“Disaster averted — for now.
The decision by Illinois legislators to raise personal and corporate taxes averted a downgrading of the state’s bonds to ‘junk’ status but fell far short of addressing the state’s fiscal problems in any meaningful way.
That’s the conclusion of Moody’s Investor Services, which reported last week that the state’s Baa3 rating will not be reduced.
Here’s the good news in Moody’s report, one that will have legislators who voted for the tax increase slapping themselves on the back for their political bravery.
The report states that the $5 billion in tax increases ‘alleviates immediate liquidity pressures, moves the state closer to fiscal balance and should keep pension and other fixed costs at manageable levels at least in the near term.’
Here’s the bad news as Moody’s see it.
‘The state’s outlook is negative,’ it said.
In other words, the basic problems remain in place — roughly $15 billion in unpaid bills and another $131 billion in underfunded state pensions.
The state reportedly plans to borrow $6 billion to pay down the backlog of bills, the benefit being that the interest paid on the borrowed $6 billion will be less than the 12 percent annual rate paid on unpaid bills.
But there’s a potential hitch here that ought not be overlooked by taxpayers. It certainly wasn’t by Moody’s. ‘Reducing and containing the backlog over the long term will likely depend on repeated operating surpluses, which the state has not produced in recent memory,’ it stated.
In other words, the state has to spend less than it brings it, running budget surpluses that can be used not only to pay new bills but reduce the remaining backlog.
Other states may run budget surpluses, establish rainy-day funds and otherwise maintain their fiscal health by being frugal when it comes to spending public dollars. But it’s fair to say practices like that will happen in Illinois when turtles start competing in 100-yard dashes and pigs begin flying in V-formations.
It just ain’t gonna happen. That’s not to say it couldn’t happen because, at least theoretically, it’s very possible. But Illinois legislators have demonstrated over the years that if they find $1 they’ll spend at least $2 and maybe $20. Their appetite for increasing the size and cost of government is unlimited and their capacity for setting priorities and sticking to them is, unfortunately, quite limited.
There’s a solution for that kind of willful blindness when it comes to public spending, one Moody’s noted in its analysis of the state’s economy. Moody pointed out that Illinois has a ‘diverse economy with the capacity to generate additional revenue.’
By citing the prospect for ‘additional revenue,’ Moody’s is not referring to more tax increases.
What it’s referring to is natural revenue growth generated by a growing economy that provides good jobs to people who use the income to support themselves and their families and pay taxes.
Illinois doesn’t just need a growing economy.
It must have one if it’s ever to pull itself out of the financial quicksand it’s in.
That’s why it’s borderline unfathomable that a majority of the General Assembly, led principally by House Speaker Michael Madigan, is so adamant about maintaining status quo.
After raising taxes, legislators simply called it quits, all but thumbing their noses at Gov. Bruce Rauner and his economic-growth package.
Somehow proposals to build a strong state economy have become hyper-partisan issues, oned espoused by Rauner and rejected outright by majority House and Senate Democrats.
Meanwhile, the state’s economy staggers along in a slow-growth mode that could fall into recession, and more and more upper-income residents are moving elsewhere because Illinois’ future looks so hopeless.
Moody’s cited several factors that it said could lead to upgrades in the state’s debt rating.
They include implementing a realistic plan to provide long-term funding for pensions, permanently reducing the state’s unpaid bills backlog and enacting fiscal policies that ensure sustainable budget surpluses.
Does anyone seriously think those kinds of changes are in the state’s future?
In a state where fiscal policy has been the product of short-term thinking dominated by political considerations, Moody’s stated that ‘long term challenges remain’ that can only be effectively addressed by sound policy proposals.
In other words, Illinois still stands on the edge of the fiscal cliff staring into the abyss.”
Read more ► http://bit.ly/2tu2tq4