Illinois Legislators Look for More Road

Sticking to their core competency, Illinois legislators are desperately trying to kick the can of Illinois’s fiscal problems one month down the road:

The financially troubled state of Illinois edged closer on Tuesday to a government shutdown as Democratic lawmakers and the Republican governor failed to resolve a budget impasse ahead of a midnight deadline.

Veteran House Speaker Michael Madigan said he would present an emergency one-month budget on Wednesday to keep essential services operating, but Republican Governor Bruce Rauner, in office since January, has signaled he would not accept such a measure.

“This is another opportunity to not shut down the government,” Madigan told reporters.

Also on Tuesday, the Chicago Public Schools made a $634 million state-mandated payment to its teachers’ pension fund beating a midnight deadline, according to a fund official.

Madigan said the payment eliminated the need for legislation that would have given the cash-strapped district another 40 days. School administrators did not say how they came up with the funds for the huge payment that had become the latest in the recurring fiscal crises rocking Illinois and its biggest city, Chicago.

Illinois has the worst-funded pension system and the lowest credit ratings among the 50 states, and one credit rating agency has assigned junk-bond status to Chicago.

Madigan said his $2.26 billion temporary state budget will fund services including Medicaid, corrections, state police and childcare.

Rauner, who last week vetoed most of a $36.3 billion budget passed by Democrats, has said he would not accept a temporary fiscal 2016 budget.

Speaker of the Illinois House Madigan and Illinois Senate President Cullerton don’t need the governor’s cooperation to pass a budget. They just don’t want to bear the political heat alone or, possibly, at all. They’d much prefer blaming it on the governor.

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Chicago Makes Payment

The Chicago Public Schools have made the $600 million payment they were required to make on into their pension fund. Now they don’t know how they’re going to make payroll:

It turns out, Mayor Rahm Emanuel had a Plan B.

Unfortunately, it involves borrowing and up to 1,400 layoffs.

With not a moment to spare — and with no help from Springfield — Chicago Public Schools made good on a mammoth $634 million payment to its teachers’ pension fund on Tuesday, the same day it was due.

The cash-strapped CPS used a combination of borrowed money and a promise of cuts to cover the payment after a deal to delay the contribution failed to materialize in Springfield. Last week, Emanuel’s hand-picked school board authorized $1 billion in borrowing just in case state lawmakers didn’t come through on the delay bill.

“Springfield has failed to address Chicago Public Schools’ financial crisis, so today CPS made its 2015 pension payment by borrowing money,” interim CEO Jesse Ruiz said.

“As an immediate consequence of driving the district further into debt and our need to address the existing structural deficit — which is also driven by decades of pension neglect — CPS will make $200 million in cuts,” he said. “As we have said, CPS could not make the payment and keep cuts away from the classroom, so while school will start on time, our classrooms will be impacted.”

As many as 1,400 employees will be laid off beginning Wednesday, according to CPS.

It’s obvious that the CPS can’t continue to function without tax increases but there are state-imposed limits on how much and how frequently the CPS can increase taxes. Every tax the CPS is empowered to make is regressive and will reduce the city’s economic activity which will reduce the tax base and, consequently, future revenues.

I feel obliged to mention that the state’s contribution to public education in Illinois is the lowest among the 50 states and Chicagoans are in the peculiar situation, unique in the state, of bearing sole responsibility for paying for the retirements of Chicago teachers while still bearing partial responsibility through their states taxes for the retirements of teachers outside Chicago.

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Greece Misses Payment

Greece, having missed the payment due yesterday on its IMF loan, is effectively in default:

ATHENS — Greece missed a crucial debt payment to the International Monetary Fund, the fund said early Wednesday, deepening a crisis that has haunted world leaders and financial markets over the past week.

The development came as Greece’s European creditors each rejected an 11th-hour attempt by Athens to extend the country’s international bailout program.

Greece is not technically in default, but missing the payment of 1.5 billion euros, or about $1.7 billion, is yet another warning that the country will probably be unable to meet its other obligations in coming weeks, to its bond holders and to the European Central Bank. That might make the bank, one of the country’s chief creditors, less willing to continue emergency loans that have been propping up Greek banks for the past several months.

The fish is hooked but it’s thrashing around on the gaff. The Greek prime minister is trying to re-open negotiations to give a lot and get less than he was demanding. Angela Merkel is willing to let him twist in the wind, insisting that any re-opening of negotiations wait until Greece’s referendum this weekend.

What’s not being said is that as long as the Germans hold to their present policies there’s nothing the Greeks can do, barring an exit from the euro, that will get them out of the hole they’ve dug themselves. With shovels made in Germany, no doubt.

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The Perfect Storm

Bill Gross, the exiled “Bond King”, explains six possible ways that a “run on the shadow banks”, non-bank financial organizations of systemic importance which remain lightly regulated even after the near meltdown of 2007:

1) A central bank mistake leading to lower bond prices and a stronger dollar.
2) Greece, and if so, the inevitable aftermath of default/restructuring leading to additional concerns for Eurozone peripherals.
3) China – “a riddle wrapped in a mystery, inside an enigma”. It is the “mystery meat” of economic sandwiches – you never know what’s in there. Credit has expanded more rapidly in recent years than any major economy in history, a sure warning sign.
4) Emerging market crisis – dollar denominated debt/overinvestment/commodity orientation – take your pick of potential culprits.
5) Geopolitical risks – too numerous to mention and too sensitive to print.
6) A butterfly’s wing – chaos theory suggests that a small change in “non-linear systems” could result in large changes elsewhere. Call this kooky, but in a levered financial system, small changes can upset the status quo. Keep that butterfly net handy.

The first is practically a given. Nobody keeps all the balls up in the air forever. The second is under way right now. China’s stock market bubble appears to be popping.

Could we be in store for a “perfect storm” of bad economic and geopolitical news? Interesting times.

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Help Me Out Here

I heard a news report on the radio on my drive home and, frankly, it puzzled me. Here (from Bloomberg) is an example of what puzzled me. The subject is the incipient release of another batch of Hillary Clinton’s emails from her private server:

At his daily briefing, State Department spokesman John Kirby told reporters “this is not an attempt or effort to be less than forthcoming” but acknowledged “we all recognize that turning in our homework at 9 o’clock at night is not ideal.” He blamed the late hour on the State Department’s need to meet the court-imposed deadline while ensuring that sensitive emails have been properly redacted. “It is a lot of stuff to go through,” Kirby said.

Isn’t the statement that the emails must be redacted an acknowledgement from the State Department that Sec. Clinton broke the law, possibly thousands of times?

Maybe someone more knowledgeable than I can fill in the blanks for me. Isn’t there criminal wrong-doing here?

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You Know What Would Solve Cook County’s Problems?

A higher sales tax! That’s what’s being considered here:

Cook County President Tony Preckwinkle said Monday there is a way to perhaps soften a one-penny sales tax increase she’s trying to get passed to pay down pension obligations — but only if a gridlocked state legislature passes the county’s pension reform proposal.

If the sales tax hike goes through there will only be two cities in the country with a higher combined sales tax than Chicago and both of those are in Alabama.

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No Soup for You!

The city of Chicago isn’t getting any relief from the state on the big payment the state is requiring it to pay into its pension fund, at least not yet:

It still isn’t final and things could change really quickly, but it looks as though the cardinals in Springfield are getting ready to send up black smoke on a bill to help Chicago Public Schools with a huge pension payment that’s due by the end of the day.

If you’ll recall, today is the day that House Speaker Michael Madigan promised a second vote on a bill to delay the $634 million payment from today to Aug. 10, buying 40 days to continue negotiations on a wider state budget deal. The bill last time got just 53 of the 71 votes needed, with many insiders suggesting that Madigan tubed the measure to send a message to Mayor Rahm Emanuel to deal directly with him in the future.

Gov. Bruce Rauner then offered a variation on a plan advanced by Senate President John Cullerton to give CPS an additional $200 million a year each of the next two years while the state’s overall school-aid formula is revamped. But that’s complicated and tied to other things that Madigan opposes.

So, Rauner yesterday offered to advance $450 million in state aid that CPS normally wouldn’t get until next month. But Emanuel rejected that, perhaps hoping for approval of his original Aug. 10 bill.

For those of you out there who think that Illinois’s problem is Gov. Rauner that should clear things up. What do the state’s budget and Chicago’s pension payment woes have in common? It isn’t the governor.

Mike Madigan and John Cullerton don’t need the governor for either of those deals. It’s completely up to them. I think that what they want is for the governor and mayor to absorb all of the pain while they keep business as usual.

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BOLO

Today promises to be a big news day. There are at least three major news stories to be on the lookout for today:

  • Grexit
    It certainly appears as though Greece will default on its IMF loan. What happens then is anyone’s guess but it certainly looks as though Greece is about to leave the euro. When it runs out of euros, which certainly seems about to happen, it will have little recourse but a return to the drachma. This story has major implications not only for Greece but for the whole “European Project”.
  • The Iran negotiations
    The nuclear pact in place with Iran expires at midnight tonight without a successor agreement in place. I don’t know whether that’s GMT, DC time, or Tehran time. Multiple sources describe Secretary of State John Kerry as “frantic for a deal”. At least one source has claimed that the U. S. is prepared to abandon demands for inspections to get a deal.
  • Illinois shutdown
    The state of Illinois is teetering on the brink of a government shutdown. The governor and the legislature’s Democratic leadership are playing chicken with the state, each hoping the other will “blink”. The legislature, in violation of the state’s constitution, passed a budget that was out of balance by about $4 billion. The governor refused to sign it. The governor has been running television spots all weekend defending his position and attacking the legislature. The legislature’s leadership has most media outlets on their side. Nobody really knows what’s going to happen.

I’ll try to return and discuss some of these stories in a little greater detail but I wanted to hit the high points.

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Celebrating an Anniversary Through Terrorism

The editors of the Wall Street Journal comment on the multiple terrorist attacks that took place late last week:

Jihadists have a fondness for anniversaries, so maybe we shouldn’t be surprised by three terror attacks, on three continents, all taking place on the eve of the Islamic State’s declaration of a caliphate last June 29. That makes the prospect of follow-on strikes through Monday that much more plausible—and more difficult to stop.

ISIS took credit for only one of the three atrocities—a suicide bombing at a Shiite mosque in Kuwait, in which at least 27 people were killed. But their near-simultaneity suggested some kind of coordination, or at least joint inspiration. Ramadan began last week, and an ISIS spokesman recently called on “mujahadeen everywhere” to make it “a month of disasters for the infidels.”

Coordinated or not, ISIS’s trademark hyper-brutality has made its mark on jihadi minds. In Tunisia a gunman posing as a tourist killed at least 37 people, many of them European vacationers, at a beach resort. In France terrorists were less successful but no less bloody-minded: A car-bombing attempt at an American-owned chemical plant near Lyon failed to cause major damage, but not before the alleged attacker, Yassine Salhi, planted the decapitated head of his boss on the plant’s gate, along with an Islamic flag.

All of this is a stark reminder that the Middle East is no Las Vegas: What happens there doesn’t stay there. Tunisians make up the largest contingent of foreign fighters in ISIS, which took credit for murdering 21 people at a Tunis museum in March. Thousands of Europeans, and an estimated 180 Americans, have gone to fight for ISIS in Syria and Iraq, and Western security officials will not be able to track all of them. That increases the possibility of mass-casualty attacks by well-trained killers, as opposed to the more inept recent attempts by lone-wolf jihadists in Texas and Massachusetts.

Friday’s attacks should cause some rethinking from so-called civil libertarians in Congress and the White House, who have competed to hobble and dismantle the National Security Agency’s antiterror surveillance capabilities.

That is a laughable segue. There is no evidence whatever that the NSA’s “antiterror surveillance capabilities” have brought three sigma security and there is evidence, thoughtfully provided by DHS itself, that it hasn’t brought even brought one sigma. Basically, the precautions taken over the last 15 years have been mostly theater and not particularly effective theater that has resulted in the deaths of thousands of people as well. The evidence for abuse is actually stronger than the evidence for success as far as the NSA is concerned.

One of these days we’ll come around to the view that the only solution to attacks that arise through personal empowerment is personal empowerment. But that’s a dangerous thought.

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Cupich’s Statement on Obergefell v. Hodges

Here’s the statement from Blase Cupich, archbishop of the Chicago archdiocese, on the Supreme Court’s decision in Obergefell v. Hodges:

This week the Supreme Court of the United States issued two rulings with particular meaning for the Catholic Church.

In the first, the Court preserved subsidies for the 6.4 million low-income Americans who depend on them to purchase health insurance under the Affordable Care Act. We have issues with provisions of that legislation and will continue to advocate to preserve our religious freedom. However, we understand that for millions of individuals and families, most of them the working poor, this decision preserves access to health care and the promise it offers of a healthier, longer life.

In the second decision, the United States Supreme Court has ruled that two persons of the same sex have a constitutional right to marry each other. In doing so, the Court has re-defined civil marriage. The proposed reason for the ruling is the protection of equal rights for all citizens, including those who identify themselves as gay. The rapid social changes signaled by the Court ruling call us to mature and serene reflections as we move forward together. In that process, the Catholic Church will stand ready to offer a wisdom rooted in faith and a wide range of human experience.

It is important to note that the Catholic Church has an abiding concern for the dignity of gay persons. In fact, the Catechism of the Catholic Church says: “They must be accepted with respect, compassion, and sensitivity. Every sign of unjust discrimination in their regard should be avoided.” (n. 2358). This respect must be real, not rhetorical, and ever reflective of the Church’s commitment to accompanying all people. For this reason, the Church must extend support to all families, no matter their circumstances, recognizing that we are all relatives, journeying through life under the careful watch of a loving God.

It is also important to stress that the Supreme Court’s redefinition of civil marriage has no bearing on the Catholic Sacrament of Matrimony, in which the marriage of man and woman is a sign of the union of Christ and the Church. In upholding our traditional concept of marriage, we are called to support those who have entered into this sacred and loving bond with God and each other.

This will be especially important for the members of our own Church as we walk together, respectful not only of the political demands of equality, but above all else, guided by the higher claims of divine revelation. Our aim in all of this will be to hold fast to an authentic understanding of marriage which has been written in the human heart, consolidated in history, and confirmed by the Word of God.

As you can see, that’s completely consistent with some of the things you’ve read here before. I found Archbishop Cupich’s statement to be better reasoned and more temperate than the remarks I’ve read from other Catholic prelates.

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