Well, so much for the fierce urgency of now. As expected, yesterday Illinois Gov. Rauner vetoed the tax increase and the budget, the Senate quickly moved to override his veto, and the Illinois House adjourned without taking action. The Associated Press has the latest:
The Illinois House has adjourned without taking action on budget veto overrides that awaits it. There was not a quorum present to conduct business on the Fourth of July holiday.
The House didn’t convene until late Tuesday because the focus of the state’s two-year budget crisis was on the Senate.
The Senate approved a budget package that spends $36 billion on the strength of a $5 billion increase in the income tax. Rauner vetoed the package, but the Senate quickly voted to override, sending the legislation to the House.
Chicago Democratic House Speaker Michael Madigan of Chicago said shortly after the Senate action that there would be no House activity Tuesday, but he did not explain why and his spokesman couldn’t say.
Only 54 members answered the House quorum call. That prohibited lawmakers from taking action.
If I were the ratings agencies, I would examine the budget closely to determine if it actually resolved Illinois’s fiscal problems which I suspect it does not. If they were to find that it doesn’t, they should cut Illinois’s credit rating to junk.
What’s going on now is political posturing. The legislature has had three years to resolve the problem. They’re just running out the clock, hoping to have a more accommodating governor next year.
To put the tax increase into perspective, Illinois realized about $33.7 billion in revenues last year of which 47% was from the personal income tax. Increasing the tax by a third would realize roughly an additional $5 billion, assuming no run-on effects. Illinois has about $16 billion in overdue bills.
I don’t have the numbers, but the increase may only be enough to sustain debt service, which is all the Democrats and the ratings agency cares about.
Interest on the pension debt is $9 billion per year and that’s only part of the debt.
Heh. Or not.
http://www.zerohedge.com/news/2017-07-05/terrible-news-illinois-moodys-puts-state-review-downgrade-junk-despite-budget
The ratings agency is obviously looking at it comprehensively.
What I find odd about Moody’s note is…..and what part of that didn’t you know until now?
If not obvious, this is starting to get interesting. The repricing and elimination of potential buyers is serious as a heart attack. And I don’t think they’ve left enough time to deal credibly with the expense side.
I can flat guarantee Rauner knows what a financial train wreck looks like and where this situation now stands. I wonder if Madigan does. Rauner doesn’t needs Senate votes if Madigan doesn’t have bond buyers…….
Told you so. I’ve been reading some of the Illinois political sites. The commenters obviously don’t understand the state’s financial situation.
The only explanation that occurs to me to explain Moody’s note is that maybe they were looking for more substantive reform. The tax increase doesn’t cover the state’s interest payment and the unpaid bills are mounting every day. Default is looking like a likelihood.
And then there are the run-on effects. There will be some when your state income tax is higher than any of your neighbors’. That’s the problem with having the most expensive house in the neighborhood.
What made me consider that Moody’s might be looking at this narrowly was the obvious overwhelming reality of their non-debt service obligations. (And I’ve seen that type of narrow thinking in the credit world) Obviously not.
I chose my metaphor carefully. Financial implosions are swift and generally catastrophic, as in fatal. And that assumes the parties are actually trying.
Admittedly, states, unlike corporations, cannot be vaporized. Madigan is a lawyer by training if I recall correctly (and shakedown artist by craft). Maybe he’s clueless, but I find it hard to believe he doesn’t know what’s coming, or hasn’t been advised. Therefore I can’t imagine what he’s thinking. As I noted in comments a while back, he’s used to being King, and has become wealthy by his craft, but he is going to preside over a smoking hulk if not careful.