By: Mark Glennon*
Stupefying amounts of cash poured on states by the federal government, including $25 billion at a minimum for Illinois, mean the can is kicked once again.
Moody’s, the credit rating agency, essentially affirmed that on Thursday by revising its outlook for the state to stable from negative on its Baa3 rating. From Moody’s:
Affirmation of the state’s rating and the revision of its outlook to stable reflect the state’s financial performance through the pandemic, in combination with increased levels of federal support that will moderate near-term fiscal and economic pressure. State and local government funds expected under the latest federal aid package may help the state repay deficit financing loans, support its financially pressured local governments and spur employment, income and tax revenue growth.
The recently signed American Rescue Plan designated about $7.5 billion of new money directly for the state’s government. Tens of billions of more federal dollars indirectly help the Illinois budget by assisting higher education, K-12 schools and municipalities. Direct aid to people and businesses also kept tax revenue flowing at far higher rates than initially projected.
In fact, federal money from the American Rescue Plan alone dwarfs the revenue lost to the state because of COVID and the lockdowns by a stunning 1665%, according to a Tax Foundation estimate.
It should be noted, however, that federal cash has been showered on the entire nation, where it needs it and not. The State of Wisconsin, for example, is getting $3.2 billion in direct money from the American Rescue Plan even though the state has a budget surplus. We are still waiting for a comprehensive analysis of all recent federal aid to determine whether Illinois got more than its fair share. Surprisingly, nobody seems to have offered one yet that includes all units of government and private sector assistance.
Still, it’s fair, on behalf of Illinois’ political establishment in Springfield, to say “Thank you, federal taxpayers. We couldn’t have done it without you.” The federal money should be enough to allow the state to repay the $3 billion it borrowed from the Federal Reserve Bank and make it though another year with no fiscal reforms. We can expect to see revised budget proposals over the next few months for the next fiscal year, which starts July 1.
The City of Chicago probably likewise can get by for another year but it’s impossible to say where it stands right now because the city is so nontransparent with its finances.
But that’s all short term. As Moody’s put it, “While credit risks raised by the pandemic during the past year are receding, the longer-term challenges associated with the state’s very large unfunded post-employment liabilities remain.” In the meantime, Illinois will sink deeper into the hole because, even with the federal money, pension contributions will not be sufficient to avoid deepening unfunded liabilities.
The obvious issue now is whether Illinois will use the breathing room it has to make the essential reforms it needs, including pension reform.
To answer that, follow the time-proven rule for Illinois, which is to apply maximum cynicism. No, Illinois politicians won’t make the reforms needed to restore it to a stable path. They won’t do that until a gun is put to their heads — a major meltdown.
But there’s a far more important matter that will bear on that issue, one that would destroy nothing less than the entire system of how America has been governed since the Constitution was adopted. It’s the intention, held by what is perhaps a majority in Congress, to make the rain of federal cash permanent and federalize most everything. It’s a way of bailing out poorly run states by leveling the playing field with those that are well run.
Our story on that topic earlier this week got significant national attention, being republished or linked to by a number of national media outlets, including RealClear Politics. Nobody knows if the federalizers will succeed but there’s no doubt many Illinois politicians hope they will. The most recent example is Cook County Board President Toni Preckwinkle who wrote to express her hope that the federal government will continue to fund a form of guarantied income — the county’s no-strings-attached cash assistance program.
That hope will give our ruling class further incentive to avoid making the reforms Illinois needs.
*Mark Glennon is founder of Wirepoints.
A set of state lawmakers want to extend CPS’ current school closing moratorium to February 1, 2027 – the same year CPS is set to transition to a fully-elected school board. That means schools like Manley High School, with capacity for more than 1,000 students but enrollment of just 78, can’t be closed for anther three years. The school spends $45,000 per student, but just 2.4% of students read at grade level.
Hopefully, all media will get the message, in Illinois, too.
Ted joined Tom Miller of WJPF to talk about Illinois’ highest-in-the-nation property taxes, why lawmakers don’t want to touch the tax’s cost drivers, just how much Illinoisans’ tax burden has grown over the decades, why Gov. Pritzker failed to meet his promise to reform property taxes, and more.
Powell gets replaced per Quid Pro Joe (or Obama, or whichever puppet is making decisions at this point) when his term is over January, 2022. Then it’s fun time for the leftist Monopoly Money syndicate, with Yellen and the next Ashkenaz that gets appointed.
It’s critical for Republicans to win back the House and Senate to remand the ARP and begin clawbacks.
What a dreamer you are! The general public loves freebie programs and can’t—or don’t want to—think about the consequences of it. Short of an obvious and immediate reason to change that mindset freebie programs are here to stay and likely increasing for quite some time. Even the Republican party has long dismissed conservative governmental spending and only whine about spending when Democrats are in control. When Republicans do it they applaud that concept, throwing it freely to “national defense,” big business and the truly rich rather than social programs. Neither party is fiscally conservative now. “Let’s all buy some more… Read more »
The ‘stimulus’ was not asked for, wasn’t needed, and was fraudulently obtained. Some of the wealthiest families on my street received the fraudulently obtained ‘stimulus’. Many I know donated the ill gotten gain to their church, parochial school, St Vincent de Paul, or homeless shelters.
That whole idea brings political loyalty, and that’s the underlying motivator to do so. Its aimed at the politically near-sighted voters, and there are huge numbers of them when its down widely.
China is just loving all of this…it is showing them and the rest of the world that the leaders in this country are fools…and the people who elect them over and over again…are worse.
as Forrest Gump once said-“stupid is as stupid does”
The Age of Decadence in the Life Cycle of an Empire.
And a empire that’s ready to totally collapse right before are eyes.
If you advocate government reform, you’re a fool. Going to college? Advocate free tuition. Can’t afford healthcare? Advocate free Healthcare. UBI you should be calling for. I’d like to see the national debt at 80 trillion by 2025. 1) The stock market has had trillions of money from the central bank injected into it to prop it up (this is why the rich are getting richer and poor are getting poorer). 2) Billions to foreign countries in the latest stimulus and these bills are more pork than covid 19 fighting. YOUR GOVERNMENT IS SCREWING YOU! If it can afford free… Read more »
Robbing Peter to pay Paul.
You likely also remember Robin Hood who most considered a noble, heroic figure in movies. Stealing is stealing no matter the target.
Yes, this federal bailout will delay in IL the financial reforms needed to benefit the taxpayer. When will these reforms occur? Some wirepoints commenters thought it would’ve happened by now. As evidenced by the outward migration, many former IL residents were tired of waiting for reform, as 1-2 years turned into 3-5, then into 6-10, etc.
I’ve been saying 2025 for a few years. I think 2015.
The increase pension cost as a percent of the budget becomes unsustainable by 2025. This bailout might delay until 2026.
The bailout might delay reform for only a year or so … unless the feds continue feeding such money to the states.
In one way or another, directly or indirectly, the +$25 billion bankrupt Illinois & its municipalities are scheduled to receive from ARPA is in reality a giant pension bailout where Illinois can use ARPA billions to pay current debt to offset past & further billions in pension payments to in many cases some very wealth multi-millionaire retirees or scheduled multi-millionaire retirees. How could this possibility pass any liberal “EQUITY” smell test? Make no mistake, this is a national bailout of the upper income gaurenteed lifestyle pol class, NOT POOR FOLKS. And is the exact opposite of everything and everyone the… Read more »
It takes $25 billion to kick the can one year. Illinois needs to use the money to pay past due bills.
You are assuming this is a 1 time deal — it’s not. It is the first of endless piecemealed bailouts with printed money. The precedent has been set. The worst case scenario is playing out.
Then massive inflation is coming.
Hyperinflation is around the corner
Reform of the pension system will not come until pensioners, whose unions have been blocking reforms, start missing payments.
I think it will happen a little sooner. Tier II pensioners subsidize Tier I pensioners. Soon enough, self-interested Tier II pensioners will throw retired Tier I pensioners under the bus and agree to reforms, one way or another, so that Tier II won’t have to pay for retired Tier I’s. Modifying pensions will be a political decision that even the IL Supreme court will understand which way the wind is blowing. After the most judge lost his retention effort (first time ever!) and competitive IL Sup ct races, they’ll quickly understand how they need to rule if they want to… Read more »
Kicking the can down the road doesn’t work when the road is a cul de sac.
Durbin, Duckworth and the Illinois Congressional delegation believe the only solution is for more bailouts from Red States. If Red States are going to bailout Illinois, then they should get the assets.
The longer reforms are delayed the worse they will be