Illinois Policymaker: "We Are About To Become The Financial Deadbeat Of The Nation"

One week ago, Illinois state comptroller, Susana Mendoza, gave a detailed explanation in her letter to Gov. Rauner and members of the state legislature - two parties that have been locked in a nearly three year long confrontation, preventing them from agreeing on a state budget - explaining why Illinois was on the verge of total collapse.

"The state can no longer function without a responsible and complete budget without severely impacting our core obligations and decimating services to the state"s most in-need citizens," Mendoza wrote. "We must put our fiscal house in order. It is already too late. Action is needed now." And unveiling the most dire language yet, in her letter Mendoza said "we are now reaching a new phase of crisis" perhaps in an attempt to prompt the Democrats and Republicans to sit down and come up with a compromise

Since then, despite all parties" "best efforts" (actually, there have been no real efforts whatsoever)  to reach a compromise after two years of failures, nothing has really changed, with the only difference that Illinois is now just three days away from financial armageddon, because come July 1 and the state has no budget for its third fiscal year, a downgrade of the state to junk - for the first time in US history - is assured, unleashing interest rate hell for future debt issues, and ultimately, bankruptcy.

Those are not our words, but those of Ted Dabrowski, vice president of policy at the Illinois Policy Institute, who said that the Illinois budget crisis has become so dire that the state is in danger of entering a financial "death spiral," as a result of the imminent downgrade to "junk" status. Doing so would increase the cost of borrowing, worsening the deficit and making it even harder for taxpayers to dig out of the hole.

“We’re in a death spiral—Illinois has the worst pension crisis in the nation and needs the boldest reforms,” Ted Dabrowski, Illinois Policy Institute’s vice president of policy, told Fox News. “There is no doubt that junk bond rating is on its way.”

As we first reported a month ago, S&P first warned it would most likely lower Illinois" credit rating to below investment grade if the state fails to adopt a budget for a third straight year.  Lawmakers are now in a special session in an effort to break the budget impasse, prodded by Republican Gov. Bruce Rauner... who has referred to his state as a “banana republic.”

There"s ample reason for such a fruity comparison: the state faces over $250 billion in unfunded pension obligations, a $7 billion budget deficit, a backlog of over $15 billion in unpaid bills, and - drumroll - $800 million just in interest on unpaid bills.

A downgrade to “junk” status would immediately spike the cost of borrowing for all projects, including critical infrastructure, as well as refinancing existing debt. Which for a state in the "ponzi finance" stage of the Minsky curve, is critical.

Dabrowski said passing a budget would “stave off” the junk rating, but the pension crisis in the state could only be remedied by “bold reforms,” such as a transition from pensions to 401(k) plans. He said the state risks becoming the “financial deadbeat of the nation.”

With just over 72 hours remaining, some lawmakers still see hope for a deal.

Senate President John J. Cullerton, a Democrat, “remains optimistic” the legislature can reach a balanced budget, as there is a “shared sense of urgency” among the legislative leaders, according to his spokesman. “For a state with history of dreaming big and building big, a downgrade to junk status would be an embarrassing black mark on our standing and signal an unacceptable lack of confidence from the financial sector in our state,” Cullerton’s spokesman, John Patterson, told Fox News.

Rauner claims that the Republican plan for a budget could fix the state’s financial situation and called it a “true compromise.”

The plan incorporates reforms like property tax relief, term limits and spending caps, which have caused an “ongoing confrontation” between him and Illinois’ Democratic House Speaker Michael Madigan, one Republican leader told Fox News, adding that the two have been in a “stalemate” since Rauner took office two years ago.

“Gov. Rauner inherited this financial mess when he took office, and his proposals have been met by resentment from the speaker,” Deputy House Republican Leader Dan Brady said. Brady added, “we are asking that the speaker allow for a date and a vote before June 30.”

When asked whether the legislature would be able to pass a budget package by the June 30 deadline, and about the likelihood of the change in rating, Madigan’s spokesman Steve Brown did not speculate. “I don’t do predictions—there are numerous discussions around the State House on an effort to bring a balanced budget and see where there might be support for that,” Brown told Fox News. “I’m not in finance.”

And if the budget fails, Illinois will — as we reported before — lose the lottery. The state lotto requires a payment from the legislature each year. The current appropriation expires June 30, meaning no authority to pay prizes. In anticipation of the budget deadlock, the state already is planning to halt Powerball and Mega Millions sales.

“It is disappointing that the legislature’s inability to pass a budget has led to this development and will result in Illinois lottery players being denied the opportunity to play these popular games,” Illinois Lottery Acting Director Greg Smith told Fox News.

Of course, if Illinois becomes the first US state ever downgraded to junk, and the yields on its obligations explode forcing the "deadbeat" state to collapse into a "death spiral",

Illinois' Economic Growth Is Worse Than During The Great Depression

Authored by Michael Lucci via IllinoisPolicy.org,

Illinois’ total state economic activity has increased by only 4 percent since 2007, which is lower than the U.S.’ 10 percent GDP growth during the worst decade of the Great Depression.

There are fewer Illinoisans working today than there were 10 years ago. Millions of Illinoisans are feeling the brunt of the state’s economic pain and financial meltdown in the form of joblessness and hopelessness. Too many families are dealing with unemployment and underemployment, and too few are able to find their dream jobs in the Land of Lincoln. That’s because Illinois has the Great Depression economy of the Midwest.

In fact, Illinois’ economic growth is worse than during the worst years of America’s Great Depression. Illinois’ gross state product, which measures total economic activity, has increased by barely more than 4 percent over the past decade. In comparison, the U.S. gross domestic product during America’s Great Depression increased by nearly 10 percent during the worst decade of the Great Depression, from 1930-1939.

America’s Great Depression started off worse from 1930-1932, but the recovery came on stronger. By contrast, Illinois did not have as steep of a fall during the first years of the Great Recession, but Illinois’ recovery from the Great Recession has been abysmal.

Illinois suffers from depressed economic growth, and state policymakers have repeatedly chosen the path that prevents prosperity. Illinois lawmakers hiked state personal income taxes by 67 percent in 2011. While those income tax rate increases partially sunsetted in 2015, local property and sales taxes have also risen. In the face of economic calamity, Illinois has tried to tax its way back to prosperity.

Taxes keep going up because the state has failed to address its deepest problems –gargantuan pension and retiree health care debts and uncontrolled spending on government payrolls. Illinois’ debts are spiraling out of control, its bonds are headed for junk status, and politicians have responded by repeatedly raising taxes.

The debts need to be brought under control because good job opportunities, economic growth and income-earning power are fleeing the state. That’s why Illinois has the worst personal income growth in the entire country – tied only with Nevada – over the Great Recession era. Personal income has grown by only 0.8 percent per year in Illinois from the end of 2007 through 2016.

Illinois’ governing class has failed to make the state sustainable for future generations. Illinoisans are fleeing the state, and millennials – made up of college students and young working adults – are getting out fastest.

Illinois now loses, on net, one person every 4.6 minutes to other states. As a result, Illinois has been shrinking since July 2013, according to the U.S. Census Bureau. Illinois’ population is down by 78,000 over the last three years due to massive out-migration. In contrast, all states around Illinois are growing.

Illinois’ problems have been caused by political failure to embrace reforms that would bolster economic growth and bring debts under control. The state’s political leadership has racked up hundreds of billions of dollars in debts that likely can never be repaid, yet the General Assembly refuses to change course. Taxes have consistently gone up, debts are spiraling out of control, and yet the Illinois legislature hasn’t changed anything of substance.

More taxation is not the answer, and Illinoisans have had enough. Sixty-four percent of Illinoisans oppose another income tax increase as part of a budget deal, according to a May poll commissioned by the Illinois Policy Institute. More taxes would simply sink into a black hole of debt that politicians have shown no interest in fixing.

Illinois needs to choose a course of reform or accept the inevitability of state and municipal bankruptcy. The state is bleeding red ink, and will continue to do so until lawmakers bring debts under control. The state’s economy is struggling under the current burden of debt, taxation and regulation; more of the same will inevitably fail.

It’s time to change course, or Illinoisans will continue to change their residence to other states. Until the state adopts meaningful reform, Great Depression economic growth will be the norm in the Land of Lincoln.

Chicago Population Shrinks Most Of Any City In US

Authored by Mike Shedlock via MishTalk.com,

Illinoisans continue their exodus, with Chicago having the dubious distinction of the highest population loss in the nation.

High taxes are the number one reason people and businesses leave the state.

What follows is a guest post by Michael Lucci, Vice President of Policy, Illinois Policy Institute.

CHICAGO ONLY MAJOR U.S. CITY TO LOSE POPULATION FROM 2015 TO 2016

The majority of major cities in Illinois are shrinking as the Land of Lincoln depopulates due to massive out-migration to other states.

But while most of Illinois’ cities and towns are continuing to shrink, the majority of cities and towns in Illinois’ bordering states are growing, according to data from the U.S. Census Bureau.
When Illinoisans are polled on why they are leaving, taxes are the No. 1 reason they cite. Yet Illinois politicians continue to raise taxes, showing that political leaders have not yet heard the message of the state’s residents.

Chicago shrank more than any other U.S. city, but Berwyn, Cicero and Peoria are shrinking faster on a per capita basis

Chicago’s population declined by 8,638 people from July 2015 to July 2016, a larger loss than any other major American city. Illinois has 29 cities with 50,000 people or more, and 21 of those cities also shrank in total size.

However, on a per capita basis, Decatur is shrinking more than any other city in Illinois. Decatur’s population shrank by 8.5 people per 1,000 residents from July 2015 to July 2016. That means that for every 1,000 people in Decatur in 2015, there were 8.5 fewer people in Decatur in 2016.

On a per capita basis, Decatur’s loss was followed by Berwyn, Cicero, Peoria and Oak Park, all of which shrank by more than seven people per 1,000 residents.

Eight of these larger Illinois cities had population growth year over year. Champaign is the only Illinois city that had more than 1 percent population growth, fueled almost entirely by the arrival of international students at the University of Illinois.

Most of these cities are shrinking because there are so many people leaving for other parts of the country. Those losses to other parts of the country outweigh the normal population gains experienced across the state from having more births than deaths, and having a small inflow of international immigrants.

Illinois’ Neighbors are Watching Most of their Biggest Cities Grow

The story is different in neighboring states, where most cities with more than 50,000 people are growing. Illinois’ border states have 58 cities with more than 50,000 people, and 38 of them are growing. That means that 65 percent of such cities in neighboring states are growing.

In Illinois, only eight of 29 cities with populations of 50,000 or more are growing, which is only 28 percent of Illinois cities with more than 50,000 people.

A large part of the reason Illinois’ border states have growing cities and Illinois has shrinking cities is because Illinois is losing the border wars with all of its neighbors. Illinoisans are flooding into bordering states faster than ever before. Over the last 10 years, Illinois has experienced large net migration losses to nearly all of its bordering states, and those losses have accelerated in recent years. (The exception to this 10-year trend is Michigan, which shares a lake border with Illinois and to which Illinois had net losses of residents over only the two most recent years of data.)

Higher Taxes Will Push More Residents Out of State

The Census Bureau released its out-migration data the same week the Illinois Senate passed a massive tax hike bill.

This is a significant development in a state where residents are fed up with the high tax burden, and this frustration is pushing more and more people to leave. According to a Paul Simon Public Policy Institute poll released in October 2016, 47 percent of Illinoisans surveyed said they want to leave the state. And taxes were the most commonly cited reason people gave for their desire to move.

And according to a recent poll commissioned by the Illinois Policy Institute, fewer than 1 in 3 likely Illinois voters support raising taxes to balance the state’s books. Yet the General Assembly continues to insist on tax hikes as the way to close the budget deficit.

Illinoisans are taxed enough already, and the state will continue to lose residents until it reins in taxes and adopts policies to support more jobs growth.

The General Assembly has run a losing strategy for years: raising taxes and failing to reform spending drivers. This has not brought prosperity or opportunity to the state, and will not do so over the longer term, either.
Illinois will not become sustainable again until the state implements reforms so that the government, its bureaucracies and special interests serve the people rather than the other way around.

Until Illinois is fixed, Illinoisans will continue to vote with their feet against staying in the Land of Lincoln.

Michael Lucci
Vice President of Policy

* *  *

Those who leave are generally better educated and have higher wages than those who stay. Those who cannot find another job elsewhere have no choice but to stay.

Five Desperately Needed Reforms

1. Municipal bankruptcy legislation


2. Pension reform


3. Right-to-Work legislation


4. End of prevailing wage laws


5. Workers’ compensation reform

Number one on my list of Illinois reforms is bankruptcy legislation. It is the only hope for numerous Illinois cities whose hands are also tied by union-sponsored prevailing wage laws.

For further discussion, including pension analysis,  please see Puerto Rico Placed in Bankruptcy Protection: Illinois Needs Similar Deal.

Cook County Illinois Suffers Largest Population Drop In Entire US

Authored by Mike Shedlock via MishTalk.com,

Illinois voters are voting with their feet. Not only are people scrambling to get out of Cook County, but the entire state is suffering.

Illinois Policy Institute writer Michael Lucci explains in this guest post on Cook County Migration.

Cook County has Largest Population Loss of Any County in U.S.

Cook County lost more population than any other county in the United States from July 2015 to July 2016, according to a new data release from the U.S. Census Bureau.

Cook County shrank by 21,324 people. The county had more births than deaths and gained 18,434 people from international immigration. However, Cook County had a net loss of 66,244 people to other parts of the United States, which more than offset the components of population growth.

However, the people leaving Cook County aren’t showing up in other parts of Illinois when the net movements of people are considered.

In fact, most of Illinois is depopulating – 93 of Illinois’ 102 counties are experiencing net out-migration, and 89 of Illinois’ 102 counties have shrinking populations. Illinois’ dysfunctional government, weak job creation, and ever-increasing tax burden help explain why. A Paul Simon Public Policy Institute poll released in October 2016 found that taxes were the No. 1 reason people want to leave Illinois.

Cook, DuPage, Lake, Kane, McHenry, Will counties see net out-migration to other parts of the U.S.

The major driver of Cook County’s shrinking population is that the county’s domestic migration losses have doubled over the last five years, while international gains have remained flat and gains from more births than deaths have declined.

The flow of people out of Cook County did not result in net in-migration for the collar counties. Cook County’s net out-migration of 66,244 people was followed by net out-migration of 9,171 people from DuPage; 5,179 from Lake; 1,824 from Kane; 1,589 from McHenry; and 1,253 from Will. Kendall County is the nearest to Cook to have net inflows, with Kendall gaining 553 more people than it lost to other parts of the country.

The out-migration from Cook, DuPage, Lake and McHenry counties was large enough to make all those counties shrink in total population. Kane County and Will County managed to have population gains despite their out-migration problems.

It should worry policymakers in Chicago and Cook County that out-migration and population loss were already so strong in the July 2015 – July 2016 timeframe. That’s because Chicago and Cook County’s major property and sales tax hikes had not yet taken effect at the time of this out-migration. When those tax hikes are in place, the Chicago area will likely lose more population due to taxation. And the economic effects of increased taxation will be felt a few years later, with fewer jobs and economic growth than would have occurred without the tax hikes. Population loss in the Chicago area is likely to get worse.

Not just the collar counties: All of Illinois is seeing population losses

The problem is not just with Cook and the collar counties: The majority of Illinois counties are shrinking. Eighty-nine of Illinois’ 102 counties are shrinking in total population. Northeast Illinois is shrinking most in terms of total population, but many downstate counties are shrinking and seeing more out-migration as a percentage of population. For example, Rock Island and Peoria counties both have more out-migration as a percentage of population than Cook County.

Most of Illinois’ metropolitan statistical areas are also shrinking due to large migration losses to other parts of the country, with only Elgin and Champaign showing slow population growth. The Chicago metro division saw a net migration loss of nearly 78,000 people, driving a population decline of more than 19,000 people for the Chicago metro division.

Elgin had net migration losses to other parts of the country. However, Elgin’s population growth is attributable to an unusually high birth rate and a solid gain of international immigrants. Champaign similarly relies on international immigration to avoid a shrinking population size. Champaign showed a large gain from international immigration, likely a flow of international students to the University of Illinois.

The U.S. Census Bureau’s report does not come as a surprise, but it should serve as a warning to state and local governments. Illinois is depopulating, and no area is immune from its effects. Downstate communities are especially stressed due to the loss of manufacturing jobs and other blue-collar industries. And the Chicago area is likely to face additional stress as nearly $2 billion dollars in tax hikes are phased in over the next few years.

Lawmakers can take on two key measures to give taxpayers hope. The first is to freeze property taxes statewide so Illinoisans can feel secure in their homes. The second is to pass a balanced budget without any tax increases to give residents confidence that lawmakers can rein in out-of-control spending and not repeatedly hit up taxpayers for more of their hard-earned dollars.

Before considering any more tax increases, policymakers statewide should consider the sobering reality of how quickly people are leaving the state.

Michael Lucci

Mish Getaway

People keep asking “When are you leaving?” Rest assured plans are in progress and have been for some time.

But some people are stuck here. Others want to be here for personal reasons even though they are fed up with the state of affairs.

IPI Push

1. Give Illinoisans much-needed property tax relief


2. Consolidate Illinois’ many layers of duplicative government


3. Cut burdensome regulations to attract businesses and jobs to Illinois

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