Deficits

Illinois In Worst Shape Of 43 States That Filed FY 2014 Audits

William G. Holland, the Auditor General for the State of Illinois, has just reported on Illinois’ finances.

It’s still fugly.

From the Summary Report Digest for “Statewide Financial Statement Audit For the Year Ended June 30, 2014”:

The Illinois Office of the State Comptroller prepares the State of Illinois Comprehensive Annual Financial Report (CAFR). The CAFR is the State’s official annual report which provides the readers with the financial position of the State as of June 30, 2014, and results of operations during the fiscal year.

The financial section of the CAFR includes the Independent Auditors’ Report on the basic financial statements, the management discussion and analysis, the basic financial statements, required supplementary information, and individual fund statements and schedules…

The June 30, 2014 financial statements of the State of Illinois are fairly presented in all material respects.

The financial statements at June 30, 2014 reflect the following:

The net position of governmental activities continued to deteriorate and the deficit increased by $1.3 billion from FY13 to FY14. Overall, the net position of governmental activities is reported as a deficit of $49.2 billion. (Exhibit 1)
• The General Fund deficit decreased by $658 million from FY13 to FY14. The June 30, 2014 deficit was $6.7 billion. (Exhibit 2)

Over time, increases and decreases in net position measure whether the State’s financial position is improving or deteriorating. A comparison of Illinois’ financial position to other states is contained in Exhibit 3…

(Editor’s note: Bold added for emphasis)

And the results of that “comparison of Illinois’ financial position to other states”?

Karen Pierog of Reuters reported Wednesday:

This left Illinois in the worst shape of the 43 U.S. states that had filed fiscal 2014 audits. The only other state with negative assets was Massachusetts at $29 billion. Texas reported the biggest positive net assets at $119.4 billion

(Editor’s note: Bold added for emphasis)

Good ol’ Texas. Probably get even more sneers from local folks at my University of Texas t-shirt I picked up while at that Food Insurance-sponsored prepper conference in Dallas the other year.

Pierog added something else of note:

The state marked its thirteenth consecutive year with a general fund deficit

(Editor’s note: Bold added for emphasis)

For most of those years, Democrats have dominated state government, occupying the governor’s office and the majority of both houses in the Illinois General Assembly.

Coincidence?

I’ll keep typing it on this blog until my fingers fall off:

“Financial reckoning day” is eventually coming to the “Land of Lincoln.”

As such, it might be wise for Illinoisans to start preparing if they haven’t done so already.

It won’t be the end of the world, but for many it could feel like it. Therefore, it’s probably a good idea to start addressing various vulnerabilities for such an occasion- financial and otherwise.

You can read that Summary Report Digest (.pdf format) on the Illinois Auditor General’s web page here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Source:

Pierog, Karen. “Illinois finances continued downward slide in FY 2014: auditor.” Reuters. 18 Mar. 2015. (http://www.reuters.com/article/2015/03/18/us-usa-illinois-audit-idUSKBN0ME2M920150318). 20 Mar. 2015.

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Obama Taunts Republicans On Economy: ‘The Sky Hasn’t Fallen, Chicken Little Is Quiet’

Back when I was running this blog’s predecessor, Boom2Bust.com, “The Most Hated Blog On Wall Street,” I remember coming across a number of infamous statements made prior to and during the Great Depression by leaders in government, finance, and industry of the day. For example, as Fox News cataloged back on October 26, 2009:

“We will not have any more crashes in our time.” – John Maynard Keynes (1927)

“There is no cause to worry. The high tide of prosperity will continue.” – Andrew W. Mellon, Secretary of the Treasury. (September 1929)

“There may be a recession in stock prices, but not anything in the nature of a crash.” – Irving Fisher, Leading U.S. Economist, New York Times (Sept. 5, 1929)

“This crash is not going to have much effect on business.” – Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago (October 24, 1929)

October 24, 1929, eventually became known in the history books as “Black Thursday,” when “the Dow Jones Industrial Average plunged 11% at the open in very heavy volume, precipitating the Wall Street crash of 1929 and the subsequent Great Depression of the 1930s,” according to Investopedia.com.

Right before the weekend, the White House published a press release on their website containing a transcript of U.S. President Barack Obama’s remarks Friday at the Democratic National Committee’s Winter Meeting in Washington, D.C. From that document:

I just want everybody to remember that at every step as we made policies, as we made this progress, we were told by our good friends, the Republicans, that our actions would crush jobs, and explode deficits, and destroy the country. I mean, I want everybody to do a fact-check — (laughter) — and go back to 2009, 2010, ’11, ’12, ’13 — just go back and look at the statements that were made each year by these folks about all these policies. Because apparently they don’t remember. (Laughter.)

And now that their grand predictions of doom and gloom, and death panels and Armageddon haven’t come true — (laughter) — the sky hasn’t fallen, Chicken Little is quiet — (laughter)

(Editor’s note: Bold added for emphasis)

Something tells me this remark- akin to calling the outcome of a baseball game while it’s still in the early innings- will end up in the U.S. history books as well down the road, under that section entitled “Second Great Depression.”

“Let’s play two!” No thanks, Mr. Banks.

To be fair, President Obama isn’t entirely responsible for the coming financial crash. The actions of both sides of the political aisle through the decades have made the approaching “financial reckoning day” possible- and likely- in America.

You can read the complete transcript of President Obama’s speech on the White House website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

“False Hope: Famous Quotes During the Great Depression.” FoxNews.com. 26 Oct. 2009. (http://www.foxnews.com/story/2009/10/26/false-hope-famous-quotes-during-great-depression/). 22 Feb. 2015.

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Illinois Governor Bruce Rauner To Push Drastic Spending Cuts, Sales Tax Hike In Near Future?

Some local news outlets have been giving new Illinois Governor Bruce Rauner a hard time lately, claiming he’s still in “campaign mode” and not providing much in the way of tackling the state’s economic ills.

But yesterday, Illinoisans got a glimpse of one potential measure the Winnetka businessman may turn to for improving the state’s finances. Jessie Hellmann and Ray Long reported on the Chicago Tribune website Thursday:

Republican Gov. Bruce Rauner pressed a bit harder Thursday for an expansion of the Illinois sales tax as part of an agenda to right the state’s financial ship.

Using charts and graphs, Rauner explained how surrounding states use broader-based sales taxes than Illinois to take advantage of growing service economies. “We’re not competitive,” Rauner said.

The idea of expanding the state’s sales tax base to include services, such as on auto repairs, dog grooming or haircuts, has been debated in Illinois since the late 1980s. Expansion efforts repeatedly have stalled in the face of heavy resistance, but Rauner outlined how he thinks Illinois is “out of balance” with other states.

“We are not thoughtful about this,” Rauner said, adding that the Illinois sales tax is too high and too narrowly applied.

Expanding the sales tax is one of the few items Rauner repeatedly has mentioned as a part of an unspecific overhaul of the entire tax code, saying Illinois can’t “just nibble around the edges.”

(Editor’s note: Bold added for emphasis)

It’s going to take a whole lot more than a sales tax hike to turn around the state’s economic fortunes. And Governor Rauner knows that.

So what other measures could be on his agenda for the near-term?

Rich Miller discussed the governor’s visit to the University of Chicago on January 22 and wrote on the Crain’s Chicago Business website the following day:

What is crystal clear is that he won’t ask for any more revenues without first making deep and even drastic cuts.

The new governor pointed to flat population growth and flat job growth as the roots of the problem.

Without “booming” growth, he said, Illinois can never dig itself out of the hole it’s in. And Rauner always HAS said that high taxes are a hindrance to growth.

Rauner singled out two items for his chopping block. First up, Medicaid spending.

“When you realize our job growth is flat, how do you pay for it?,” Rauner said of Medicaid. “I want to do that, but that is not sustainable.” Medicaid, which pays for everything from childbirth to nursing home care, consumes a quarter of the state’s operating budget, and despite some real reforms almost two years ago, costs are continuing to rise. And that’s a problem when next fiscal year’s budget deficit is being pegged at a whopping $9 billion.

Rauner also claimed state employees make too much money, saying they earn more than private sector workers (which AFSCME rejects, pointing to a recent University of Illinois study) and are the third-highest paid in the country. The number of state workers is declining, Rauner noted, but payroll costs are still increasing. Their health insurance is based on “low contributions” from workers, but has a high cost. So, while workers aren’t chipping in much, “you’re chipping in a lot,” he told his audience…

(Editor’s note: Bold added for emphasis)

“Deep and even drastic cuts.” “Expansion of the Illinois sales tax.”

It will be interesting to watch how Illinois Democrats- who hold veto-proof supermajorities in both chambers of the Illinois General Assembly- react to such proposals if Governor Rauner goes this route.

This could get ugly real quick…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Hellmann, Jessie and Long, Ray. “Rauner presses for sales tax expansion in U. of I. speech.” Chicago Tribune. 29 Jan. 2015. (http://www.chicagotribune.com/news/local/politics/ct-bruce-rauner-champaign-appearance-met-0130-20150129-story.html). 30 Jan. 2015.

Miller, Rich. “Watch out: Rauner sharpens his cleaver.” Crain’s Chicago Business. 23 Jan. 2015. (http://www.chicagobusiness.com/article/20150123/NEWS02/150129882/watch-out-rauner-sharpens-his-cleaver). 30 Jan. 2015.

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Signs Of The Time, Part 82

I had a tough choice to make earlier tonight- either watch President Obama’s 2015 State of the Union Speech, or finish up doing laundry.

After all my clothes were put away, I saw on my Internet service provider’s home page some jibberish about how some “shadow of crisis” had passed. I pulled up a transcript of the President’s speech tonight and sure enough there was this:

America, for all that we’ve endured; for all the grit and hard work required to come back; for all the tasks that lie ahead, know this:

The shadow of crisis has passed, and the State of the Union is strong.

At this moment — with a growing economy, shrinking deficits, bustling industry, and booming energy production — we have risen from recession freer to write our own future than any other nation on Earth. It’s now up to us to choose who we want to be over the next fifteen years, and for decades to come…

Mark my words. The “shadow of crisis” hasn’t passed. It was merely papered over. Keynesian “enlightenment,” government intervention, bailouts, stimulus packages, quantitative easing, QE 1, QE 2, QE 3, willing-and-able presstitutes, and what do we have? The Not-So-Great Recovery. Answer me this- if the economy is so strong, why have interest rates been effectively at zero for how many years now? “But Janet Yellen and the Federal Reserve are going to start raising interest rates soon.” We’ll see, but if they do, I suspect rates will be raised incrementally, and I can’t help but wonder if the next few years won’t resemble the early part of last decade when a housing bubble inflated (and eventually popped) under the guise of a strong economy, but with the Fed slow on the trigger to raise rates and take way the punch bowl. This time around, we could even have multiple asset bubbles (in bonds? housing? stocks?) formed before the next installment of the longer financial crash arrives. Who knows exactly how the next crisis will play out, but I’m pretty sure the end result will be much uglier than the last episode. Not many bullets left for Uncle Sam and the central bank to use.

One more thing. “We have risen from recession freer to write our own future than any other nation on Earth.” God forbid anyone scratch the surface to reveal how many more trillions of dollars of debt has been piled on our financial house of cards in order to kick the can down the road a little bit more. There’s no escaping the fact that the United States is the world’s largest debtor nation. And another inconvenient fact happens to be that taking on significant debt is akin to slavery.

“Freer to write our own future.” If only it were true. Financial reckoning day is more like it.

I’ll leave Survival And Prosperity readers with this. Back in the early 1990s while attending the University of Illinois in Urbana-Champaign I remember listening to a recording of “The Rat Pack” in action. Frank Sinatra was chiding Dean Martin and Sammy Davis, Jr. Now, the “Chairman Of The Board” made an observation that better describes the situation we’re in than what the President Of The United States said this evening:

You’ve had your fling and you flung it.

Enjoy the “good times” while they last, then prepare to batten down the hatches.


Scene from The Final Countdown (1980)
YouTube Video

Note that it’s not the end of the word I’m talking about here. But things will definitely suck for a while before the economy and society gets better again. By that time, we’ll probably be well on our way to having passed the baton to China.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Illinois Debt Crisis Latest: $9 Billion Annual Deficit, $159 Billion In IOUs

Illinois residents are waking up to disturbing news this morning. From the “Press Room” over on the website of the Institute of Government and Public Affairs at the University of Illinois:

Illinois faces $9 billion annual deficit and $159 billion in IOUs

New analysis (PDF) by the Fiscal Futures Project finds no easy fix to Illinois’ chronic fiscal imbalance. Illinois now faces a $9 billion annual deficit that will grow to $14 billion by FY 2026.

“Years of pay-later budgeting has resulted in a massive imbalance between sustainable revenue and spending,” said Richard Dye, co-director of the Fiscal Futures Project. “Like a person in deep credit card debt, the state has been spending more than it can afford, and is covering the gap by issuing IOUs.” The report finds that the state’s IOUs now total $159 billion—more than twice the inflow of revenue in a single year. It’s a monumental problem that will require a long-term fiscal plan that includes tax increases, spending cuts, and economic growth.

The report, Apocalypse Now? The Consequences of Pay-Later Budgeting in Illinois, examines what it would take to balance the budget. The options are limited.

• Bringing back the 2011 tax increase would close only about one-half of the gap projected for the next several years.
The problem cannot be solved with spending cuts alone. Because Illinois can’t cut debt service or pension payments, it would take at least a 20 percent cut of all remaining spending to eliminate the deficit. This includes education, corrections, Medicaid, public safety, transportation, and more.
• Economic growth is also not a cure-all: an increase in the growth rate of personal income by an extra one-half percent every year for 10 years (an optimistic scenario) would only have a modest effect on the deficit.

The report concludes: “Changes in awareness, expectations, and policy are needed to restore fiscal balance in Illinois. Being saddled with paying past years’ bills means that today, Illinoisans must reduce their expectations for the services that they can expect from government and be prepared to pay more for government, now and in the future.”

(Editor’s notes: Bold added for emphasis)

Like I blogged a week ago:

A lot less government services. Much higher fees, fines and taxes.

An outcome I see for Chicago, Cook County, and Illinois residents down the road.

And plenty of Illinoisans wonder why their neighbors are high-tailing it out of the “Land of Lincoln.”

You can read a summary fact sheet or the entire report over on the IGPA website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Chicago Faces $297 Million Budget Shortfall In 2015, $588 Million Deficit By 2017

I’ve been wanting to blog about the latest City of Chicago annual financial analysis for some time now. This afternoon I’m finally getting that chance. From Fran Spielman (who’s done a terrific job breaking those analyses down the past couple years I’ve been paying attention to them) on the Chicago Sun-Times website back in August:

Mayor Rahm Emanuel has ruled out a pre-election increase in property or sales taxes, but he’ll have to find another way to close a $297.3 million budget gap that assumes the Illinois General Assembly will lift the pension hammer hanging over Chicago.

State law requires the city to make a $550 million contribution to shore up police and fire pension funds that have assets to cover just 30 and 24 percent of their respective liabilities.

If Emanuel chooses to fund the payment with property taxes, the city’s levy must be raised in 2015 so bills issued the following year reflect the increase.

Instead of including that payment in the financial analysis now used as a substitute for Chicago’s preliminary budget, the mayor left it out, assuming he will get both revenue and reform before the payment is due

(Editor’s note: Bold added for emphasis)

$297.3 million budget shortfall for Chicago in 2015- assuming the city gets “relief” from that State of Illinois-mandated $550 million pension fund contribution.

From what I’ve read, that looks to be a big assumption.

Still, the projected 2015 budget gap that’s being advertised by City Hall is significantly rosier than a year ago (big election coming up in February 2015 you know).

I blogged back on August 1, 2013:

The latest financial analysis is out, and the budget gap in 2014 is projected to be $339 million. Still crappy, but a lot better than what could be in store for the “Windy City” by 2015. Hal Dardick reported on the Chicago Tribune website this morning:

The day of financial reckoning for Chicago is not far off, with the city budget shortfall expected to near a record $1 billion in 2015 if major changes are not made to the government worker pension systems, city officials said Wednesday.

That stark assessment, contained in the annual financial analysis prepared by Mayor Rahm Emanuel’s top budget officials, overshadowed the fact that the city needs to close an expected $339 million budget gap predicted for next year.

(Editor’s note: Bold added for emphasis)

Returning to that Sun-Times piece from this August, Spielman added:

As for the more manageable, $297.3 million gap, sales and property taxes are off the table. But [Budget Director Alexandra] Holt refused to rule out other tax and fee hikes after exhausting further cost-cutting that might include layoffs

Last year’s financial analysis projected a $338.7 million shortfall that would balloon to $994.7 million in 2015 and $1.15 billion in 2016 without a painful mix of employee concessions and new revenues. This year’s version takes the 2017 shortfall down to $587.7 million, but only if the mayor’s risky assumptions are correct.

(Editor’s note: Bold added for emphasis)

That classic Benny Hill skit about why one shouldn’t assume things comes to mind right now.

Okay. Looking at the actual 2014 annual financial analysis on my laptop screen right now, I see that $297.3 million budget shortfall projected for Chicago in 2015, a $430.2 million gap in 2016, and that $587.7 million deficit in 2017 that Spielman mentioned.

The trend is definitely not Rahm’s and the City’s friend in this instance.

Here’s what I see going down for the “Windy City.” The Machine will mobilize as many kissing cousins (Democrats elsewhere in the state) as it can to get Mayor Emanuel his much-desired pension “reform.” Basically “kicking the can down the road.” If full reform isn’t achieved, perhaps partial “relief”?.

Of course, the City of Chicago will still have those snowballing budget shortfalls to contend with. At first, I anticipate a lot of stupid spending still going on, with only some belt-tightening and layoffs here and there (“Kiss Your Clout’s Ass” Day soon to be a much celebrated event?). And fees, fines, and taxes will be heading up (but not property and sales taxes initially). But I suspect as Chicago’s “day of reckoning” gets closer, all these measures will be intensified.

Think major cost-cutting in conjunction with a much stronger attempt to increase incoming revenues.

Like my forecast for the rest of the nation- regrettably, I see things getting a lot worse before they get better again.

You can view the entire 2014 City of Chicago Annual Financial Analysis on the City of Chicago website here (.pdf format).

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Spielman, Fran. “City budget puts off day of reckoning until after election.” Chicago Sun-Times. 1 Aug. 2014. (http://politics.suntimes.com/article/chicago/city-budget-puts-day-reckoning-until-after-election/fri-08012014-1210am). 23 Sep. 2014.

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CBO: Updated 2014-2024 Budget Projections Show Substantially Rising Budget Shorfalls, Federal Debt

That idea that the U.S. could someday resemble a “banana republic” might not be too far off the mark. From the non-partisan Congressional Budget Office website today:

As it usually does each spring, CBO has updated the baseline budget projections that it released earlier in the year…

Between 2015 and 2024, annual budget shortfalls are projected to rise substantially—from a low of $469 billion in 2015 to about $1 trillion from 2022 through 2024—mainly because of the aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. CBO expects that cumulative deficits during that decade will equal $7.6 trillion if current laws remain unchanged. As a share of GDP, deficits are projected to rise from 2.6 percent in 2015 to about 4 percent near the end of the 10-year period. By comparison, the deficit averaged 3.1 percent of GDP over the past 40 years and 2.3 percent in the 40 years before fiscal year 2008, when the most recent recession began. From 2015 through 2024, both revenues and outlays are projected to be greater than their 40-year averages as a percentage of GDP (see the figure below)…

In CBO’s baseline projections, federal debt held by the public reaches 78 percent of GDP by 2024, up from 72 percent at the end of 2013 and twice the 39 percent average of the past four decades (see the figure below). As recently as the end of 2007, federal debt equaled just 35 percent of GDP

Such high and rising debt would have serious negative consequences. Federal spending on interest payments would increase considerably when interest rates rose to more typical levels. Moreover, because federal borrowing would eventually raise the cost of investment by businesses and other entities, the capital stock would be smaller, and productivity and wages lower, than if federal borrowing was more limited. In addition, high debt means that lawmakers would have less flexibility than they otherwise would to use tax and spending policies to respond to unexpected challenges. Finally, high debt increases the risk of a fiscal crisis in which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates…

(Editor’s note: Bold added for emphasis)

You can read the entire assessment and view the complete document on the CBO website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Peter Schiff: No Recovery, Just An Illusion Of Prosperity

I first started paying attention to Euro Pacific Capital’s Peter Schiff just prior to picking up his book Crash Proof: How to Profit From the Coming Economic Collapse (now Crash Proof 2.0, second edition) shortly after its early 2007 release. While some of the calls he made in that controversial text are still playing out, others have already come to fruition.

Subsequently, Schiff has been given credit for correctly-calling the U.S. housing bubble and its burst, and the 2008 global economic crisis.

Being one of Survival And Prosperity’s “crash prophets,” his latest investment recommendations are chronicled on this blog. As are his economic analyses and forecasts as well.

Here’s a recent breakdown of what Schiff sees going on with the U.S. economy and larger financial system, courtesy of a March 21 commentary entitled “Debt and Taxes” that’s posted on his Euro Pacific Capital website:

The last few years have proven that there is no line Washington will not cross in order to keep bubbles from popping. Just 10 years ago many of the analysts now crowing about the perfect conditions would have been appalled by policies that have been implemented to create them. The Fed has held interest rates at zero for five consecutive years, it has purchased trillions of dollars of Treasury and mortgage-backed securities, and the Federal government has stimulated the economy through four consecutive trillion-dollar annual deficits. While these moves may once have been looked on as something shocking…now anything goes.

But the new monetary morality has nothing to do with virtue, and everything to do with necessity. It is no accident that the concept of “inflation” has experienced a dramatic makeover during the past few years. Traditionally, mainstream discussion treated inflation as a pestilence best vanquished by a strong economy and prudent bankers. Now it is widely seen as a pre-condition to economic health. Economists are making this bizarre argument not because it makes any sense, but because they have no other choice.

America is trying to borrow its way out of recession. We are creating debt now in order to push up prices and create the illusion of prosperity. To do this you must convince people that inflation is a good thing…even while they instinctively prefer low prices to high. But rising asset prices do little to help the underlying economy. That is why we have been stuck in what some economists are calling a “jobless recovery.” The real reason it’s jobless is because it’s not a real recovery! So while the current booms in stocks and condominiums have been gifts to financial speculators and the corporate elite, average Americans can only watch from the sidewalks as the parade passes them by. That’s why sales of Mercedes and Maseratis are setting record highs while Fords and Chevrolets sit on showroom floors. Rising prices to do not create jobs, increase savings or expand production. Instead all we get is debt, which at some point in the future must be repaid

(Editor’s note: Bold added for emphasis)

“Which at some point in the future must be repaid”

Good luck trying to get your average American in 2014 to wrap their head around that crucial concept.

Once again, I agree with Schiff’s observation of what is going on all around us.

“Illusion of prosperity” is a fine choice of words here, and makes sense that I find a fine economic blog by the same name good reading.

As certain as the “Big One” will eventually hit California, so must our nation’s “financial reckoning day” arrive for all this debt we’ve accrued for some short-term “prosperity.”

You can read Schiff’s entire commentary on the Euro Pacific Capital website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Wisconsin Cuts Taxes While Illinois Looks To Make 2011 ‘Temporary’ Tax Hikes Permanent

Throughout the years, I’ve known/met a number of Illinois residents who can’t stand Wisconsin. Mostly from the Chicago area, they equate Wisconsin and its residents as being unsophisticated clowns.

I wonder if they haven’t noticed by now that the only circus around is in the “Land of Lincoln.”

While Illinois falls deeper into an economic abyss (public pension fix my butt), Wisconsin seems to have gotten their finances under control and look to be on the path to prosperity.

So much so they’re cutting taxes. Again.

Patrick Marley and Jason Stein reported on the Milwaukee Journal Sentinel website Monday afternoon:

Lowering taxes for the third time in less than a year, Gov. Scott Walker signed his $541 million tax cut bill in a ceremony Monday at a farm in Cecil as he travels through central and northern Wisconsin touting it.

Speaking at Horsens Homestead Farms, about 35 miles northwest of Green Bay, Walker called it a great day for Wisconsin taxpayers and a sign of the state’s shifting financial fortunes in recent years.

“Now, instead of billion dollar budget deficits, we have a surplus — and today that money is on its way to the workers, parents, seniors, property owners, veterans, job creators and others. You deserve to keep as much of your hard-earned money as possible — because after all, it is your money,” Walker said.

With growing tax collections now expected to give the state a $1 billion budget surplus in June 2015, Walker’s tax proposal will cut property and income taxes for families and businesses, and zero out all income taxes for manufacturers in the state.

Though the state’s tax revenue is increasing, GOP lawmakers and Walker are trimming state spending slightly for the next three years rather than increasing it

(Editor’s note: Italics added for emphasis)

Meanwhile, across the Cheddar Curtain in Illinois there’s this on the website of The State Journal-Register (Springfield). Doug Finke reported Friday:

Hundreds of employees would be laid off, state facilities would be closed and thousands of prison inmates released without supervision, state agency directors told senators Friday during a hearing to gauge the effect of possibly severe spending cuts next year.

During a more than three-hour joint hearing of the two Senate Appropriations committees, agency after agency warned of drastic consequences should they be forced to cut their current budgets by 20 percent.

“There would be extreme consequences for the economy across Illinois,” warned Ben Winick of Gov. Pat Quinn’s budget office. “Over a dozen state facilities would have to close. Thousands of state employees would have to be laid off.”

The hearing occurred just days before Quinn is scheduled to finally deliver his budget outline for the fiscal year that starts July 1…

Translated? Illinois residents, this is what will happen if you don’t support making the Democrat-led temporary 67 percent personal income tax hike and 46 percent corporate income tax hike implemented in January 2011 permanent next year.

I hear Governor Quinn will be delivering his budget plan tomorrow.

Instead of ridiculing Wisconsin, us FIBs (F***ing Illinois Bastards as we’re known by up there) might want to start emulating our neighbors to the north in certain respects before we completely destroy Illinois.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Marley, Patrick and Stein, Jacob. “Scott Walker signs tax cut legislation.” Milwaukee Journal Sentinel. 24 Mar. 2014. (http://www.jsonline.com/news/statepolitics/scott-walker-set-to-sign-tax-cut-legislation-b99231851z1-251936261.html). 24 Mar. 2014.

Finke, Doug. “State agencies outline cuts if forced to make 20% reductions.” The State Journal-Register. 21 Mar. 2014. (http://www.sj-r.com/article/20140321/NEWS/140329821). 24 Mar. 2014.

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State Of Illinois Deficit Grew By $49 Million Over Last Fiscal Year

The deficit for the State of Illinois is approaching $45 billion. And tucked inside a news release on Illinois Comptroller Judy Baar Topinka’s website yesterday was the following which showed the deficit widened over the last fiscal year. From “Topinka announces earliest state financial report release since 2006”:

The State of Illinois’ net position was reported as a deficit of $44.799 billion as of June 30, 2013. That represents a $49 million decrease in net position compared to the deficit of $44.750 billion at June 30, 2012. The State’s assets increased $3.762 billion from the prior year, offset by an increase in liabilities of $3.811 billion. The increases in liabilities resulted mainly from increases in the State’s net pension obligation of $1.720 billion and net other postemployment benefit obligations of $1.753 billion

You can read the entire news release on the State of Illinois Comptroller’s website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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The Civic Federation Proposes Plan For Achieving Long-Term Fiscal Sustainability In Illinois

The last time I blogged about The Civic Federation, an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois, was right before the holidays.

The Civic Federation is in the headlines again these days for proposing a five-year plan to balance the Illinois state budget, eliminate its huge bill backlog, and reduce income tax rates. From a March 3 press release:

In a report released today, the Civic Federation’s Institute for Illinois’ Fiscal Sustainability proposes a comprehensive plan for achieving long-term fiscal sustainability for the State of Illinois. The five-year plan would fully pay down the State’s $5.4 billion backlog of unpaid bills while gradually reducing income tax rates by 20%, broadening the tax base and building a reserve fund as protection against future economic downturns…

$5.4 billion? That’s a lot of bills.

One part of this financial rescue plan will likely raise the eyebrows of certain Illinois residents. From the press release:

3. Broaden Income Tax Base to Include Federally Taxable Amounts of Retirement Income: Out of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income and one of 27 that exclude all federally taxable Social Security income. The State should broaden its income tax base to create greater equity among taxpayers and facilitate the gradual rollback of the income tax rates. The broader base will also ensure greater long-term sustainability of the State’s resources by accessing a growing portion of the Illinois economy…

You can read the entire press release here, as well as find a link to The Civic Federation’s 50-page report State of Illinois FY2015 Budget Roadmap: State of Illinois Budget Overview, Projections and Recommendations for the Governor and the Illinois General Assembly.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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2013 Nobel Prize Winner Warns Of Possible Recession Next Year

Time to talk money. How many readers know who Eugene Fama is? Dr. Fama is a finance professor at the nearby University of Chicago. He is widely recognized as the “father of modern finance,” a champion of efficient markets, and the intellectual father of today’s index fund industry.

In October, it was announced that Fama was being awarded the 2013 Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel, along with Lars Peter Hansen and “crash prophet” Robert Shiller.

Anyway, the reason I bring Dr. Fama up is because the distinguished professor is warning of a possible recession in 2014- one that he believes will be global. Ilze Filks and Mia Shanley reported last Saturday on the Reuters website:

One of the three Americans who won this year’s Nobel prize for economics said bloated public deficits on both sides of the Atlantic meant that recession remained a real risk for 2014.

Eugene Fama, who shares this year’s 8 million crown ($1.2 million) prize with Robert Shiller and Lars Peter Hansen, said on Saturday that highly indebted governments in the United States and Europe posed a constant threat to the global economy.

“There may come a point where the financial markets say none of their debt is credible anymore and they can’t finance themselves,” he told Reuters in the snow-covered Swedish capital, where he will receive his prize on Tuesday.

“If there is another recession, it is going to be worldwide.”

(Editor’s note: Italics added for emphasis)

One more thing about “Mr. Efficient Markets.” Shawn Tully of Fortune magazine reported last Friday:

The mere use of the term “bubble” makes Fama see red. He says asset price bubbles simply don’t exist. Fama argues that when stocks crash — as in the dotcom crash or the cataclysm of 2008 — it is caused by a perfectly logical fear that a depression might follow.

Keep the dream alive for Main Street and Wall Street, and the financial house of cards can remain standing longer than most “doomsayers” suspect.

Still, the charade can only be pulled off for so long.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Filks, Ilze and Shanley, Mia. “Nobel economics winner Fama says risk of global recession in 2014.” Reuters. 7 Dec. 2013. (http://www.reuters.com/article/2013/12/07/us-sweden-nobel-idUSBRE9B605C20131207). 12 Dec. 2013.

Tully, Shawn. “What can you learn from Mr. Efficient Markets now?” Fortune. 6 Dec. 2013. (http://money.cnn.com/2013/12/06/investing/eugene-fama-markets.pr.fortune/). 12 Dec. 2013.

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Chicago’s Financial Condition Deteriorated More Than Many Other Major U.S. Cities From FY2007-2011

It’s been some time since I last blogged about The Civic Federation, an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois. Back on February 5, 2013, the Federation’s Institute for Illinois’ Fiscal Sustainability released an analysis showing the State of Illinois was on track to accumulate nearly $22 billion in unpaid bills by FY2018 “unless action is taken to curb rising pension costs and plan for increases in the Medicaid program.”

Illinois ended fiscal year 2013 with an estimated $6.1 billion in unpaid bills.

These days, attention is back on The Civic Federation again for a recent analysis focusing on the City of Chicago. From a November 8 press release:

A report released today by the Civic Federation uses nine indicators of financial condition to measure the relative financial performance of Chicago and 12 other major U.S. cities from FY2007 to FY2011. Of the cities analyzed, only Boston and Detroit consistently performed worse than Chicago by these metrics during the five-year period that encompasses the Great Recession and slow recovery. The full 56-page report is available at www.civicfed.org.

“Chicago’s relative financial performance during this period was defined by many of the same challenges it faces today including a structural deficit and high debt levels,” said Civic Federation President Laurence Msall. “These threats continue to handicap Chicago’s performance as many other cities were somewhat better equipped to weather the 2008 financial downturn and resulting economic challenges.”

A majority of the cities experienced deteriorating financial condition during the five-year period, likely due to the Great Recession and its aftermath. However, Chicago fared worse than most of the other cities. In addition to Chicago, the 12 other major U.S. cities analyzed were Baltimore, Boston, Columbus, Detroit, Houston, Kansas City (MO), Los Angeles, New York, Philadelphia, Phoenix, Pittsburgh and Seattle. These cities were also the focus of fiscal analysis by the Pew Charitable Trusts’ Philadelphia Research Initiative, with the exception of Houston which the Federation substituted for Atlanta after a change in Atlanta’s fiscal year led to inconsistent analysis.

(Editor’s note: Italics added for emphasis)

“Only Boston and Detroit consistently performed worse than Chicago by these metrics during the five-year period that encompasses the Great Recession and slow recovery.”

Great. Just great.

You can read the entire press release here, and the study here on the Federation’s website.

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

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Thoughts On Chicago Mayor Rahm Emanuel’s Proposed 2014 Budget

Yesterday, Chicago Mayor Rahm Emanuel unveiled his proposed 2014 budget. From a press release posted on the City of Chicago website:

Mayor Rahm Emanuel today presented the proposed 2014 budget to the City Council, an $8.7 billion budget that, for the third consecutive year, balances the City’s finances without introducing new property, sales or gasoline taxes.

In 2011, the City faced a projected deficit of $790 million for 2014. In the last two budgets, that structural deficit has been cut by more than half, to $339 million…

The City began the 2014 budget process with a projected deficit of $338.7 million. The gap was closed through spending reforms and cuts, and improved revenue growth, including: $40 million through reduced technology, equipment and telecom costs; $26 million in healthcare savings; $101 million in additional revenue growth and children’s safety zones; $35 million from sweeping aging revenue accounts and grant funds; $34 million in targeted revenue enhancements; $18.7 million through proper allocation of costs to enterprise and grant funds; and $53.4 million from 2013 surplus captured through spending controls.

Last year around this time I offered up my thoughts about the proposed City budget for 2013. Using that as a backdrop:

• Mayor Emanuel proposed an $8.3 billion budget last year. For 2014, it’s risen to $8.7 billion.
• A big deal was made over no “new taxes, fines or fees” in the 2013 budget. The same can’t be said for 2014, where no “new property, sales or gasoline taxes” is the best Emanuel can do. $34.2 million in tax, fee, and fine increases are included in the proposed budget according to the Chicago Tribune’s Hal Dardick.
• To help plug a projected $369 million deficit last year, the City “identified” $45 million in additional revenue. I noted that was just projected tax revenue on real property transfer, hotel, sales, and electricity taxes until the end of September 2013 (I wonder how much of that projected revenue was actually realized?). For 2014, “the gap was closed” with $101 million in (projected) additional revenue. Time will tell if this is really accomplished.

Even if the projected deficit of $338.7 million can be eradicated, Chicago is still in big financial trouble. I blogged backed on August 7:

The “Windy City” faces a number of financial hurdles in the coming years…

• Growing projected deficits of $994.7 million in 2015 and $1.15 billion in 2016, according to the city’s annual financial analysis released last Wednesday (blogged about here)
• A total long-term debt of nearly $29 billion, or $10,780 for every one of the city’s nearly 2.69 million residents (blogged about here)
• A pension crisis with the Chicago Public Schools, which Davey and Williams Walsh note draws from the same tax base and where an extra $338 million must be found in 2014.

You can read the entire City of Chicago press release about Mayor Emanuel’s proposed budget for 2014 on the city’s website here.

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Dardick, Hal. “Emanuel uses ‘boatload of ways’ to balance budget.” Chicago Tribune. 22 Oct. 2013. (http://www.chicagotribune.com/news/local/ct-met-rahm-emanuel-budget-1023-20131023,0,744928.story). 24 Oct. 2013.

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Chicago Mayor Rahm Emanuel Wants More Time To Fix Chicago’s Public Pension Crisis

“Corporations are moving in, and housing prices are looking better across the region. There has been a slight uptick in population. But a crushing problem lurks beneath the signs of economic recovery in Chicago: one of the most poorly funded pension systems among the nation’s major cities. Its plight threatens to upend the finances of President Obama’s hometown, now run by his former chief of staff, Rahm Emanuel.

The pension fund for retired Chicago teachers stands at risk of collapse. The city’s four funds for other retired city workers are short by $19.5 billion. At least one of the funds is in peril of running out of money in less than a decade. And starting in 2015, the city will be required by the state to make far larger contributions to the funds, which could leave it hundreds of millions of dollars in the red — as much as it would cost to pay 4,300 police officers to patrol the streets for a year.”

-Monica Davey and Mary Williams Walsh, The New York Times, August 5, 2013

Yesterday I blogged about the Illinois public pension crisis. Today, it’s Chicago.

Hal Dardick and Rick Pearson reported on the Chicago Tribune website late last night:

Faced with the prospect of a major tax hike or severe service cuts just as he stands for re-election a year from now, Mayor Rahm Emanuel told the Tribune Wednesday that his formula for fixing the financially out-of-whack government worker pension system requires “reform, revenue and time.”

Dardick and Pearson noted that Chicago’s mayor didn’t offer any specifics about his formula, and just had this to say:

“I believe, push this back, allow us the time, the foresight, to work through the issues,” Emanuel said. The state requirements have “got everybody focused. Now, (the unions should) come to the table and work with us, push the time out,” he said.

Sounds to me that Mayor Emanuel is trying to “kick the can down the road” on the city’s public pension crisis- something his predecessors did and which got the City of Chicago into trouble in the first place.

I can understand why Emanuel is looking for time. As things stand right now, Chicago’s “financial reckoning day” looks to be fast approaching. I blogged backed on August 5:

The “Windy City” faces a number of financial hurdles in the coming years:

• A projected budget gap of $339 million next year
• Growing projected deficits of $994.7 million in 2015 and $1.15 billion in 2016, according to the city’s annual financial analysis released last Wednesday (blogged about here)
• A total long-term debt of nearly $29 billion, or $10,780 for every one of the city’s nearly 2.69 million residents (blogged about here)
• A pension crisis with the Chicago Public Schools, which Davey and Williams Walsh note draws from the same tax base and where an extra $338 million must be found in 2014

It’s one thing to stall and “pass the buck” onto a future administration. It’s another to be granted more time and actually work to resolve this pension problem (if it can even done at this point).

If the State of Illinois “concedes” on the funding requirement, I would hope Rahm Emanuel is in that second camp. Although, plenty of other observers would count him in the first one.

Stay tuned…

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Dardick, Hal and Pearson, Rick. “Emanuel trying to buy time as city’s pension crisis escalates.” Chicago Tribune. 25 Sep. 2013. (http://www.chicagotribune.com/news/chi-chicago-budget-reckoning-promo-20130925,0,6194998.story). 26 Sep. 2013.

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