings. The Civic Federation argues, correctly, that it's irresponsible for a state that can't pay its bills to borrow another $19 billion for capital projects over the next five years.

Gov. Quinn, House Speaker Michael Madigan, Senate President John Cullerton: All you had to do is act on behalf of taxpayers and reform how Illinois spends money. You would have had an influential group of business and professional people willing to go along with a tax increase.

But you didn't. So you don't.

Copyright © 2010, Chicago Tribune

[macrockett]

APRIL 28, 2010

"Shared" Sacrifices Will Solve the Debt Crisis
Having a frank conversation about the realities of the budget is harder than promising not to raise taxes.

By STENY HOYER

Americans are rightly outraged over our nation's fiscal situation. The course we're on will lead to public debt that will exceed the size of our entire economy, and a government that will eventually exist to do only two things: fund entitlement programs and make interest payments. Americans may be wondering whether the Greek financial crisis could happen here.

It will—unless we change course. There's a myth that our budget deficit mess sprang into existence at the presidential inauguration on Jan. 20, 2009. But in truth, more than 90% of the projected deficit we will face over the next decade is the result of President Bush's 2001 and 2003 tax cuts, the wars in Afghanistan and Iraq, the rescue of the financial sector he began in the last few months of his presidency, and lower revenues from the recession. And the greatest driver of our long-term deficit is rapidly growing entitlement and health-care spending.

Both parties must learn: What is politically easy is often fiscally deadly. It's easier to hide the costs of war than to put those costs in front of the public. It's easier to promise 95% of Americans that we won't consider raising their taxes than to have a frank conversation about the realities of our balance sheet.

Voters are demanding that Washington take fiscal responsibility seriously. Democrats agree. But the public has a responsibility, too: To understand that lower taxes and higher spending may be popular, but they are a dangerous combination that leads to exploding deficits.

Health-care costs, as I noted, are one of our main challenges. According to the Congressional Budget Office the health-care bill will put us on a path to bring down those costs, incorporating many of the best ideas from both Republicans and Democrats. But Congress will need to ensure that as the law is implemented, it achieves the goal of containing costs. Congress will also need to stand strong against pressure to change cost-cutting provisions. We saw an example of the pressure early in the health-care debate, when critics of the legislation wrongly and knowingly portrayed its Medicare savings as a cut in benefits.

On a host of other issues, President Barack Obama also showed his seriousness about fiscal restraint. His budget freezes nonsecurity discretionary spending and cuts our deficit by more than half by 2013, and more than $1.3 trillion over the next decade. He signed a bill to reform weapons acquisition and target cost overruns at the Pentagon. And he joined me and others in the successful push to return to the pay-as-you-go law that requires Congress to find a dollar of savings for every extra dollar it spends on entitlements or tax cuts, except for legislation responding to a legitimate emergency.

The next step is the president's bipartisan fiscal commission, which began meeting yesterday. Both parties must come to the table without preconditions, prepared to make a long-term compromise—our chance to end a pattern of partisan stalemate. Congress must act on the commission's proposals.

If the commission makes a proposal that focuses only on the spending or revenue side of the equation, it will likely fail to rein in deficits. Rather than the spending-cut-dominated plan of Rep. Paul Ryan (R., Wis.)—which, as brave a step as it was, made sweeping and harmful changes to Medicare—I prefer a balanced approach that shares the burdens fairly. What would the options look like? When it comes to entitlement spending, the commission could recognize that Americans are living longer and raise the retirement age over a period of years. It might also make Social Security and Medicare benefits more progressive.

On the other side of the equation, nobody likes raising revenue—but sometimes it's necessary. President Bill Clinton raised taxes and cut spending in 1993 to balance the budget, and it paved the way for historic prosperity. We could also learn from the bipartisan collaboration of President Ronald Reagan and House Speaker Tip O'Neill. In 1983, they agreed on a package of reforms to save Social Security, and in 1986, they made our tax code simpler and more efficient.

Recovering from years of borrowing is one of the hardest tasks a nation can face. History is full of great powers brought low by unsustainable debt. Avoiding that fate isn't just the commission's or Congress's work. It's incumbent on all of us to resist easy answers and look reality in the face. Fiscal issues have always been tests of national character, and I trust that we have the character to pass.

Mr. Hoyer, a Maryland Democrat, is majority leader of the U.S. House of Representatives.
----------------------------------------

Well there you have it. Shared sacrifice and "more progressive" social security and medicare. But do you see anything in there about public employee pensions being progressive? Of course not.
And what about public employ healthcare?

In America, private sector employees are second class citizens. We've paid into a "system" that is little more than a ponzi scheme. A system that was gutted by unfunded mandates such as the supplemental security income program as well as others. A system that is actuarially flawed.

Private sector employees have none of the guarantees that "public servants" have. In fact we provide the income that supports them and their generous benefits.

If there was a fire, you could depend on the public sector in one respect, they would be the first ones out the door...

[macrockett]

More bad news for Illinois: Revenue for April was lower than last year by $501 million.

Then the legislators leave town, doing nothing to fix the budget mess.

www.ilga.gov/commission/cgfa2006/Upload/0410revenue.pdf

online.wsj.com/article/SB10001424052748703686304575228582377071698.html?mod=WSJ_hp_mostpop_read#printMode

MAY 7, 2010

Illinois Budget Woes Come to a Boil


By AMY MERRICK

Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state's general-fund revenue.

The state faces one of the nation's worst budget crises, spilled over in part from the broader national economic crunch, and its current bond ratings lag only California's. But the confusion in the legislature indicates that serious steps to fix state finances won't be taken until after the November elections—if then.

Most states have addressed or still face gaps in their budgets totaling $196 billion for fiscal year 2010, while tax revenue declined in the final quarter of 2009 in 39 of the states for which data is available.

Illinois lawmakers have little appetite for drastic spending cuts. An income-tax increase proposed by Democratic Gov. Pat Quinn is going nowhere. Even temporary steps, such as borrowing to make pension payments, have stalled. Illinois is months late on many of its bills and has no plan for catching up.

The legislature may push the problem to the governor's office by granting Mr. Quinn emergency budget powers and adjourning Friday, about three weeks earlier than usual. A bill under consideration in the state House would give Mr. Quinn greater leeway to shift money among state funds and to require agencies to set aside part of their budgets now in case of future cuts.

A state House committee on Thursday passed a cigarette-tax increase that would generate $320 million by raising the state tax from 98 cents a pack to $1.98 a pack over two years. The House also is considering authorizing a sale of expected tobacco-settlement funds, which could bring in $1.2 billion, said State Sen. Donne Trotter, a Democrat.

House Minority Leader Tom Cross called the tobacco-settlement plan "a gimmick" and said he and other Republicans oppose borrowing the pension payment. "We are having the same conversations today that we had a year ago about the need for reform," he said.

Regardless of its final form, the budget will leave the state borrowing for short-term operations and postponing its bills.

"We are lucky in that we still can borrow," Mr. Trotter said, noting that lawmakers responded to rating-agency concerns last month by reducing pension benefits and lifting the retirement age for new state employees to 67 from 60. Lawmakers also are weighing the idea of postponing pension payments for the first half of the fiscal year until January, Mr. Trotter said.

Illinois's problems are an exaggerated version of dynamics playing out across the U.S. All states except Vermont have at least a limited requirement to balance their budgets. In practice, many states rely on one-time revenue windfalls or short-term borrowing to scrape from one fiscal year to the next.

State budgets typically lag the national economy by several years, and the recession has decimated income-tax and sales-tax revenue. Lawmakers often don't want to aggravate voters by raising taxes during an election year.

But legislatures find cutting expenses politically difficult, too. State budgets are dominated by education and health care programs that many voters cherish.

As a result, Illinois, along with other states, routinely has postponed paying its bills, shortchanged pension plans and spent more than it collects in revenue.

It's possible lawmakers will keep working on the budget until they are required to adjourn at the end of the month. Rikeesha Phelon, a spokeswoman for Illinois Senate President John Cullerton, said Friday's deadline was "just a goal."

Mr. Quinn presented a budget in March that would still leave the state with a $10.6 billion deficit. His plan projected a deficit of $4.7 billion for the coming fiscal year beginning July 1—which he planned to cover through borrowing—and a $5.9 billion deficit carried over from the current budget.

The governor also proposed cutting expenses by $1.5 billion and raising the state income tax 1.5 percentage points, to 4.5% from 3%. He said the tax hike would be used to avert tens of thousands of teacher layoffs. A different proposal to raise income-tax rates passed the state Senate last year but has stalled in the House.

Any hopes that the national economic recovery would help the budget discussions were dashed this week when Illinois disclosed that revenue for April —when most citizens pay taxes—fell more than 15% from the same month a year ago, or $501 million, in part because of a $345 million drop in federal aid. Gross personal income-tax receipts, a major revenue source, dropped $103 million, or 8.1%.

Many states are likely to report similar disappointments. California officials said this week that April personal income tax-collections lagged projections by 30%. Federal estimates don't bode well for states, either.

As of April 30, federal non-withheld income taxes for April fell 17.6% from the same month a year earlier, said a report Tuesday from the Nelson A. Rockefeller Institute of Government at the State University of New York.

Illinois Comptroller Daniel Hynes said in his April report that the state's cash position for the quarter ending June 30 "looks exceedingly difficult." By June 10, Illinois must repay $1.75 billion, plus interest, in short-term borrowing.

Meanwhile, the state still owes billions of dollars to hospitals, universities, social-service providers and others. Mr. Hynes said the state's backlog of unpaid bills probably will exceed $5.5 billion at the end of June.

"Eventually, many providers of essential state services may be unable to continue their operations at current levels, and those vulnerable segments of the population to whom they provide services will suffer the consequences," he wrote.

Write to Amy Merrick at [e-mail]

[macrockett]

Does this sound like a State that is going to pay its bills anytime soon?

Illinois is broke, and can’t pay its bills
Crisis pushes businesses, organizations to edge of bankruptcy
By CHRISTOPHER WILLS
Associated Press Writer
The Associated Press
updated 4:43 p.m. ET, Thurs., May 13, 2010

SPRINGFIELD, Ill. - For 35 years, frail senior citizens in southern Illinois could turn to the Shawnee Development Council for help cleaning the house, buying groceries or any of the chores that make the difference between living at home or moving to an institution.

No more. The council shut down the program Thursday because of a budget crisis created by the state of Illinois' failure to pay its bills.

Paralyzed by the worst deficit in its history, the state has fallen months behind in paying what it owes to businesses and organizations, pushing some of them to the edge of bankruptcy.

Illinois isn't bothering with the formality of issuing IOUs, as California did last year. It simply doesn't pay.

Plenty of states face major deficits as the recession continues. They're cutting services or raising taxes or expanding gambling to close the gap. But Illinois is taking the extra step of ignoring bills.

Right now, $4.4 billion worth of bills, some dating back to October, are sitting in the Illinois comptroller's office waiting to be paid someday.

Shawnee Development, for instance, is waiting on about $380,000 in back payments, officials say. That amounts to one-quarter of the council's budget for senior care in seven southern counties. "It makes me mad as heck," said Georgia Smith, a 66-year-old volunteer at the agency. Seniors, she said, "are used to paying our bills, paying our way."

Prisons refused bullets
Illinois' deadbeat reputation has created some embarrassing situations.

A supplier refused to sell bullets to the Department of Corrections unless it got paid in advance. Legislators have gotten eviction notices for their district offices because the state wasn't paying rent. One legislator said he had to use campaign funds to pay the telephone bill after service was cut off at his office.

The practice of simply putting off payments became commonplace under ex-Gov. Rod Blagojevich, who liked to spend but adamantly opposed a tax increase to help cover costs. Before he was arrested and kicked out of office, Blagojevich's toxic relationship with legislators essentially paralyzed government, so bills just piled up.

The strategy also may have been helped along by Illinois' "anything goes" political culture. When voters believe government decisions hinge on campaign contributions and shady deals, they're less likely to expect responsible fiscal practices.

Some schools have tried to shame Illinois into paying by posting signs announcing how much the state owes. The website IllinoisIsBroke.com details the state's financial mess. Associations hold rallies and write letters to the editor.

$6 billion in unpaid bills
The state still remains months behind.

Illinois is on track to end the current fiscal year with about $6 billion in unpaid bills. Budget proposals for the coming year — when the state faces a $13 billion deficit — assume the same thing will happen again.

The state owes money for all kinds of services provided in its name, such as medical care for the needy, home care for the elderly and disabled and day care for the working poor.

State government promises to reimburse all those organizations for at least part of their costs. When the state doesn't pay its bills, they're stuck trying to figure out how to make ends meet.

Most have spent their reserves and cut corners wherever they can, laying off employees, cutting back hours, requiring workers to take furloughs.

Recovery Resources, a substance-abuse treatment center in Quincy, is waiting for $200,000 from the state, which provides about two-thirds of the center's annual budget.

The center has cut 10 jobs over the past two years, said executive director Ron Howell. It shut down its services for adolescent addicts. People who call for help now wait three to four weeks for an appointment.

'This has numbed us'
"The situation, for us, has been almost normalized, and that's the scary part," Howell said. "If I'm not screaming on the edge of self-destruction, it's because this has numbed us."

Many agencies have borrowed money to keep the doors open, but service providers say that's getting harder to do — banks are more reluctant to lend money on a promise that the state will pay up someday.

"We have had members whose banks have told them it is the creditworthiness of the state of Illinois that is their primary concern," said Janet Stover, executive director of the Illinois Association of Rehabilitation Facilities.

State leaders have no plan to catch up on the bills anytime soon, not with a $13 billion deficit to tackle. The Pew Center on the States said last year that in percentage terms, Illinois' deficit is nearly as big as the gap in California, the gold standard for states in crisis.

Call for tax increase
Democratic Gov. Pat Quinn has called for an income tax increase, but any money from that would be allocated to other areas, not paying routine bills. Republicans want to tackle the deficit through spending cuts, which would also mean letting old bills go unpaid.

It's likely that no dramatic movement in either direction will take place until after the November elections.

Illinois government owes about $2.5 million to Sparc, a Springfield organization for people with developmental disabilities, said chief executive officer Carlissa Puckett.

Sparc has borrowed up to $1.1 million through a line of credit. Turning away clients would be the last resort, she said.

Puckett sounds matter-of-fact as she discusses scrimping on paper and pencils. "Why cry if nobody is going to listen to you?" Puckett said. "We're going to keep our head up and figure out how to make it work."

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

URL: www.msnbc.msn.com/id/37136518/

[macrockett]

JUNE 14, 2010

Big State, Big Cuts, Little Room
Illinois Agency Has to Pare Hundreds of Millions, but Mandates Restrict Fall of the Ax
By AMY MERRICK

As the new head of the Illinois Department of Human Services, Michelle R.B. Saddler knew she would confront tough choices in preparing a budget that juggled rising needs for services with tumbling state revenue.

But she wasn't prepared for the long list of mandates and governor's priorities that tied her hands. She wasn't supposed to eliminate services required by law or court order. She was to spare Medicaid-eligible services and food-stamp benefits. And she couldn't jeopardize residents' safety or well-being.

"What's left?" she said.

State-agency heads nationwide face similar dilemmas as they confront gaping budget deficits. Last month, Illinois lawmakers cobbled together partial remedies to a $13 billion deficit—nearly 50% of its expected general-fund revenue of $27.44 billion for the fiscal year beginning July 1.

Illinois agencies are bracing for deep spending cuts, and the cutting falls largely to people like Ms. Saddler, a cheerful 49-year-old who, in October, took over a department with 13,500 employees and a general-fund budget of about $4 billion.

Her agency serves two million Illinois residents, coordinating everything from drug and alcohol treatment to home aides for disabled people to food stamps. The state provides about a quarter of the services itself and contracts with private businesses for the rest.

Ms. Saddler estimated that budget shortfalls would cost the state a total of 6,220 private-sector jobs and some or all services for 178,500 people. "I'm concerned that we will see a real public-health crisis and a real public-safety crisis with these cuts," she said.

Across the U.S., state legislatures are cutting spending on mental-health services and programs for the elderly and disabled. In California, Republican Gov. Arnold Schwarzenegger has proposed eliminating the state's welfare program to help close a $19 billion deficit.

In Illinois, Comptroller Daniel Hynes said the state's backlog of overdue bills could hit $5.5 billion by the end of June. Outside social-service providers, some of whom have gone months without being paid by the state, are struggling to survive.

Last month, Illinois lawmakers adjourned after voting to give Gov. Patrick Quinn, a Democrat, more power to control spending cuts. But they didn't approve borrowing to make a coming pension contribution of nearly $4 billion. Illinois borrowed $3.5 billion last year to make its pension payment, and legislators may yet decide to borrow again.

The state's debt exploded in 2003, when Democratic then-Gov. Rod Blagojevich pushed through a plan to borrow $10 billion. From fiscal 2002 to fiscal 2003, Illinois's debt more than doubled, from $9.54 billion to nearly $21 billion. After Mr. Blagojevich was removed from office last year amid corruption allegations, which he denies, Mr. Quinn became governor.

A financial overhaul probably won't happen until after the November elections, in which Mr. Quinn is running to keep his job. His opponent, Republican state Sen. Bill Brady, opposes raising taxes and has advocated major spending cuts.

"It is a fiscal nightmare and an embarrassment to the state," says Laurence Msall, president of the Civic Federation, a nonpartisan research group in Chicago.

Ms. Saddler has run an investment pool for local governments, overseen international adoptions for a large nonprofit and served on civic boards. She knew Mr. Quinn from his stint as state treasurer in the 1990s, when she worked as his investment director. He named Ms. Saddler his policy director, then appointed her secretary of the Human Services department.

Her agency is squeezed between heightened demand for services and rising costs. Illinois's welfare caseload is growing for the first time in more than five years, and waiting lists for substance-abuse and mental-illness treatments are increasing. Meanwhile, costs for labor and building leases are rising.

As Ms. Saddler and her staff prepared the budget, they knew that even if their agency added no services, costs for the coming fiscal year would increase $250 million. Yet Mr. Quinn's office had ordered the budget held flat. Employee training, research, and plans to expand programs had to be scrapped.

But as in many states, Illinois's tax revenue continued to lag behind forecasts. In February, the state budget office told Ms. Saddler to cut $150 million, on top of the $250 million. Her staff responded with "tears and outrage," she said. Large groups of people, especially single adults without children, would have no access to services, she said.

She submitted a revised budget with deep reductions in non-Medicaid services—the few areas her agency seemed permitted to cut. Those were cut even further by the governor's office when it presented its overall budget plan in March.

There is financial logic to preserving Medicaid, the joint federal-state health-care program for the poor and disabled. Cutting Medicaid-eligible services causes the state to lose federal matching funds.

Yet even some cost-effective Medicaid services have had to be trimmed. Ms. Saddler's budget further reduces state Medicaid payment rates for small-housing arrangements for people with developmental disabilities.

That change could drive the operators of homes for people with disabilities out of business, forcing their residents into state-run institutions, according to Ms. Saddler and advocates for the disabled. But it costs Illinois $53,000 a year to provide care for one person in a small community setting, versus $135,000 for institutional care.

Illinois plans to cut its mental-health services by $91 million, eliminating all non-Medicaid funding for community-based mental-health programs and reducing such services by 32%. However in March the state agreed in a court settlement to move 4,500 people with severe mental illness out of nursing homes, after a series of rapes and assaults of elderly residents.

Ms. Saddler said implementing the settlement would cost more than $45 million in the first year, and she has been given no money for it.

She is gathering data to determine which programs are most effective. For the coming budget year, she is placing limits on some Medicaid-funded services, such as the number of psychiatrist visits allowed. Her office is requesting new bids from outside service providers for every contract over $1 million.

"We do have resources aimed at eliminating fraud and abuse, but I think that the need, by leaps and bounds, exceeds the level of so-called fraud in the system," Ms. Saddler said.
Printed in The Wall Street Journal, page A3

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[macrockett]

Illinois' credit rating has been downgraded twice in the last few weeks. Most recently by Fitch. Prior to that Moody's downgrade on June 7.

CNBC devoted over 3 minutes to Illinois credit issues (starts at minute 1:40 - 4:59) : www.cnbc.com/id/15840232?video=1525078229&play=1



www.suntimes.com/news/politics/2393684,CST-NWS-bond15.article#

State's credit rating downgraded

June 15, 2010

BY DAVE McKINNEY Sun-Times Springfield Bureau Chief

The failure by Illinois lawmakers and Gov. Quinn to pass a balanced budget that would address the state's $13 billion deficit has earned state government another credit downgrade, its second in a week.

Fitch Ratings lowered its rating on $26.9 billion of state debt to an "A" rating, meaning the cost of future borrowing for state government could grow, and reinforcing Illinois' near bottom-of-the-barrel financial standing. Only California has a worse credit rating among states.

"The rating downgrade, to 'A' from 'A+,' reflects the continuing unwillingness of the state of Illinois to take action to address its significant budgetary problems," Fitch wrote in its statement released late Friday. "The recently enacted FY 2011 budget does not begin to address the current operating gap, relying almost entirely on various forms of deficit financing to close the gap."

The company's downgrade marks the second ratings downgrade Illinois has suffered since the beginning of the month. On June 4, Moody's Investor's Services cut the state's bond rating by one notch, as well, on similar concerns with the state's budget.

The short-term impact of the downgrades could make ongoing borrowing for the state's $31 billion construction program more expensive, particularly since Fitch indicated its outlook on Illinois was negative. That forecast means additional downgrades are possible.

Gov. Quinn's budget office said Monday that the moves by the bond-rating agencies are not unexpected.

"The action taken by Moody's and Fitch underscores why the General Assembly must work with Gov. Quinn to address the state's unprecedented financial situation," said Kelly Kraft, a spokeswoman for Quinn's budget office.

----------------------------------------------
www.sj-r.com/carousel/x775087685/Moodys-downgrades-state-bonds-revenues-continue-slide
Moody's downgrades state bonds, revenues continue slide

By DOUG FINKE ([e-mail])
THE STATE JOURNAL-REGISTER
Posted Jun 07, 2010 @ 11:30 PM
Last update Jun 08, 2010 @ 09:57 AM

Illinois’ bond rating has been cut a notch by Moody’s Investors Service as a new report shows state revenues continue to slide and the pile of unpaid bills continues to grow.

Moody’s cut Illinois’ rating on general obligation bonds from Aa3 to A1, blaming state government’s failure to come up with a permanent solution to its financial problems. Instead, lawmakers relied on a series of one-time fixes to cobble together a spending plan.

“This failure underscores a chronic lack of political will that indicates further erosion of an already weak financial position,” Moody’s said in an opinion about the state’s credit rating.

The report said the state’s credit rating is further threatened by its growing debt burden, large unfunded liabilities for pensions and retiree health benefits, the disparity between spending and revenue and the decision to simply put off paying bills.

“The legislature’s failure to enact recurring budget-balancing measures is consistent with recent years, when infighting between the executive and legislative branches caused budget delays and allows both the erosion of the state’s finances and the widening of severe pension funding gaps,” the report said. “The longer the solutions to the state’s challenges are deferred, the more difficult they will become to implement.”

What the General Assembly did this spring might only make things worse, Moody’s said, including borrowing against tobacco settlement proceeds, relying on more than $900 million in federal stimulus funds and offering a tax amnesty program.

“These plans may provide less revenue than estimated,” Moody’s warned.

One thing the state got right, Moody’s said, was passing reforms that will reduce pension costs for future employees. But Moody’s also noted the state hasn’t resolved how to make its pension payment next year. A bill to borrow up to $4 billion passed the House, but not the Senate. Legislation allowing the state to indefinitely postpone the payment is also pending.

A lower state credit rating usually means it will cost the state more money when it tries to borrow. Gov. Pat Quinn’s budget office said the state plans to borrow $1 billion later this month for capital projects.

Budget office spokeswoman Kelly Kraft said the Moody’s report shows the importance of lawmakers working with Quinn to find a permanent solution to the state’s budget woes. Among other things, Quinn has pushed for an income tax increase which has gone nowhere in the Illinois House.

Quinn’s Republican opponent, Sen. Bill Brady of Bloomington, issued a statement saying the Moody’s report “is yet another independent voice proving the failed economic policies of Governor Quinn has driven our state into the ground.”

Also Monday, the General Assembly’s Commission on Government Forecasting and Accountability issued a report showing revenues in May continued to drop compared to last year. Most of it was because federal reimbursements to the state dropped from what they were in May 2009.

“That was nothing that wasn’t anticipated,” said COGFA revenue manager Jim Muschinske.

Personal income taxes were also down again, indicating a still-weak economy. Sales taxes actually went up by $6 million compared to May last year, but for the year they are still down a “disastrous” $493 million, according to the COGFA report.

At the same time, COGFA anticipated revenues would be down because of the recession and most of the numbers are close to the targets.

“We knew it was going to be bad,” Muschinske said. “What is of concern is the continued slapping of the economy. The market’s nearly wiped out all gains from the previous year. Jobs are still hard to come by. There’s not much out there ot indicate a quick turnaround.”

The state’s bill backlog stands at more than $5 billion, said Carol Knowles, spokeswoman for Comptroller Dan Hynes. The office works with vendors and state agencies to address the most dire situations, she said.

“It’s kind of a triage situation, there’s so many vendors in distress,” Knowles said. “It’s become more and more difficult to address emergencies because of the scope of the backlog.”

Some payments get taken care of first every month, among them the state payroll, general school aid, repaying short-term debt and Medicaid payments that entitle the state to a greater federal reimbursement. Together, those payments total about $2 billion.

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www.bondbuyer.com/issues/119_356/moodys_downgrades_illinois-1013128-1.html?zkPrintable=true

Moody’s Downgrades Illinois as State Eyes $3B of Deals

Monday, June 7, 2010

By Caitlin Devitt

CHICAGO — Moody’s Investors Service Friday downgraded Illinois’s general obligation debt to A1 from Aa3, saying infighting among the state’s leaders has led to ongoing budget delays, erosion of finances, and a severe pension funding gap.

The downgrade comes a week after Illinois lawmakers completed a $52 billion fiscal 2011 budget that relies heavily on one-time maneuvers to chip away at a $13 billion deficit, and as officials plan to come to market with several deals over the next few months.

Moody’s also lowered its rating on the state’s Metropolitan Pier and Exposition Authority debt to A2 from A1, and on Build Illinois sales-tax revenue bonds to A1 from A3. The outlook on all the state’s debt is revised to stable at the lower rating.

Illinois is rated A-plus by Standard & Poor’s and Fitch Ratings. Both agencies have the state on negative watch.

The 2011 budget, which leaves a $3.7 billion shortfall tied to the state’s next pension payment, aggravates an already anemic fiscal position, Moody’s said. The failure to enact recurring measures “underscores a chronic lack of political will,” Moody’s said in a report on the downgrade.

State officials met with all rating agencies last week to discuss the budget and as they plan to head to market with three deals over the next three weeks followed by a handful of planned deals over the next few months.

On tap this month are a pair of Build America Bond issues totaling to totaling $1.2 billion and $500 million of Build Illinois restructuring bonds.

Gov. Pat Quinn also hopes to borrow up to $1.3 billion of short-term notes in July to meet cash-flow needs. The deal still needs to be approved by the state controller and the state treasurer.

On June 15, the state will price $500 million of junior-lien, sales-tax backed Build Illinois bonds. The transaction will refinance senior-lien debt into junior-lien, sales-tax backed Build Illinois bonds that have the same rating as the senior debt to achieve savings. Cabrera Capital Markets LLC is senior manager for the deal, which is set to price June 15.

It is Illinois’ first junior-lien deal and will save roughly $30 million in interest costs over the next 10 years, said state debt manager John Sinsheimer. The refinancing will give the financially struggling state access to another $25 million that is currently in a debt service reserve fund for the senior-lien debt. The junior-lien bonds do not require a reserve fund.

The bonds are rated AA-plus by Fitch and AAA by Standard & Poor’s. The ratings reflect the high coverage levels on the debt, analysts said.

On June 17 it will price $300 million of taxable BABs in a competitively priced sale. On June 30, the state will enter the market again with $900 million of BABs. Citi is the senior manager on the transaction. After the sales, Illinois will have sold roughly $5.1 billion of BABs.

Illinois officials are eyeing the autumn to enter the market with around $1.4 billion of 17-year bonds backed by its share of tobacco settlement payments, Sinsheimer said.

The sale would securitize about 40% of the state’s total tobacco settlement revenues. The transaction would net roughly $1.2 billion for the general fund. The state plans to issue a request for proposals for underwriters but the RFP’s timeline is still uncertain, Sinsheimer said.

Meanwhile, the Quinn administration continues to wait for the Senate to reconvene to vote on the governor’s proposal to issue $3.7 billion of eight-year general obligation bonds to fund pension payments and fill the budget gap. The Democratic-controlled House narrowly approved the borrowing last week.

If approved, the state needs to sell the pension bonds by Sept. 30, Sinsheimer said.
----------------------------
re: Buffett testifying before the FCIC on June 2, 2010


www.bloomberg.com/apps/news?pid=20601010&sid=airOwCWviFuU#
Buffett Expects ‘Terrible Problem’ for Municipal Debt

By Andrew Frye and William Selway

June 2 (Bloomberg) -- Warren Buffett, whose Berkshire Hathaway Inc. has been trimming its investment in municipal debt, predicted a “terrible problem” for the bonds in coming years.

“There will be a terrible problem and then the question becomes will the federal government help,” Buffett, 79, said today at a hearing of the U.S. Financial Crisis Inquiry Commission in New York. “I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.”

Berkshire’s investment portfolio included municipal bonds valued at less than $3.9 billion as of March 31, down from more than $4.7 billion at the end of 2008. The company had a maximum of $16 billion at risk in derivatives tied to such debt, according to the company’s annual report for 2009.

Buffett, Berkshire’s chairman and chief executive, has previously warned about the risks of insuring municipal bonds. In his annual letter to shareholders in 2009, he said public officials may be tempted to default on bonds whose payments are guaranteed by insurance companies rather than push through needed tax increases. He said guaranteeing municipal bonds against default “has the look today of a dangerous business.”

Local governments rely on the $2.8 trillion municipal bond market to raise money for construction projects and fund other budget items. The financial crisis and recession battered governments across the U.S. by cutting into tax collections and causing pension-fund losses. Some governments failed to set aside enough money to cover retirement benefits promised to employees, which may place increasing strain on public finance.

Rescue for Governments?

Buffett said last month that the U.S. may feel compelled to rescue a state facing default after the government committed $700 billion to bail out financial firms and automakers.

“It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they’ve gone to General Motors and other entities and saved them,” Buffett told shareholders in Omaha, Nebraska, at Berkshire’s May 1 annual meeting. “I don’t know how you would tell a state you’re going to stiff-arm them with all the bailouts of corporations.”

A report by the Pew Center on the States in February estimated that by the end of the 2008 budget years, states had $1 trillion less than needed to pay for future pensions and medical benefits, a gap the center said was likely compounded by losses suffered in the second half of 2008.

Defaults

About $14.5 billion of municipal bonds defaulted in 2008 and 2009, according to Income Securities Advisor Inc., a Miami Lakes, Florida-based company that publishes a newsletter tracking distressed debt. Many those were securities backed by revenue from nursing homes, property developments and other projects without claim to government tax revenue.

Defaults by local governments with the power to raise taxes are less common. Jefferson County, Alabama, defaulted on more than $3 billion of bonds backed by sewer fees after the deals grew more costly in the wake of the credit crisis in 2008. Vallejo, California, filed for bankruptcy in 2008 after its tax revenue tumbled.

Buffett set up a municipal bond insurance company in December 2007 as competitors, including Ambac Financial Group Inc. and MBIA Inc., struggled to maintain top ratings. Berkshire has scaled back sales as Buffett said the rates that bondholders are willing to pay don’t match the risk.

To contact the reporters on this story: Andrew Frye in New York at [e-mail]; William Selway in San Francisco at [e-mail].
Last Updated: June 2, 2010 15:49 EDT

[macrockett]

The bets are starting to be laid down as to how soon it will be before Illinois defaults on its debt. See the cnbc video from last Friday the 18th. www.cnbc.com/id/15840232?video=1525078229&play=1

Start at minute 1:40 and listen till minute 4:59

[macrockett]

www.chicagotribune.com/news/opinion/editorials/ct-edit-storm-20100923,0,2397361.story
chicagotribune.com
Storm warning

7:08 PM CDT, September 23, 2010


Moody's Investors Services on Thursday changed its outlook on Illinois finances from stable to negative. In practical terms, that means Illinois will have a harder time borrowing money and will have to pay more for it, in higher interest rates. In broader terms, this is another serious warning for everyone in this state: We're in big trouble.

Since 1991, Illinois has fallen from AAA, Moody's highest rating, several notches down to A1. That's a miserable rating for a state, and the negative outlook means it's likely to go lower. Only California is rated as low, and its outlook is still considered stable.

So from Moody's point of view, no state has worse credit than Illinois.

In the sober words of the evaluators: "Signs of financial stress have emerged or intensified since the last downgrade. The state reported a very large negative fund balance for fiscal 2009 and has faced fragile economic conditions and continuing uncertainty over its ability to meet pension funding obligations. Debt burden is expected to escalate because of issuance for capital projects and pension contributions. Credit deterioration is likely if these trends persist."

Yet Illinois plans to keep borrowing. Gov. Pat Quinn keeps defending his agreement with the state's largest public workers union that would block layoffs until the middle of 2012, tying the hands of whoever is the next governor.

The state's rising debt burden, reliance on one-time funding measures and gross failure to pay its bills all factored into the negative outlook. Moody's cites the state's "unwillingness to enact the politically difficult fiscal measures needed to balance its budget and fund its pension plans."

Yes, trouble.

Copyright © 2010, Chicago Tribune