Posts filed under 'Illinois finance'
April 8th, 2008
Rockford Sen. Dave Syverson, Clare Sen. Brad Burzynski and other Senate Republicans last week unveiled a seven-point economic stimulus plan.
Let’s look at those points, one at a time. First up: The Senate Republicans say Gov. Rod Blagojevich must not “demonize” businesses. From their report:
Businesses not only provide jobs for our
citizens, they also pay the tax revenues
that fund our state budget and allow us to
implement our priorities. Since taking office,
the Governor and his administration have
repeatedly portrayed the business community
as a group of “fat cats” to be taxed and
demeaned, rather than entrepreneurs who
provide our economy with needed jobs, taxes
and investment.
Indeed, Blagojevich has repeatedly vilified Illinois businesses to suit his political needs, saying for instance that they ought to pay their “fair share” in taxes. The Senate GOP report continues:
Today, Illinois is renowned for its
hostile business climate – something which does not
go unnoticed to prospective businesses. The more the
Governor and his allies fuel this notion, the fewer jobs
and investments we will see in Illinois. In addition,
harsh anti-business rhetoric scares other companies
from coming to Illinois and expanding their business.
It’s time to stop the antibusiness
rhetoric and harmful tax-and-spend
proposals that seek to balance the state
budget on the backs of business owners and,
more importantly, the jobs they provide for
our economy.
And now for the kicker:
Demonizing the business community doesn’t
just have a negative impact on the owners of
companies. When hit with higher taxes and
fees, business owners end up passing the
new costs on to their customers – working
families. This is a point even the Governor’s
staunchest supporters concede – during
last year’s committee hearings on the GRT,
a sponsor of the measure, Senate President
Emil Jones, acknowledged: “Any costs
that businesses incur, they pass it on to
consumers.”
So here’s the question for you: Does the governor’s tone truly affect a business’ decision on whether to stay in, or relocate to, Illinois? Clearly, a business will weigh the tax burden in Illinois as compared to neighboring states. But the governor’s tone?
March 4th, 2008
State officials every couple years find new and creative ways to put off paying public pension debt, causing a greater financial burden for future taxpayers.
At any given time, the state’s backlog of unpaid bills tops more than $1 billion, causing doctors and other health care providers to wait months for reimbursement from the state when they care for Medicaid patients.
For the last five years, the governor and lawmakers postured over the details of a capital construction plan, failing to ever implement a new one necessary for road and school construction.
That governor, Rod Blagojevich, is as likely to fill out top-tier positions in his administration with political hacks as opposed to professionals with meaningful, relevant experience.
That same governor has no qualms with putting the full force of this taxpayer-paid staff behind his latest feel-good, politically charged initiative, yet he seldom puts even a fraction of this emphasis behind follow-through and completion of such projects.
Yet the Pew Center on the States awarded Illinois a perfectly acceptable “C” grade in a report covering how well the 50 states manage their money, people, information and infrastructure. A summary of the group’s report, showing how Illinois compares to other states, is here.
A detailed look at Illinois is here.
The Blagojevich administration has been troubled from the start, and the consequences for Illinois government have been serious. The administration began with high hopes: Blagojevich’s election victory in 2002, bringing his party control over all three branches and replacing a Republican regime tainted by corruption, generated widespread interest in bringing the state’s shaky management into good shape. But intraparty battles have continually stymied progress. Political disagreements have been delaying a new infrastructure-spending plan for years, to cite just one example, and the state may soon lose federal matching funds intended for roads and bridges.
Then, the report cuts the governor some slack:
It can’t be easy to manage a state such as Illinois, with huge outstanding bills and troubled revenue streams. But when the state’s leaders are effectively stuck in the mud, the difficult becomes all but impossible. Last year, the governor proposed a major expansion of health care supported by a gross receipts tax on business. The House rejected the plan 107-0. “We weren’t even talking about coming to some resolution,” says state Senator Christine Radagno. Months later, the legislature passed its own budget, Blagojevich vetoed about $500 million of it to make room for his health care expansion and the whole mess wound up in the courts.
Still, as the Post-Dispatch notes, this state’s grade fell:
Illinois fell from a C+ to a C, ranking it among the bottom nine states. Researchers blamed a dysfunctional relationship between Gov. Rod Blagojevich and the state Legislature.
“The Blagojevich administration has been troubled from the start, and the consequences for Illinois government have been serious,” the report says.
The administration’s response:
Blagojevich’s office released a statement saying the report didn’t acknowledge Illinois’ success at improving efficiency while reducing debt and budget deficits.
“Unfortunately, the Pew Center chose to focus on politics instead of fiscal facts,” the statement said. “The report does not accurately reflect the progress we’ve made.”
That’s classic Blagojevich.
First of all, this administration is notorious for skewing financial figures. Rather than stating the amount of new money the state sends to schools each, for instance, this administration prefers to state the sum of all the increases occurring since Blagojevich took office in 2003. Obviously, that’s a much bigger, more dramatic, number.
Oh, and when the state ran the biggest deficit in the nation, Blagojevich — who happened to be campaigning for re-election at the time, in 2006 — insisted that simply wasn’t possible. The “fiscal facts” in Illinois are sad indeed.
Second of all, as I already alluded to above, this administration also is notorious for putting politics before policy. And that’s not to say they even do well at that. Look no further than today’s headlines.
Illinois should be thrilled with its passing grade. I’m wondering how it did so well.
February 29th, 2008
The New York Times editorial page recently took note of New Jersey’s fiscal crisis, and in doing so issued this warning to other states:
It is hard to remember when any governor used the sort of desperate language that New Jersey Gov. Jon Corzine chose this week to describe his state’s fiscal crisis. His words should be a sober warning to other states to get their fiscal houses in order before they face a crisis of Trenton’s magnitude.
The editorial went on to describe what it called a “self-destructive gimmick”:
… the state seriously underfunded its pension plan and used the money to pay for current spending programs.
And it concluded:
The Garden State’s woes should serve as a warning to other states, whose lawmakers might be inclined to use budget gimmickry to deal with shortfalls in revenue and get through immediate fiscal troubles. As New Jerseyans are learning the hard way, that is likely to lead to much bigger trouble in the years ahead.
Illinois should take note. As far as I can tell, this state is the capital of “budget gimmickry.”
Illinois for decades blew off its public pension systems, and future taxpayers will pay — big time. Believe it or not, state leaders didn’t even have a long-term plan for paying down pension debt until 1995, when they finally got around to instituting one.
No longer would the state take a “pay as you go” approach to financing public pensions — putting aside just enough each year to cover annual pension and benefit payments to retirees. Instead, the state would, once and for all, start putting aside enough money each year to cover long-term pension liability.
And by putting more money away into its public pension funds, those funds would ultimately earn enough interest — dollars going back into the funds — that the state’s annual obligation would become minimal.
Or at least that was the idea behind the 1995 plan, which established in Illinois law a formula under which the state would get its pension systems 90 percent funded by 2045 — over 50 years.
But state leaders just can’t help themselves from putting off those payments each year in order to free up cash for all their favorite projects. In 2005, they took their policy of procrastination all the way by wholesale restructuring the 50-year plan. Rod and the gang called their move a “pension holiday.”
Then there was that clever pension maneuver during Rod’s first year in office, 2003. The state borrowed $10 billion to bolster the pension systems. But rather than dumping the entire $10 billion straight into the pension funds, the state skimmed more than $2 billion off the top and used those dollars to offset the state’s mandatory annual pension contribution.
In doing so, Rod and the gang freed up more than $2 billion they could spend on other stuff.
How cool is that! Pretty cool if you’re Rod, and you’re eager to spend some taxpayer money. Not so cool, if you’re a future taxpayer.
As I explained at the time, in a previous job:
Imagine getting a home equity loan for $100,000, spending $27,000 of it on a new car and investing the rest — then counting on the interest earned to cover the interest paid, as well as the cost of the car. That’s the essence of Gov. Rod Blagojevich’s $10 billion pension bonding plan, which became law in April.
This isn’t a new idea. Buying and selling in separate financial markets in order to profit from the difference in rates is called an arbitrage. It’s commonly used by banks, which invest their customers’ money for a higher rate of return than they pay on, say, checking or savings accounts. …
But counting on the performance of any investment is risky. When the market slumps, as it did during the last two years, an arbitrage can fail; there’s a chance the rate of return on the investment could be less than the cost of the loan. Pension bonding plans can put governments on the hook for additional, unforeseen contributions to their systems — while they continue to pay the debt service on the bonds.
This state’s pension bonding plan, which doubles the state’s total bonded indebtedness and constitutes the largest such scheme to date, is no exception to the rule. And there’s an additional twist that heightens the risk. Rather than realize gains as they occur, the administration is realizing, and spending, the projected 30-year gain in the first year of the plan. Like the homeowner who spent 27 percent of an equity loan for a car, the plan dictates that some 27 percent of the bond proceeds be spent immediately.
What’s the bottom line? The state is in lousy shape financially, particularly with regard to pensions. As the state comptroller noted in a recent report:
The funding level of the state’s five retirement
systems remains among the nation’s lowest.
The five state systems — the State Employees’
Retirement System (SERS), the State Universities
Retirement System (SURS), the Teachers’ Retirement
System (for teachers outside of Chicago –
TRS), Judges’ Retirement System (JRS), and General
Assembly Retirement System (GARS) – were
funded at a 62.6% ratio at the end of fiscal year
2007 (assets vs. liabilities). Even with the infusion
of the $10 billion pension funding bond proceeds
into the system in July 2003, the funded
ratio has failed to reach the highs seen prior to the
last recession, where the systems’ funded ratio
reached 74.7%.
UPDATE 1
The Legislature’s fiscal forecasting agency has compiled a chart showing the state’s future pension liability and how it changes based on the payments made each year. I posted it here.
February 18th, 2008
As Gov. Blagojevich prepares to announce his budget plan on Wednesday, business groups are convinced he will propose a tax on carbon emissions to generate more dollars for state coffers. The State Journal-Register reports:
The (Illinois) chamber fears that Blagojevich will ask lawmakers to approve a tax on carbon emissions from power plants and other industries. While acknowledging it has no details about what Blagojevich plans to propose, the chamber thinks a “carbon tax” could be imposed to generate more than $2.6 billion for cash-strapped state government.
“We are planning as though this will be a major initiative,” Todd Maisch, vice president of the chamber, said Friday. “His (financial) needs are substantial.”
Blagojevich aides refused to confirm — but also did not flatly deny — the plan.
Since taking office in 2003, Blagojevich has looked to Illinois businesses as a source for the revenue he needs to support expanded state spending. That approach topped out last year when he proposed a multi-billion-dollar gross receipts tax on Illinois businesses to cover the cost of a universal health care plan and other spending priorities.
In the SJ-R story, the Illinois Chamber notes that the suspected plan for a carbon tax would be just the latest incarnation of Blagojevich’s desire to more heavily tax businesses:
Maisch said a carbon tax would have the same effect as the ill-fated tax on businesses’ gross receipts that was proposed by Blagojevich last year.
It’s difficult to imagine big-spending Blagojevich going a year without a big-spending initiative. Yet, before state officials consider one dime of new spending, they first must deal with a revenue hole in the existing budget. Crain’s Chicago Business has more.
In other words, the pressure is on Blagojevich, et al., to raise more money — and fast. Hold on to your wallets.
February 15th, 2008
State officials haven’t approved a major capital construction plan since 1999, the first year of former Gov. George Ryan’s administration.
Whether they pull it off this year — amid continuing, maybe growing, acrimony in Springfield — is anybody’s guess. But even if they manage to clear their political obstacles, they may an emerging financial one. As Stateline.org reports, bonding — the type of borrowing the state must do to support a capital plan — is getting more expensive.
The problem isn’t with cities or states issuing the securities but with the insurance carriers that promise to pay interest and principal on municipal bonds in the unlikely event that states or local governments default. In recent years, the insurance carriers also began guaranteeing securities based on car loans, commercial real-estate deals, credit card debt and mortgages, including subprime loans that are now defaulting.
Here’s where it may hit home:
The bad loans are threatening to cause securities ratings firms such as Moody’s Investors Service, Fitch Ratings Ltd. and Standard & Poor’s to drop the credit rating of the insurers, which in turn would drop the credit rating of bonds they insure.
A ratings drop would drive up costs for state and local governments, forcing them to pay higher interest rates to borrow, or could keep investors away in a time of tight credit.
The Wall Street Journal has more, but you must be a subscriber to read the whole thing.
February 11th, 2008
Dan Hynes, the state’s generally low-key comptroller, today moved to undercut any attempt next week by Gov. Rod Blagojevich to paint the state’s fiscal picture as rosy. He said Illinois is poised to “retain its status of having the worst deficit in the nation for the fourth year in a row.”
Hynes issued a “special” report on state finances from 2003 — the year Blagojevich took office as governor — through the current fiscal year. The report’s conclusion:
The fiscal outlook for Illinois is not optimistic. The state has failed to build up reserves or address the underlying structural problems of the state’s budget – in particular, the pension and Medicaid liabilities. At the same time as the economy appears to be slowing, the Governor has promised expansions in health care without a permanent revenue source to pay for them. This lack of reserves – and the Medicaid and pension payments “albatrosses” – will be a drag on the state when it faces an inevitable economic downturn, likely already underway.
Blagojevich is scheduled to deliver his annual state of the state/budget address next week, Feb. 20. Presumably, Hot Rod will not be pointing to the state’s ongoing fiscal problems, which continued under his watch. Hynes apparently is doing his part to let folks know what’s up. He touted his souring report as a “fiscal state of the state.”
It’s just the latest look at the state’s increasingly ugly fiscal situation. More here. I asked the governor’s office for a response to the Hynes special report, but they never got back to me.
Hynes suggests that Illinois, during Blagojevich’s tenure, blew a tremendous opportunity to get its budget in the black during Blagojevich’s tenure.
During this period of national economic growth, most other states took advantage of their increased revenues to stabilize their financial positions. Illinois, when measured on the more comprehensive GAAP (Generally Accepted Accounting Principles) basis, still sustains a deficit, ending fiscal year 2007 nearly $3.6 billion in the red based on preliminary unaudited estimates. While this is an improvement from the record $4.166 billion GAAP deficit recorded in fiscal year 2003, it provides Illinois the dubious opportunity to retain its status of having the worst deficit in the nation for the fourth year in a row.
In greater detail, he first describes the revenue side:
Since the end of the last recession in
2001, Illinois has been unable to regain its fiscal
footing despite impressive and consistent revenue
performance.
The state’s fiscal position bottomed out in fiscal
year 2003 as General Funds revenues from individual
and corporate income taxes fell when compared
to the prior year and sales taxes were flat.
Now for the bill backlog:
The backlog of General Funds bills awaiting payment
in the Comptroller’s Office that spring
peaked at $2.4 billion and the payment delays after
bills were filed with the office reached 51 days.
The state was forced to short-term borrow $1.5
billion in May 2003.
At the end of fiscal year 2003, even in spite of the
short-term borrowing, Illinois was holding $874
million in bills, plus delaying income tax refund
payments and holding bills at state agencies. The
state’s GAAP (Generally Accepted Accounting
Principles) deficit reached an all-time high of
$4.166 billion.
Back to revenue. Hynes says Illinois failed to capitalize on rebounding economy:
However, a rebounding economy provided Illinois
with strong revenue growth. General Funds revenues
in fiscal year 2007 totaled $28.6 billion,
nearly $5.6 billion higher than the amount collected
in fiscal year 2003. This reflects a trend increase
of $1.4 billion a year, or over 5.5% annually.
The kicker:
Yet, financial stability has remained out of reach.
Illinois’ spending in many programmatic areas has
grown, but several key areas of governmental activity
have not been addressed, leaving the state
poorly prepared for the next economic downturn,
a phenomenon that may already be underway.
In July 2006, the Register Star was the first to report that Illinois had logged the worst deficit in the nation. We examined audited financial reports from all 50 states and concluded:
The rebounding national economy meant extra cash in the coffers of nearly every state in the union.
Nearly every state, except Illinois.
Illinois was one of three states to finish the 2005 budget year with a deficit — of $3 billion, to be exact — in its central checking account, a Register Star analysis found. Illinois’ deficit was the largest in the nation. Wisconsin and North Carolina are also in the red; every other state finished with a surplus.
A few days later, WGN asked Blagojevich about the $3 billion deficit.
“That is not true,” the governor said. “In fact, we have a balanced budget. The law requires it. You can’t have a budget unless it’s balanced.”
In fact, it was true. A column I wrote explained the state Constitution’s “balanced budget” provision, which states that, “Appropriations for a fiscal year shall not exceed funds estimated by the General Assembly to be available during that year.”
The state does have both a “balanced” budget and a deficit. It’s been that way since before Blagojevich. It remains that way under him.
The state Constitution says lawmakers may not appropriate spending in excess of the cash the state is expected to take in over the budget year. It does not prohibit a deficit.
Each year, lawmakers simply don’t delineate spending on bills the state won’t have enough money to cover. They shove the other bills, primarily those from health-care providers, into the next year.
This is how they comply with the constitution. Last summer, Blagojevich’s administration rolled $3 billion of these bills to the next budget.
This is a ton of info, I know. If you’re still craving more, check out this article by Charlie Wheeler, director of the public affairs reporting program at the University of Illinois at Springfield.
February 8th, 2008
State revenue through the end of this fiscal year may well fall $600 million or more short of expectations, according to the Legislature’s revenue forecasting agency. The year ends June 30.
Yes, $600 million is real money. A shortfall that large could mean serious problems for a state whose backlog of unpaid bills already is endemic. Doctors, hospitals, other health care providers, and other state vendors often wait months to get paid.
The full report is here. Discussion of the projected revenue shortfall begins on page 3.
In summary:
While the FY 2008 budget was implemented with the hopes of recording approximately $1.6 billion in revenue growth–actual performance through January, teamed with a slowing economy, point to revenues falling well short of those expectations. While the Commission will be providing an official estimate at a scheduled March 5th meeting, receipts to date coupled with an anticipated slowing in personal income tax growth could result in overall growth struggling even to reach $1 billion.
The State Journal-Register has more.
What about the next fiscal year, which begins July 1? The revenue picture does not look good. The forecasting agency’s report continues:
Given the current uncertain status of the economy the revenue picture for FY 2009 is far from clear. However, it would appear that limited base growth is the best that can be hoped for. Unfortunately, appetites for expanded health care, education, capital needs, and other worthy programs continue to build. Add to that the continued pension funding pressure, bills incurred but unable to be paid, and the resulting budgetary difficulties continue to build without any signs of slowing.
UPDATE 1
What does all this mean? It’s hard to say.
Certainly, we’ll know much more on Feb. 20, when Gov. Blagojevich announces his budget plan for the next fiscal year. Blagojevich, like many of his fellow Democrats, has a penchant for feel-good, expensive new programs. Remember last year when he proposed (unsuccessfully) his version of universal health care, backed by the largest tax increase in Illinois history?
It’s hard to imagine the governor going a year without a major spending initiative. And he’s not the only one craving more spending. Lawmakers of both political parties typically have their own new spending priorities, which may well be very different (therefore, on top of) the governor’s priorities. They want the state to build new roads, put more money in classrooms, etc.
What do you get when you combine huge appetites for more spending and a general reluctance to raise the income or sales tax, not to mention a governor who refuses to acknowledge the state’s dire fiscal realities? A potential fiscal trainwreck.
February 7th, 2008
First it was slowing state revenue, thanks to the slowing economy. Now it’s slowing interest income on the state’s investments, thanks to the slowing economy.
Over the next two years, that lost interest income could add up to real money, and that could only aggravate the state’s deteriorating fiscal position. So says a letter released Thursday from state Treasurer Alexi Giannoulias.
In the last fiscal year, which ended last June 30, Giannoulias said the state earned nearly $426 million on its investments. But during the current fiscal year, which ends June 30, he predicted the interest income would total less than $400 million.
The big hit is expected to occur in the next fiscal year, which begins July 1. Giannoulias predicted interest income could drop by roughly half:
The state will feel the full impact of the lower rates and asset size in fiscal year 2009 when we project that interest income will only total between $184 million and $243 million. Previous economic downturns produced declining yields and declining investment balances for up to two years.
Even if the yields return to fiscal year 2007 levels faster than anticipated, total interest income will probably not rise to previous levels because the amount of funds invested will still be smaller. We anticipate that our interest income will not recover to fiscal year 2007 levels for quite some time.
The treasurer concludes:
This anticipated reduction in interest income poses significant challenges for the state’s fiscal outlook going forward, and I urge the Governor and members of the General Assembly to provide the fiscal responsibility and leadership necessary to offset this decline. At the same time, the State Treasurer’s Office will work to further enhance the state portfolio and continue to protect and secure state investments from unnecessary risk.
The interest income is allocated under a statutory formula. In the last fiscal year, the state’s general revenue fund — its central checking account — got 47 percent of the dollars. The rest went to special-purpose funds.
UPDATE 1
The State Journal-Register has more.
UPDATE 2
I should have noted this earlier. State officials are mulling a short-term borrowing plan to help play down a backlog of bills.
January 8th, 2008
Don’t bet on it.
Back in November, we reported that Gov. Rod Blagojevich’s administration was spending its Medicaid dollars as if there would be no tomorrow:
Meanwhile, the administration is spending its Medicaid dollars at a fever pace. Lawmakers appropriated $6.9 billion for Medicaid spending through June 30, the end of this fiscal year, said Carol Knowles, spokeswoman for state Comptroller Dan Hynes. But by Nov. 8 — roughly one-third of the way through the fiscal year — the state’s health-care agency had spent 45 percent of that money, she said.
“It has been common for that agency to run out of appropriation authority sometime in the spring,” she said. “But at the pace that the agency is going, it likely will run out earlier than ever before.”
By the end of the first quarter of the fiscal year, it turned out, the administration had killed off 37.6 percent of its annual Medicaid appropriation, according to a new report from the comptroller’s office. The comptroller’s office processes checks to state vendors.
But the comptroller’s new report also shows that the administration’s Medicaid spending appeared to slow during the second quarter, which ended Dec. 31.
However, the pace of Medicaid
grant spending slowed dramatically in the second
quarter and as a result, is up just $303 million
or 8.7% compared to the first half of last
fiscal year. Appropriations for fiscal year 2008
Medicaid grant spending of $6.894 billion are
up $345 million or 5.3% over the prior year.
Through the first half of fiscal year 2008,
53.2% of Medicaid appropriations were
expended compared to 52.0% in the first half
of last fiscal year.
In other words, as the first half of the fiscal year closed, the administration had spent roughly 53 percent of its annual appropriation. That’s more than half, but it’s only slightly more than half. Compared to November, the fiscal prognosis doesn’t look so bad.
“I would point out that the pace of spending was quite rapid until it was made publicly known how quick the pace was occurring,” Knowles told me by phone on Tuesday. “And since that was made public, virtually the only Medicaid expenditures/requests for payments have been basically expedited payments.”
She continued, “We estimate there is about another $1 billion worth of bills over at the (administration’s public aid agency) that have not been forwarded to us.”
In other words, the administration is holding plenty of bills from health care providers and not submitting them for payment.
January 8th, 2008
School districts around Illinois aren’t the only ones waiting for money thanks to the state’s failure to finalize a budget implementation bill.
Secretary of State Jesse White also is waiting for $100 million — roughly 25 percent of his operating budget, an aide said Tuesday.
White spokesman Henry Haupt said the agency will make payroll on Friday but that employee paychecks will be delayed if the so-called BIMP is not approved by Jan. 25, the next pay date.
“All employees will be paid no matter what,” Haupt said.
The BIMP is a companion to the state budget, which Gov. Rod Blagojevich approved in August. Lawmakers sent the BIMP to Blagojevich on Nov. 5, but he waited until last Friday to veto it.
The governor has 60 days to act on a bill after lawmakers send it to him, or it automatically becomes law. Friday was day No. 60.
At issue for the secretary of state is a law authorizing the state to transfer dollars from its road fund to the secretary of state for operational costs. The BIMP modifies that law to increase that annual transfer from $30.5 million to $130.5 million — a difference of $100 million.
Lawmakers return to Springfield on Wednesday but it’s unclear when they will respond to the governor’s veto of the BIMP. If they can’t agree to either accept or reject the governor’s changes, the entire bill dies.
“We’re optimistic that the General Assembly will address the changes that the governor made in his amendatory veto,” Haupt said. “If and when that takes place, this issue will of course be moot.”
Another provision in BIMP would raise the foundation level, the minimum amount that schools must spend on each pupil, by $400 from $5,334 to $5,734. The foundation level drives general state aid to schools, particularly in districts with lower property values.
Until the BIMP is approved and the foundation level is actually changed, the State Board of Education says it will withhold $617 million in general state aid earmarked for schools.
