Illinois

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The Week in Public Finance: Lobbying Congress on the 'Tax Perk,' Chronic Deficits and the Credit Threat in Illinois

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BY  | JULY 14, 2017
Illinois Gov. Bruce Rauner speaks during a news conference. (AP/G-Jun Yam)

Tax Deductions Aren’t Just for the Super-Rich

As the Trump administration promotes a tax reform agenda that would take away the state and local tax deduction, government organizations are pushing back hard against the notion that the tax perk is utilized only by the uber-wealthy. A new report this week shows that more than half of the tax filers who take the deduction earn less than $200,000 per year. In fact, the largest group of filers who deduct their state and local taxes from their federal taxable income earn between $100,000 and $200,000 per year.

“Contrary to popular opinion, the deduction of state and local taxes does not exclusively benefit the wealthy, even though that argument has been used countless times in attempts to modify or repeal the deduction,” says the report, which was prepared by the Government Finance Officers Association.

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The Week in Public Finance: Late Budgets, Illinois' First in Years and Risky Pension Investments

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BY  | JULY 7, 2017
New Jersey Gov. Chris Christie walks from the podium following a news conference about the government shutdown that had closed state parks and beaches to the public. (AP/Mel Evans)

Better Late Than Never

They may be late, but both Maine and New Jersey finally have budgets for fiscal 2018 after shutting down their respective governments for three days.

Early Tuesday, New Jersey Gov. Chris Christie signed a $34.7 billion budget agreement and ended a shutdown. That same day, Maine’s shutdown wrapped up when Gov. Paul LePage signed a $7.1 billion budget. The deal eliminated a lodging tax increase opposed by LePage in exchange for allocating an additional $162 million to public education.

Delaware also reached a budget deal early Sunday morning. Gov. John Carney signed a $4.1 billion budget that preserved funding for nonprofits, public health programs and schools by raising taxes on real estate transfers, tobacco and alcohol.

The Takeaway: A whopping 11 states started their fiscal 2018 this month without a budget deal, an unusually high number that reflects the growing divisiveness of tax and fiscal policy. Be it dealing with budget deficits or juggling a demand to bring funding for services back to pre-recession levels, more and more of these conflicts are resulting in statehouse stalemates.

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Is Illinois on the Brink of a Financial Armageddon?

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The state's lawmakers have until the end of the week to pass a budget -- something they haven't been able to do in years. If they don't, the consequences are dire.
BY  | JUNE 28, 2017
Illinois State Comptroller Susana Mendoza sitting at her desk.
“Doomsday is right around the corner,” says Illinois State Comptroller Susana Mendoza. (AP/G-Jun Yam)

For two years, Illinois has managed to operate without a budget. Unless lawmakers pass one by the end of the week, the state is likely staring at an unprecedented credit rating downgrade to junk status. But that's just the beginning of its financial Armageddon: Illinois is also projected to not have enough cash this summer to fund all of its basic services like schools.

According to State Comptroller Susana Mendoza, Illinois' flagging revenues and shrinking liquidity likely mean the state will soon be $185 million short on meeting even its basic, court-ordered obligations. “Doomsday is right around the corner,” she says. “It means any number of things: road projects stopping, pension [payments] being skipped, employees not getting paid -- which will likely make people not show up to work.”

Mendoza is not alone in voicing her concerns.

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The Week in Public Finance: Pension Reform in Texas, Fitch Lowers Expectations and Illinois Downgraded Again

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BY  | JUNE 2, 2017 

Even the Pension Deals are Big in Texas

There has been a big break in Houston's and Dallas' pension crises over the past week: The Texas Legislature approved reforms that require all sides to pony up big.

In Houston, the changes will cut the city’s $8 billion unfunded liability in half. Municipal and public safety unions agreed to $2.8 billion in benefits cuts. Meanwhile, Houston will issue $1 billion in pension bonds to boost the system’s balance. It will also stick to a payment plan -- that includes capping the city's future pension costs -- to pay off the remaining unfunded liability over 30 years.

Similarly, Dallas’ police and fire workers will shoulder $1.4 billion in benefit cuts over the next 30 years and more than $1 billion in additional contributions from their pay. For its part, the city will be required to significantly boost its annual payments into the fund, starting with more than $150 million next year. Mayor Mike Rawlings will also get to pick six of the 11 trustees on the currently union-dominated pension board, whose poor investments contributed to more than $1 billion in losses.

The Takeaway: The common theme to these reforms is shared sacrifice. While unions and officials are happy to have a plan in place, no one is pleased about what comes next. "This is not a time to high-five," Dallas Police Association Vice President Frederick Frazier told the Dallas Morning News. "This is a time to pull the boots up and get back to work."

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The Week in Public Finance: States Warned of 'Profound Shift' in Finances, Hurting in Illinois and More

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BY  | APRIL 7, 2017

State Finances to Experience a 'Profound Shift'

Some states might soon be facing a come to Jesus moment. That was the sobering message this week from a senior analyst at S&P Global Ratings, who warned that a “profound shift” is occurring in state finances pressured by pension debt, slow revenue growth and demographic changes.

Gabe Petek noted Illinois, Kentucky and New Jersey are particularly vulnerable as they have persistently struggled to balance budgets during one of the longest economic expansion periods in modern U.S. history. But they’re not the only ones who should be put on notice. "This long period of relative calm may have lulled some people into complacency when it comes to state finances," he wrote in an editorial for The Hill. "It shouldn’t have."

In addition to slower revenue growth, declining worker-to-beneficiary ratios in state retirement systems and rising Medicaid enrollments "have meant that fiscal stress is no longer confined to recessionary times," he wrote.

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The Week in Public Finance: Bad Balancing Acts, Best Taxpayer ROI and Double Taxation

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BY  | MARCH 31, 2017

Race to the Bottom?

New Jersey’s pension problems and Illinois’ lack of a budget continue to dog their reputation in the eyes of creditors.

In New Jersey, Moody's downgraded the Garden State one-notch this week to A3, citing the state’s “significant pension underfunding, including growth in the state's large long-term liabilities, a persistent structural imbalance and weak fund balances.”

It’s the 11th downgrade by a credit rating agency during Gov. Chris Christie’s more than seven years in office. Overall, New Jersey’s credit rating has fallen four notches under Christie’s watch, from what’s considered high investment grade to borderline medium grade. Meanwhile, the state's unfunded pension liability has climbed to $136 billion, which mean it has less than half of what it needs to pay its retirees down the road.

For its part, Illinois is the only state rated lower than New Jersey.

No 401(k)? No Problem. States Have You Covered.

Several states are preparing to offer a retirement plan that helps private-sector workers -- and taxpayers -- save money.
BY  | FEBRUARY 8, 2017

This July, Oregon will become the first state to offer a retirement plan to part- and full-time private-sector workers who don't have access to one through their employer. The program is ultimately expected to cover nearly one million workers in the state.

Six other states -- California, Connecticut, Illinois, Maryland, New Jersey and Washington -- are also planning to roll out similar programs within the next five years. When that happens, the seven states will cover nearly one-quarter of the nation's private-sector workers without an employer-sponsored retirement plan.

Called Secure Choice, these programs have been catching on since California in 2012 decided to study the feasibility of creating one. They aren't pensions but instead independently managed and pooled retirement accounts. The programs pay for themselves through fees, so states aren't liable for the cost. In addition to the seven states that have approved a program, at least eight other states -- including populous New York -- have or are considering legislation to launch their own.

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The Week in Public Finance: Wells Fargo's Punishment, a Surprising Study and Kansas' Forecasting Blues

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BY  | OCTOBER 7, 2016

Governments Punish Wells Fargo

Some governments are temporarily cutting ties with Wells Fargo thanks to a scandal involving thousands of unauthorized accounts.

This week, Illinois and the city of Chicago announced they're joining California and suspending their relationship with the bank for at least one year. Meanwhile, Massachusetts, Oregon and the city of New York are reviewing their business ties with the firm.

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The Week in Public Finance: Why Some Pensions Are Falling Behind, Stress Testing States and More

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A roundup of money (and other) news governments can use.
BY  | AUGUST 12, 2016

Pollyannaish About Pension Returns

Houston is fighting a losing battle with its pension system: The unfunded liability between Houston’s three plans totals at least $3.9 billion, up from $212 million in 1992. Meanwhile, pension costs as a percentage of the city’s revenue have doubled since 2000 and were one of the reasons behind a recent credit rating downgrade.

A new report from Rice University’s Kinder Institute identifies two main culprits for the funding crisis: Even though the city is now paying its full pension bill, it’s still not enough to chip away at the unfunded liability, and the three plans have assumed investment returns of between 8 and 8.5 percent -- that's higher than the national average and even higher than their own recent experience.

The report's authors looked at examples of pension changes in other major cities and highlighted potential solutions, including raising the cap on the city’s revenues so it can generate more money for pensions; increasing employee contributions; and reducing cost-of-living payments to retirees. “All of these options would generate different amounts of funding in different time frames,” the report said. "[But] none would likely solve the problem alone.”

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The Week in Public Finance: Hot Munis, Cooling Off Creditors and Warming Up to Facebook

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A roundup of money (and other) news governments can use.
BY  | JULY 22, 2016

It’s July and Muni Bonds Are Hot

The municipal bond market could be off to its best start since 2010, when federal policies helped fuel new issuance. During the first six months of this year, a total of $221 billion in bonds have been brought to market by state and local governments, according to data from the Securities Industry and Financial Markets Association (SIFMA). The total includes new bonds and refinanced ones.

Most of that activity has come from the second quarter of the year, specifically in May and June when the volume of new bonds in each month was the highest since 2008, according to an analysis by RBC Capital Markets’ Chris Mauro. Even Puerto Rico’s recent default on a $2 billion debt payment has not appeared to phase investors or hurt interest rates.

The market is currently on pace to finish the year with over $430 billion in issuance. But with more than five months to go before the end of the year, anything could happen -- particularly with a volatile presidential contest underway. Last year, the pace cooled in the second half of the year, with the value of total bonds issued finishing just shy of $400 billion. Still, Mauro said he is increasing his original prediction of new bond volume to somewhere between $400 billion and $425 billion.

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Who Should Police Municipal Markets?

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A questionable bond sale in Illinois has left some wondering why there's no one to stop financially troubled governments from borrowing.
BY  | JUNE 30, 2016

Borrowers have long assumed that banks and other traditional lenders will only loan them as much money as they can responsibly afford. Almost a decade ago, the subprime mortgage crisis shattered that belief. But it might still persist in the municipal market.

Take Illinois, whose fiscal woes are no secret. It has the lowest credit rating (BBB+) -- by far -- of all 50 states, its pensions are among the worst-funded in the country and it's entering its second fiscal year without a budget. Yet earlier this month, Illinois borrowed more than a half-billion dollars from municipal market investors with relative ease.

The state paid a higher interest rate for its troubles. But thanks to the high demand for municipal bonds these days, the rate was actually lower than the one Illinois paid on its last bond issuance in January.

"That's the biggest weakness of the municipal market," said Matt Fabian, managing director for Municipal Market Analytics. "We will help issuers borrow as much as they say they want, whether or not they can afford it."

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The Week in Public Finance: Punishment for Illinois, Budget Battles and New Jersey's Win

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A roundup of money (and other) news governments can use.
BY  | JUNE 10, 2016

A Battle Over Illinois’ Downgrade

Illinois was downgraded this week to two steps above junk status by Moody’s Investors Service. The downgrade is largely due to the state’s inability to pass a budget for the past year and a half. A political stalemate has crippled lawmaking in the state and Illinois -- already the lowest-rated state -- is being docked now with a Baa2 rating. The state’s current budget gap has only worsened over the past year. The structural budget deficit, including what Illinois is supposed be spending on pensions but isn’t, amounts to 15 percent of total general fund expenditures, Moody’s said. A day after the Moody's downgrade, Standard & Poor's also downgraded Illinois.

Apparently unperturbed by the fact that its overwhelming debt is what got it into this pickle, Illinois plans to borrow a half-billion in bonds later this month. The downgrade will likely increase the interest rate Illinois will have to pay on those bonds and impact the state’s outstanding $26 billion in debt.

Not long after the downgrade, the world’s largest money manager said investors should boycott Illinois’ upcoming sale.

“We as municipal market pa

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The Week in Public Finance: CalPERS' Rethinks Tobacco Divestment, Fact-Checking Illinois' Exodus and Income Recoveries

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A roundup of money (and other) news governments can use.
BY  | APRIL 22, 2016

Smoking or Non-Smoking?

The California Public Employees’ Retirement System (CalPERS) struck a controversial note this week when its board announced it would study whether to get back into the tobacco industry. The nation’s largest pension fund divested from tobacco companies in 2001 on the premise that making money off a product known to cause cancer was in conflict with the fund’s social responsibility.

But a study by a consulting firm showed that CalPERS forfeited an estimated $3 billion in investment profits since 2001 because of that decision. The board will take its time -- two years -- reconsidering its decision, citing its fiduciary duty to make the best investment choices possible for retirees.

The announcement has already drawn fire from those who say CalPERS would violate its role as a health insurer by getting back into tobacco. State Treasurer John Chiang, who sits on the board and voted against the majority, said in a statement that investing in tobacco companies is harmful to public health and to the fund’s fiscal bottom line.

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Illinois May Target Predatory Lending to Small Businesses

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A first-in-the-nation bill would regulate loans made to small businesses by alternative lenders mostly found online.
BY  | APRIL 18, 2016

Illinois could be the first state to regulate predatory lending to small businesses, an emerging threat that some have called the next credit crisis.

The bill, SB 2865, targets many of the complaints that small business owners and researchers have made in recent years about loans made by online lenders and other non-traditional institutions. The legislation, which amends the Illinois Fairness in Lending Act, would require more transparency from lenders regarding the annual interest rate and terms applied to the loan.

“Many of the so-called four D’s of predation -- deception, debt traps, debt spirals and discrimination -- stem from a lack of transparency,” Chicago Treasurer Kurt Summers told the state Senate's financial institutions committee last week. “Today in Illinois, a company selling timeshares for $100 a month is required to have more clearly articulated loan terms in their contracts than an online lender would for a $200,000 business loan.”

The legislation, which the full Senate is now considering, would also set standards for making the loan, such as requiring lenders to consider a business owner’s ability to pay. Specifically, the measure would prohibit loans to a small business if the monthly loan payments would exceed 50 percent of the borrower’s net monthly revenue.

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The Week in Public Finance: Court Strikes Down Chicago Pension Reforms, Pennsylvania Ends Budget Standoff and More

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A roundup of money (and other) news governments can use.
BY  | MARCH 24, 2016

What Will Chicago Do Now?

The Illinois Supreme Court on Thursday ruled unconstitutional Chicago’s attempt to reduce its massive pension liabilities.

The decision, which affirms lower court rulings, doesn't come as a big surprise given that the state's highest court issued a similar ruling 10 months ago regarding Illinois’ proposed pension cuts. Still, it’s a blow to Chicago and its mayor, Rahm Emanuel, who had hoped the cuts would save the city hundreds of millions of dollars. Chicago is short $20 billion across five pension plans (including public schools), and the poor financial health of the retirement system has resulted in downgrades from credit ratings agencies.

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The Week in Public Finance: School Shutdowns, Trading Munis and Small Business Lending

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A roundup of money (and other) news governments can use.
BY  | MARCH 4, 2016

Education Opens Closes Doors

One of states' top spending items is education. When lawmakers can’t agree on a budget -- or they decide to make severe cuts -- higher education often gets hurt. Sometimes, even K-12 spending takes a hit. In Illinois and Pennsylvania, ongoing stalemates over the current fiscal year’s budget may lead to school closures. In Louisiana, potential major cuts have students protesting.

Let’s start in Illinois, where three state universities have taken severe hits. Last Friday, Chicago State University sent layoff notices to all 900 of its employees. The school is making plans to end its semester early unless the state makes good on funding promises. That alarming news came after Western Illinois University announced it would cut $20 million from its budget over the next two years, while laying off 100 employees. Southern Illinois University is contemplating $40 million in cuts and has already started closing programs, such as men’s tennis and women’s golf. Most recently, Eastern Illinois University, which saw its credit rating downgraded to junk status last month, laid off nearly 200 employees, although the school president offered assurances that the university was not closing.

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The Week in Public Finance: How Budgetless Illinois Still Runs, Spending Cuts Coming and St. Louis' Not-So-Big NFL Loss

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A roundup of money (and other) news governments can use.
BY  | JANUARY 29, 2016

Avoiding the Bill Collectors

Illinois is one of two states that still has no budget this year. How does it keep running? Partly, by letting its bills stack up.

Illinois law lets the state defer paying bills until the following fiscal year -- a tool the state has used liberally for years. Because of that, the state’s unpaid bills have now climbed to a total of $6.6 billion, a backlog equal to 19 percent of what the state spends from its general fund. “If the state fails to address its structural imbalance for subsequent years,” warned Moody's Investors Service, “the payment backlog will swell to $25 billion, or 64 percent of expenditures” over the next three years.