Illinois Politicians Play Chicken With Taxpayers Over Budget

In Illinois, nothing happens in the legislature unless House Speaker Michael Madigan and Senate President John Cullerton give the green light for legislation to pass.

Both Madigan and Cullerton want massive tax hikes and both are beholden to unions. Badly needed legislation on pension reform, municipal bankruptcy laws, and workers' comp is currently held up in the legislature awaiting action.

Madigan wants tax hikes before any reforms pass. Of course if there are tax hikes, there will not be reform.

These cartoons by Eric Allie for the Illinois Policy Institute adequately depict the current setup.

Budget Balancing Act



Playing Chicken With Taxpayers



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Budget Impasse

Madigan and Cullerton passed an Illinois budget that is $3 billion in the hole. Given Illinois budgets always contain sleight-of-hand tricks and overly optimistic revenue assumptions, one can be sure the real deficit is higher.

Governor Rauner rightfully refused to sign the budget. Technically it would be unconstitutional to do so. The Illinois constitution requires a balanced budget. It never is of course, but this time no one even pretended it was balanced.

Madigan is playing a game of chicken with Rauner as funding for schools will dry up in August unless a budget is passed.

Legislators don't care because they passed a continuing resolution allowing them to be paid without a budget.

Whom to Blame?

The Chicago Tribune writer Dennis Byrne hits the nail smack on the head with Blame Rauner? Come on.

Mostly blame House Speaker Michael Madigan and Senate President John Cullerton (both Democrats) and their deep-pocket contributors, the American Federation of State, County and Municipal Employees and other public employee unions. Their incessant and greedy demands for more, more and more have forced government to borrow more, more and more to a point approaching bankruptcy.

Champions of the middle class, downtrodden and huddled masses? Hardly. These very Democrats are hypocritically robbing the schools, hospitals and social service providers of billions and billions of dollars that must instead go into pensions and debt service.

For example: An astonishing quarter of every dollar that Chicago earns from taxes, grants, fines and fees goes to pay for employee pensions, according to Marc Joffe, a bond market analyst and principal consultant at Public Sector Credit Solutions.

On the state level, pension and interest payments gobble up 10 percent of all revenues, according to Joffe. Those billions could have gone a long way to help the most needy.

The unions will try to sell the idea that they aren't responsible for the more than $100 billion that's owed to the pension funds. They'll argue that if the government had not raided the funds to pay for normal operations, we wouldn't be facing this crisis.

In a way that's true, but here's the rub. First, the pensions are unreasonably generous; if they were more realistic, more reflective of what is normal in the private sector, we wouldn't have had to put so much money in the funds to begin with.

Second, without those diversions, the state would have spent less on schools, health and other essential services. Teachers unions always complain that not enough money is being spent on schools; but without the diversions, the schools would have had received even less. Are the teachers saying that the money should have gone first to their pensions and not the schools?

The public employee unions act as if the fault lies elsewhere. But when the money was being diverted into operations instead of pensions, where were the union leaders? They were tossing union money (i.e., the members' money) to those very same politicians, mostly Democrats, who were raiding the pension funds for other purposes. And passing inflated budgets that forced them to borrow.

Bingo!
Unless reform comes first, the Illinois legislature will squander the money just as it has always done.

Related Stories

• March 2: Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!
• March 3: Chicago's Only Possible Salvation: Bankruptcy - a Name That Cannot be Spoken
• March 20: Proposed Illinois Tax Hikes: Financial Transactions, Millionaires, Guns, Sweetened Beverages, Satellite Providers, Fireworks, Progressive Income.
• May 20: CNBC's Santelli and Mish Discuss Municipal Bonds; Egan-Jones on Chicago; S&P Blames Moody's; Message to Bondholders
• May 29: Five Chicago Suburbs Headed for Bankruptcy (More Illinois Cities Will Follow)
• June 2: Illinois Politicians' Brazen #1 Priority: Paying Themselves
• June 9: At Least Two More Illinois Cities Poised for Bankruptcy

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.