Friday, July 2, 2010

PS427: Illinois Has Stopped Paying Bills

Is this Wisconsin's future?



Payback Time - Budget in the Red, Illinois Has Stopped Paying Bills - NYTimes.com


How bad can state finances get without elected officials actually solving problems?

16 comments:

  1. As a resident of Illinois, I see the things this article talked about firsthand daily. In fact, one of the school districts mentioned in this article is my former school district. District U-46 is the second largest in the state after Chicago Public Schools and the district recently cut 700 teaching positions next year (thankfully some 200 were hired back).
    The problem we have in this state is that no politician wishes to make the difficult choice. As cliché as that may sound it is unequivocally true. The main problem you see with this state's political structure is that a culture of personal gratification over service has fostered in Springfield for years. A Democratic supermajority has allowed lawmakers to take a free pass when skimming over budget concerns. When Gov. Quinn proposed an income tax increase, his efforts were quickly rebuffed. The problem you have here is just as the article hints at, politics takes precedence people. Lawmaker from the GOP and Dems refuse to swallow their own ideologies and solve the problem. Republicans (and many Democrats) rebuff higher taxes and Democrats (alongside their Republican counterparts) refuse to cut spending.
    Liberal tendencies refuse to entertain the notion of lower spending. Concerning the other side of the spectrum, conservative beliefs about taxes are a huge sticking point and in most cases it is absolutely ludicrous to argue against the fact that excessive taxation stifles progress but in this case it has to happen. In my opinion, the economy is at a critical juncture. Evidenced by the near zero federal funds rate and higher than average unemployment in states like Illinois, we very easily could double-dip. However, there are not many other options other than tax increases. A shutdown is doomsday. The GSP of Illinois is 650-700 billion; that makes it one of the 30 largest economies—in the world! Mass defaults would sink not only the fortunes of the state, but bring the country along with it. Unfortunately, a tax increase is necessary; of course coupled with reduced spending. Doing both is political suicide in a state which is especially averse to taxes and cuts. Thus Illinois politicians (mostly known as crooks to the rest of the world but I diverge—we will that for another rant) put off fiscal dilemmas themselves to avoid responsibility and subsequently take backlash from the electorate. Although I am not an expert in economics by any stretch of the imagination, I think there could be some common sense solutions to the debt crisis. Tying income tax rates in an inversely proportional fashion to GDP growth would be helpful. Cutting spending a bit more than necessary in the future could take excess funds and route them to a rainy day fund. Depending on the constitutionality of such a plan, I think that the federal government should pass a law reminiscent of the Keynesian model—require states to have a reserve requirement akin to the Fed reserve requirement for US banks.
    Bottom line, as of now Illinois politicos must swallow their own egos and pride, cut the budget, raise taxes and get the job done. Heck and maybe even take a pay cut; Lord knows the rest of us are doing likewise.

    ReplyDelete
  2. As a resident of Illinois, I see the things this article talked about firsthand daily. In fact, one of the school districts mentioned in this article is my former school district. District U-46 is the second largest in the state after Chicago Public Schools and the district recently cut 700 teaching positions next year (thankfully some 200 were hired back).
    The problem we have in this state is that no politician wishes to make the difficult choice. As cliché as that may sound it is unequivocally true. The main problem you see with this state's political structure is that a culture of personal gratification over service has fostered in Springfield for years. A Democratic supermajority has allowed lawmakers to take a free pass when skimming over budget concerns. When Gov. Quinn proposed an income tax increase, his efforts were quickly rebuffed. The problem you have here is just as the article hints at, politics takes precedence people. Lawmaker from the GOP and Dems refuse to swallow their own ideologies and solve the problem. Republicans (and many Democrats) rebuff higher taxes and Democrats (alongside their Republican counterparts) refuse to cut spending.
    Liberal tendencies refuse to entertain the notion of lower spending. Concerning the other side of the spectrum, conservative beliefs about taxes are a huge sticking point and in most cases it is absolutely ludicrous to argue against the fact that excessive taxation stifles progress but in this case it has to happen. In my opinion, the economy is at a critical juncture. Evidenced by the near zero federal funds rate and higher than average unemployment in states like Illinois, we very easily could double-dip. However, there are not many other options other than tax increases. A shutdown is doomsday. The GSP of Illinois is 650-700 billion; that makes it one of the 30 largest economies—in the world! Mass defaults would sink not only the fortunes of the state, but bring the country along with it. Unfortunately, a tax increase is necessary; of course coupled with reduced spending. Doing both is political suicide in a state which is especially averse to taxes and cuts. Thus Illinois politicians (mostly known as crooks to the rest of the world but I diverge—we will that for another rant) put off fiscal dilemmas themselves to avoid responsibility and subsequently take backlash from the electorate. Although I am not an expert in economics by any stretch of the imagination, I think there could be some common sense solutions to the debt crisis. Tying income tax rates in an inversely proportional fashion to GDP growth would be helpful. Cutting spending a bit more than necessary in the future could take excess funds and route them to a rainy day fund. Depending on the constitutionality of such a plan, I think that the federal government should pass a law reminiscent of the Keynesian model—require states to have a reserve requirement akin to the Fed reserve requirement for US banks.
    Bottom line, as of now Illinois politicos must swallow their own egos and pride, cut the budget, raise taxes and get the job done. Heck and maybe even take a pay cut; Lord knows the rest of us are doing likewise.

    Oh I forgot, for those who have not heard, Blago spent about $400,000 on clothes when in office and on the campaign office. Hey Rod, teachers sure could use that now.

    ReplyDelete
  3. To clarify some comments, my writings all came in a mad rush to rant after I saw the subject of the article. When referencing tying tax cuts to the GDP, I meant for the short term. Once we settle this crisis, it will be important to restructure the tax system in order to prevent rapid economic overheating. And that brings me to my next point, when mentioning the Keynesian model I was referencing the idea that we should save more during high growth to balance out the business cycle. Doing so would allow us to map out our futures more accurately and thus prevent another unexpected collapse.

    ReplyDelete
  4. Sorry for the grammar mistakes. I was typing rapid fashion

    ReplyDelete
  5. *in rapid fashion; Man I am really striking out here.

    ReplyDelete
  6. Yet endlessly entertaining. <;-)

    Charles

    ReplyDelete
  7. Scott AbromowitzJuly 4, 2010 at 9:07 PM

    Elected officials must be willing to break ranks when it comes to increasing taxes. It is ashamed that the one Republican who broke ranks with the GOP lost his committee rank. Politics such as this harm our system by not allowing people to do what is best for our country. The effects of poor governance are now obvious in Illinois where its bond rating has fallen. Illinois must be willing to take risk and do the inevitable and raise taxes and cut services at the same time. The government should introduce a temporary VAT tax similar to what has been done in Michigan, though this has since been repealed. By implementing a VAT, the government must make it clear this is only a temporary tax that will last until the government is able to successfully pay off its debt. As exemplified in previous readings, the government should form a bi-partisan panel to find ways of reducing spending, even as the Illinois government is supposedly lean. Once more, I do not see this situation being in Wisconsin's future, as there is less visible corruption. Though, the state must be willing to raise taxes, however unpopular, for the betterment of the state. People must realize that without income to fund programs, such programs risk deficit spending and therefore harm the future of Wisconsin greatly. This is clear in California. Lastly, apologies for not posting soon enough. I will make sure sto post more often.

    ReplyDelete
  8. I think Dick Durbin put it best when talking about Illinois politics he noted, "I'd rather go to Baghdad to mediate than Springfield."

    ReplyDelete
  9. I would have to agree. Illinois' elected officials need to stop borrowing and creating a much larger deficit and problem. They need to raise taxes and cut spending. A state cannot function without schools and other core elements that are important to their economy. This problem is affecting all sorts of people in Illinois and the government must come up with a plan to fix it quickly. They have dug themselves quite a deep hole and it will only get deeper without action.

    ReplyDelete
  10. The economic situation is unfortunate and we can only hope that states such as Illinois, California, and New York won't drag the rest of the United States down from their unpaid debts and over-borrowing. The amount of corruption in Illinois is absolutely ridiculous, especially seeing that a GOP member lost his committee rank by doing something that was against the general Republican interests. As constituents, we look towards our representatives to work towards our best interests; however, it seems as though in many states, such as Illinois, overbearing corruption gets in the way of doing what is best rather than what is popular within a particular political party.

    I agree that the state of Illinois should create a temporary VAT tax to help them pull out of such economic hardship. Otherwise, will they ever be able to overcome this? They definitely won't unless they make some changes for both the short term and long term.

    I do not believe that Wisconsin will stoop to the level of the state of Illinois. Our unemployment level is below the national average and has gotten better within the last few months. Also, I do not believe that the corruption in Wisconsin's state government is as extensive as in Illinois.

    ReplyDelete
  11. I think that in the Wisconsin state government, we try to keep things more transparent; however, it is difficult to avoid all types of corruption.

    Overall, our representatives need to make choices that are good for the citizens and the state rather than siding along party lines just because they are afraid of losing their committee seat.

    ReplyDelete
  12. This article is a real downer. Now even with Wisconsin's terrible deficit it gives me one more reason to be glad I am from the dairy state. Though realistically unless drastic overarching changes are make, this could be Wisconsin's future. Though with a string of less than desirable governors it does not seem surprising that the situation has gone from bad to worst possible. Usually it seems one sector of a state's budget takes the largest hit, education, transportation, pension, however in Illinois case, the whole thing is falling apart. HALF of state colleges state funding is MIA, speaking as a college student that is absolutely unfathomably. This is in addition cutting thousands of teacher, and cutting funding to welfare programs. The real sinkhole-pensions- will not make things easier in the long run. If it is causing such enormous problems now, what happens when the baby boomers start retiring in droves?

    Drastic action is needed. With Illinois' sales tax one of the lowest in the country that seems as a good place to start. But that may not be enough. How long can Illinois go? Could the federal government step in and simply float a state government?
    It seems the political culture needs to change as well, when "Two of the last six governors have served jail terms, and a third is on trial" is the case there is something fundamentally wrong.

    ReplyDelete
  13. What a horrifying article! The scary part about the absolute irresponsible spending by elected officials in Illinois is Wisconsin’s relation. Illinois is often looked at as the “big brother” so to speak of our state. I know plenty of people who commute each day to Chicago for work from Milwaukee and as Illinois falls further and further in debt I worry about the effect on Wisconsin. While I hope Wisconsin’s elected officials are trustworthy and responsible spenders, who really knows? The sickening part is while all these Illinois residents talk about losing their jobs and homes, I recently saw a commercial with Rod Blagojevich joking he’d do anything ‘legal’ to win the apprentice. I couldn’t help but think about this the entire time I read this article, sickening.

    I thought it was also interesting reading about the gridlock in legislation as well. No one wants to raise taxes, so they borrow against their debt. Then Illinois is stuck with statistics like this one, they paid 55.3 million just in INTEREST on short-term borrowing to pay the state’s bills. I think that the non-profit organization helping inner-city violence would love some of that interest to keep their doors open, but instead it’s wasted. In financial times like these, it’s important for transparency and agreement on how to pull out of this ridiculous debt. Cutting the budget alone isn’t the answer, they need to grow more revenue and need more cooperation.

    Finally, I found the portion of the article talking about the University of Illinois very interesting. The U of I has yet to receive 45% of it’s state appropriations. While state’s default on all kinds of payments and Illinois forces the University to borrow against their debt, I worry about the future of the UW. A hefty portion of the University’s budget relies on federal funds for research, but if the federal government cannot pay for what they owe us, will they force the UW to borrow as well? I sure hope not.

    ReplyDelete
  14. Jacob,

    Good point but just to let you know, Illinois tends to have some of the highest sales tax rates in the country. In fact Cook County has had sales tax upwards of around 11%.

    ReplyDelete
  15. I’d like to start by saying while no state is thriving in this economy I’m going to take a positive stance and say that as long as Wisconsin keeps looking for possible ways to either raise taxes or cut spending it will not reach the point that Illinois is at currently. At least I have to try to think positive because this article is just depressing.
    The article seems to lean to the effect that Illinois has been using some poor practices since before the economy took a bad turn and now it’s all crashing down on them at once. Sure the pensions seem to be the biggest area of concern if they have been managing it poorly since the 1990s that shouldn’t be a shock to anyone then. Wisconsin isn’t in this position and it still taking action to prevent such a thing. I know for a fact being related to a state employee that salaries are being cut as we speak for new employee contracts as well as furlough days.
    On top of the pensions it probably doesn’t help that Illinois passed governors weren’t exactly the picture of perfection. While Wisconsin isn’t perfect I see this area of concern isn’t as true for Wisconsin. The only concern for Wisconsin similar to Illinois is if our government fails to make a decision as to how to make budget cuts. This isn’t the time for delays and I hope that Wisconsin is making note at how Illinois is suffering because of their failure to take action.
    Oh, and I know what Bryan is saying about sales tax speaking as someone who has done a fair amount of shopping both here in Wisconsin and Illinois. Chicago definitely has higher sales tax. Ha.

    ReplyDelete
  16. Could this happen to Wisconsin? Wisconsin's political culture is not nearly as corrupt as Illinois, which is good in one sense. In another sense, though, corruption often equates with lack of transparency which makes it difficult to determine what exactly factored in to the undeniable mess that is the state of Illinois. On the other hand, both states (and most states, for that matter) are nearly out of their stimulus money which proved to be a short-term fix, rather than a long-term savior.

    When there's no money and the budget must be balanced, the options are usually to increase taxes and cut spending. Illinois seems to have invented a third option- simply not paying the bills- which is not sustainable but also not subject to intense, immediate consequences because it is not a standard mode of action for which there are standard responses.

    ReplyDelete

Comments are moderated. Spam will be rejected so don't bother.