No Budget, Malloy Promises ‘Painful’ Cuts

Connecticut’s new motto: “At least we’re not Illinois.”

The Land of Lincoln today begins its third year without a state budget. The THIRD year? Yes, it could happen. It has happened, over there at least.

Scary to read about. Here are some snippets likely to up your anxiety on what should be a relaxing holiday weekend. Could it happen here? Who can tell the future? (I’m walking straight into JML’s signature line, “Time will tell.”)

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THE NEW YORK TIMES’ headline on Thursday:
“Everything’s In Danger:” Illinois Approaches 3rd Year Without Budget
https://www.nytimes.com/2017/06/29/us/illinois-state-budget-impasse.html

Lede grafs in story by Julie Bosman and Monica Davey:
“CHICAGO — CHICAGO — Road construction and bridge repairs may come to a halt.
“At least one agency has threatened to downgrade Illinois’s credit rating to junk, a crippling borrowing position no state has ever seen.
“And in perhaps the most visible and immediate sign of the pressure on Illinois leaders to solve their budget standoff at long last, the multistate lotteries — Mega Millions and Powerball — are to be suspended.
“With hours left before Illinois begins an unprecedented third year without a full budget, warring leaders were still trying to strike a deal in a political and fiscal crisis that has engulfed the state since 2015.
“After two years without a budget, many people who depend on state services — public university students, drug addicts, troubled teenagers, the elderly — have already felt the repercussions.
“But perhaps the most peculiar part of this endless budget standoff has been the opposite: Life has gone on uninterrupted for many residents. Because of court orders and other stopgap measures, state workers were paid. Schools opened. Prisons functioned. Roads were built. After a while, some people seemed to grow inured to the risks and consequences of a budget deadlock.”

“If a deal is not reached, officials and advocates here say, the crisis will soon be felt by all. Susana A. Mendoza, the state comptroller, says the unpaid bills top $15 billion and has warned leaders that she foresees ‘unmanageable financial strains’ starting in July.
“‘Everything’s in danger right now,’ Ms. Mendoza, a Democrat, said. ‘We are no longer going to be able to meet our core state responsibilities.’
“At the root of the fiscal turmoil is a political standoff. While a majority of states have single-party control in their capitals, Illinois does not.
“Bruce Rauner, a multimillionaire who had never held elective office, was elected governor in 2014 on a pledge of upending an entrenched Democratic Legislature by cutting spending, weakening unions and fixing the state’s deeply underfunded pension system.
“Democratic leaders — including Michael J. Madigan, who has been the speaker of the State House and the head of the Illinois Democratic Party for decades — have pushed back against the governor’s demands that a budget be tied to changes like a freeze on property taxes and cuts to the cost of workers’ compensation.”

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POLITICO’s headline on June 10 above an article by Natasha Koecki:
“How Illinois became America’s failed state: The Land of Lincoln is drowning in red ink. And it’s about to have its most expensive election ever.”
http://www.politico.com/story/2017/06/10/illinois-debt-deficit-budget-election-239384

Lede grafs:
“Illinois has compiled $14.6 billion in unpaid bills. It’s running a deficit of $6 billion, and its pension liability has soared to $130 billion.
“That’s not the worst of it. The state’s nearly two-year failure to pass a budget has sent its bond ratings careening toward junk level, downgraded a staggering eight notches below most other states.
“With university enrollments plummeting, large-scale social service agencies shuttering and the Chicago Public Schools forced to borrow just to stay open through the end of this school year, Illinois is beginning to devolve into something like a banana republic — and it’s about to have the most expensive election the state has ever seen.
“Democrats have flooded the primary to challenge GOP Gov. Bruce Rauner, with billionaire J.B. Pritzker among them. Pritzker has already poured $14 million into his campaign for a general election that’s still 15 months away.
“Illinois is operating in a way 49 other states would never try to operate,” said Laurence Msall, president of the Civic Federation, a nonpartisan fiscal watchdog group. “There is permanent damage that is being done that will take decades to repair.”
[DOUG’S NOTE: This remark about “decades to repair” from the highly regarded Civic Federation based in Chicago plays into my contention that in Connecticut, if not in Illinois, we’re facing problems that both parties have created, however unintentionally, while enmeshed in a system of unintentional complicity. The city vs. suburbs standoff is also paramount. I hope we can avoid the sentence of taking decades to fix the Nutmeg State’s problems, but we must acknowledge problems were created over decades. It is pointless to assign blame; the blame is shared. The failure lies for us in Hartford as much as it lies for Illinois in Springfield. But the root failure is with every voter who has not demanded enough. Voters fail themselves when they settle for or protect the status quo in a changing world. States that respond to change will lead and pull ahead.]
“To troll Rauner about the budget, Pritzker’s campaign created ‘Tick Tock the Budget Clock,’ a character dressed as a clock, who follows Rauner at his public events carrying a sign that displays the number of days the state has gone without a budget.
“As of Friday, it stood at 709 days, an unprecedented amount of time for a state to go without an operating budget. [NOTE: This means that Saturday, 1 July, is Day 730 without a budget for Illinois.]

“Instead of voting on full-fledged budgets, including possibly increasing revenue, the governor and the General Assembly have signed off on stopgap spending plans. That means they’re cherry picking certain areas to fund — keeping schools open and roads paved.
“‘This impasse has been sort of cleverly positioned to diminish the immediate, obvious impacts on your middle-class voters,’ said Andrea Durbin, chief executive officer of Illinois Collaboration on Youth. ‘Those voters are being deceived, because every single one of us is going to pay more every single day that this goes on. Having the DMV open, state parks, highway construction and K-12 open, it allows your sort of average middle-class voter to be deceived about what is going on.’
“Illinois was creative in how it pays its bills long before Rauner took office. It has for years taken the politically palatable option of avoiding tax hikes while borrowing from pension funds, allowing its pension backlog to balloon and failing to sock away money for emergencies. Illinois is just one of nine states to not have a rainy day fund, according to the National Association of State Budget Officers.
“Last month [i.e., in May], a group of protesters was so fed up with the stalemate that it took drastic measures to draw attention to the crisis. They walked 200 miles from Chicago to Springfield, stopping in towns along the way to talk about the budget. Once inside the capital, some demonstrators were dragged from the House chamber. In the evening, another group tied their wrists together, chanted traditional protest chants and sat in a circle outside the governor’s office before about three dozen were arrested.”

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CHICAGO TRIBUNE staff roundup story published Friday:
“What to Expect If No Illinois State Budget Deal is Reached”
http://www.chicagotribune.com/news/local/breaking/ct-state-budget-stalemate-roundup-met-0630-20170629-story.html

lede grafs:
“As Illinois hurtles toward a third year without a budget agreement, the state’s political leaders have managed to accumulate a series of notable, if inglorious, distinctions — the lowest credit rating of any state, just a whisker above junk status; a growing pile of unpaid bills that now stands at more than $14.5 billion; and a yearly population decline that is the highest of any state in the nation.
“The standoff is costing taxpayers dearly — consider the $387 million in loans that Chicago Public Schools have recently taken to tide it over until state funding comes through. The loans came at a cost of about $70,000 a day in interest alone, the Tribune reported. Think of it as a payday loan, but on a grand scale.
“The stalemate has been felt in human terms as well. Just seven months after missing the first budget deadline, Lutheran Social Services, the state’s largest provider, imposed steep cuts in programs like addiction treatment and senior home care. State employees are now finding that doctors in some cases will not accept their health insurance. Vital roadwork is already being suspended. And hospitals are imposing hiring freezes and cost cuts.
“Now, Gov. Bruce Rauner and lawmakers are at the Capitol, for the final scheduled day of a special session called by the governor. Rauner has suggested he will extend it if a final deal isn’t reached.
“Many aren’t holding their breath.
“Without a deal, the impact on the state will only be compounded. What follows are seven critical areas of the state’s economy, government and social institutions and how they will be affected if lawmakers continue with business as usual.”
[NOTE: Here, the ChiTrib details the impact on (1) credit rating and debt, (2) higher education, (3) the lottery, which held its final drawing in Illinois on Wednesday, (4) transportation, (5) public school funding, and (6) social services. In a strange copy-editing lapse, no seventh “critical area” was listed! I’m continuing with just the first area, “credit rating and debt.”]
“New York bond rating agencies have warned they will downgrade the state’s credit if no budget deal is reached by Friday.
“It’s the latest in a series of downgrades that started when Democrat Pat Quinn was governor amid concerns over the state’s huge government worker pension debt and continued under Rauner as unpaid bills hit $14.5 billion, nearly half the amount of money the state brings in each year.
“The next downgrade is significant because it would leave Illinois’ credit at the level of junk status. Illinois would have the ignominious distinction of becoming the first state to sink that low in the eyes of Wall Street.
“The impact? The state’s debt is considered below investment grade, and borrowing money will cost more because interest rates will be higher. So building roads or refinancing existing debt will be more expensive. A federal judge’s recent ruling that the state would have to start paying down more of its $2 billion backlog in Medicaid bills shook investors and tanked Illinois bond prices.
“What else is in the junk-status club? Chicago Public Schools; the agencies that run Navy Pier, McCormick Place and the White Sox stadium; and five public universities: Eastern Illinois, Northern Illinois, Southern Illinois, Northeastern Illinois, Governors State.”

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CNN/MONEY on Friday published an analysis by Matt Eagan:
“How Illinois Became America’s Most Messed-Up State”
http://money.cnn.com/2017/06/29/investing/illinois-budget-crisis-downgrade/index.html

“While the budget impasse is throwing a spotlight on Illinois’s dire financial situation today, the fiscal problems go back at least to the 1980s and involve politicians from both parties.
“The most glaring evidence is the enormous pension crisis. Rather than dealing with the problem, Illinois continued to reward the state’s powerful unions with more generous benefits.
“The problem festered for so long that Moody’s estimates Illinois has unfunded pension liabilities totaling $251 billion. To put that into context, that’s more than the combined market value of four major Illinois companies: Boeing (BA), Caterpillar (CAT), United Continental (UAL) and Allstate (ALL).”
[DOUG NOTE: Keith Phaneuf’s superb Connecticut Mirror budget series in January — titled “A Legacy of Debt” — detailed what Phaneuf described as “the 80-year failure of one of the richest states in the nation to adequately save for retirement benefits promised to teachers and state employees.” He pegged the state’s unfunded pension liability at $50 billion, compared to Illinois’ $251 billion. The market capitalization of GE, the company Connecticut lost, is now $234.5 billion, according to Yahoo Finance. The market capitalization of Aetna, the company Connecticut is now losing, is $50.36 billion — almost exactly the same value as our unfunded pensions, a striking coincidence. Do we reap what we sow? Fortunately, the market cap of Connecticut’s next-largest Fortune 500 company, United Technologies of Farmington, is $97.8 billion. *Phew!* UTX is #2 on the CT/F-500 list to #1 AET because the F-500 is ranked by revenues, not by market capitalization. Anyway, back to Illinois …]
“‘The massive pension liability results from a chronic tendency to defer difficult decisions,’ said Ted Hampton, who as a senior credit officer at Moody’s will help decide whether to downgrade Illinois into junk.
“Hampton said Illinois treated the pension fund as a ‘financial cushion’ that could be relied on to provide fiscal relief. He also pointed to a tendency to delay paying bills and chronically underestimate spending needs.
“‘All of these problems are governance and management weaknesses,’ Hampton said.
“That’s a polite way of saying the political leaders broke the system.
“Experts said the turning point may have been 1995. At that point, Illinois already had one of the worst-funded pension systems in the United States. State leaders took action by adopting a 50-year plan to get the pension plans 90% funded.
“But that plan turned out to be badly flawed. The initial contributions were too modest, and Illinois didn’t make the politically difficult choices of tax hikes or spending cuts to get the budget on a sustainable path.
“‘It was one of the greatest pieces of chicanery ever pulled by a political system,’ said Ralph Martire, executive director at the Center for Tax and Budget Accountability, a think tank that promotes social and economic justice.
“Instead of reform, the compromise ‘codified the practice of underfunding the pension’ and ‘intentionally’ grew the shortfall by $45 billion, Martire said.
“llinois is also notorious for using one-time financial tricks that masked the scale of its growing fiscal problems.
“‘Republicans and Democrats would stand up and say they passed a balanced budget, but it wasn’t — and they knew it,’ said Diana Rickert, vice president of communications at the Illinois Policy Institute, a free market-oriented think tank.
“Rickert said either the politicians knew what they were doing, or they ‘don’t know how math works.'”

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So, dear OIB readers, you might ask, “It’s July 1st. Did Illinois work a miracle at the 11th hour (or on the 729th day) and pass a budget?” Answer: No. But it had a symbolic vote. Arggh.

Today’s CHICAGO TRIBUNE: “State budget passes first House vote, but huge hurdles remain on deadline day,” by Kim Geiger and Monique Garcia.
“SPRINGFIELD — HOuse Democrats and Republicans temporarily set down their arms Friday as they attempted to nudge closer to an agreement to end a budget impasse now in its third year, even as both sides warned of major sticking points in the way of a resolution.
“The day began with Republicans running an ad attacking House Speaker Michael Madigan and Democrats responding with a spot labeling Republican Gov. Bruce Rauner a bully, but the political broadsides soon gave way to talk of bipartisanship as lawmakers heaped praise upon one another on the House floor.
“The cause of the comity? They came together on a test vote over a $36.5 billion spending plan, giving initial approval on a 90-25 roll call. If that vote eventually proves to not amount to much, it provided a change of tone following years of bickering that’s left Illinois government teetering on the brink.
“Lawmakers knocked off early Friday, poised to blow past a midnight deadline to get a plan in place before the start of the new budget year amid a threat from Wall Street that state government’s credit rating could be cut to junk status, a distinction no other state has suffered.
“After the vote, which was intended to gauge if there was a willingness for talks to move forward, Madigan announced that he would keep lawmakers in town Saturday while negotiations continued in private. He also sent letters to key New York ratings agencies to urge them against a promised downgrade of the state’s credit rating ‘until we’ve had sufficient time’ to strike a deal.”
[DOUG NOTE: WHAT? 729 DAYS HASN’T BEEN SUFFICIENT TIME TO STRIKE A DEAL? NO STATE HAS EVER GONE THREE YEARS WITHOUT A BUDGET. BUT MADIGAN BEGS BONDHOLDERS FOR MORE TIME? THE LEGISLATORS OF ILLINOIS AND THE GOVERNORS INVOLVED — ONE A DEMOCRAT, ONE A REPUBLICAN — HAVE CONSUMED 729 DAYS WITH NOTHING TO SHOW. EVERY OTHER STATE IN THE HISTORY OF THE UNITED STATES HAS CRAFTED A BUDGET — SOMETIMES TWO BUDGETS! — IN THIS TIME, INCLUDING EVERY PRIOR ILLINOIS LEGISLATURE AND GOVERNOR. BUT ILLINOIS NOW SAYS IT HAS NOT HAD SUFFICIENT TIME.]
“‘I think it’s a good step forward, a step that we can build upon,’ said Madigan, who cautioned ‘there’s much work yet to be done.’
“With pressure building, the preliminary vote was a way for lawmakers to change the narrative, at least for a little while. Instead of the usual bickering focused on their repeated failures to reach an agreement, they sought to sow hope even as great uncertainty remains.”

“…[L]egislative leaders tried to cast the negotiations as progressing. House Republican leader Jim Durkin declared on the House floor that an agreement was ‘so close I can taste it.’

“Adding to the state’s troubles, a federal judge late Friday ruled that the state must start paying at least $293 million a month in Medicaid bills. Democratic Comptroller Susana Mendoza said the ruling would force her to delay payments on pensions, employee salaries or transfers to local governments. The judge also wants the state to pay down an additional $1 billion it owes to doctors and hospitals over the next year.
“Under the House budget proposal, the state would spend $36.5 billion in the coming year, which is $2.5 billion less than has been going out the door automatically without a budget in place. Savings would be found from an across-the-board 5 percent spending cut to government agencies. For higher education, that cut is half of the 10 percent Rauner has pushed.
“The plan would appropriate money for services that have been starved during the budget stalemate including immigrant assistance, funeral and burial services for the poor, and breast and cervical cancer screenings. It also would boost funding on K-12 education by $350 million and early childhood education by $50 million.
“Despite a general divide among Republicans regarding the need to raise taxes, several GOP members praised it as necessary to begin correcting the damage done during the stalemate.
“Echoing a theme of compromise, Rep. Steve Andersson, R-Geneva, said he wore his purple tie to demonstrate that despite the long fight, the parties can work together.
“‘I know the people are here to do the right thing, and I know we are going to do the right thing,’ Andersson said. ‘We are going to save our state, and we are going to save our state together.’
“Others decried the bill as upholding the ‘status quo,’ saying there were not enough changes in other areas to stop ballooning health care expenses or encourage businesses to stay in Illinois. Some took offense to suggestions by Democrats that they were being negative and mean-spirited for not embracing the budget plan.
“‘They are telling us that there are greener pastures elsewhere,’ Rep. Tom Morrison, R-Palatine, said of corporations who spur job growth and in turn bring in tax revenue. ‘It’s not a matter of being cold or hardhearted.'”

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BOTTOM LINE: Let’s not be Illinois. Let’s not even compete for the Illinois-Look-Alike Prize. But I fear we’re already competing well. Let’s not suffer these loss of services, and lets show we can avoid the worst minefields Illinois created for itself:
— (1) No Rainy Day Fund
— (2) Not facing pension crises head-on
— (3) Mired in a blame game for a problem both parties share
— (4) Using pension funds for operating expenses
— (5) Lying about a balanced budget, or else not knowing how math works
— (6) Not facing powerful interests in the interests of citizens
— (7) Asking for more time when time has been sufficient. Good grief!
— And a problem that is Connecticut’s alone: figuring out how to fund schools equally to avoid having the courts do it in the wake of the finding that our state’s constitutionally mandated equal school funding is an imperative addressed with “irrational” inequitable policy developed over decades if not centuries.