Illinois emerging from denial; Chicago, other cities stuck in La La Land – WP Original

By: Mark Glennon*

It’s a lesson you learn fast doing insolvency work: The first step towards recovery is admission of  exactly how bad things are. It’s hard, as I learned doing that work as a lawyer. Emotions, outdated facts and ego get in the way. That’s why control of insolvent companies is usually taken away from those responsible and banks with bad loans usually take the initial loan officer off the account.

Illinois, at long last, may be accepting reality.

Help came last week from the Apocalypse Now report from the Institute of Government and Public Affairs at the University of Illinois, which said the true state budget deficit is roughly twice as big as thought — some $9 billion. Especially encouraging was embrace of the report by two influential political reporters who’ve been telling us for years that the crisis is exaggerated. Greg Hinz at Crain’s summarized the report immediately, with no criticism. Rich Miller actually did an I-told-you-so bit. Whatever. Let’s hope they stay on that track, perhaps by noticing that the report still badly understates the true deficit because it does not include multi-billion dollar annual increases in unfunded pension liabilities.

Incumbent politicians have subtle but immense power to set the narrative, and Governor Rauner’s tough language alone also has moved the needle towards realism. Solutions remain to be proposed and fought over, but at least the fog is starting to lift enough to see the true battle line.

Credit Rauner for injecting the perfect word into the dialogue, “turnaround.” That term captures realism yet retains optimism that the crisis can be fixed. Despite success as an investor, Rauner had his share of dogs that required a “turnaround team,” as he described his new appointments last week.

He was criticized during the campaign for playing “hardball” on one turnaround. Memo to those who haven’t done them: That’s how turnarounds succeed.

But in Chicago, the narrative can be summarized as “don’t scare the children.” A sane Chicago mayoral campaign would be debating a 90-day emergency insolvency plan. Instead, Mayor Emanuel recently delivered, before an invitation-only crowed, his detailed economic plan for his next term. It’s as if Pat Quinn wrote it for him — mostly boasting about revival, accomplishments and future “investments.”

The words “budget” and “pensions” don’t appear even once in the plan.

In other comments he seems to have pinned hopes on getting financial help from the state. Rahm’s political judgement is usually sound, but can anybody really envision that?

No hint at solutions from any of his challengers, either — all populists, led by Alderman Fioretti. His idea? Slap penalties on traders who opt to run their transactions through Chicago exchanges and on suburbanites who come into Chicago to work. Oh, sorry, I said that wrong — those are “transaction taxes” and “commuter taxes” that he wants.

The Chicago election is a farce, and the wheels on Chicago may fall off very soon. The only hope is that Rahm will be, um, Rahm — that he will forget what he says during the campaign and become a hardball turnaround artist after the election. We will be writing more about Chicago’s crisis, and those of other municipalities, many of which are train wrecks whose stories are not getting out.

On that score, one particular town caught our attention. A reader from suburban Country Club Hills yesterday sent an SOS email about their financial straits. To validate the horrible story we tried to find their standard financials — the CAFR, which should be public. Here’s what you get when you search their site for it: “Lorem ipsum dolor sit amet….” Turns out WGN and the BGA have been on them before about shoddy financial reporting, and we will have to dig hard to find out about what may be an imminent meltdown. Some other cities have been open and honest about their crises, particularly Rockford and Kankakee. Others will continue to pretend, extend, deny and delay.

But here’s a safe prediction: 2015 is the year that authorization from Springfield for Illinois towns and cities to file for bankruptcy becomes a leading, headline debate. They cannot do that without state authorization. Let’s get on with that debate. The inevitable is here.

*Mark Glennon is founder of WirePoints

Update, January 28, 2015: Our follow-up piece on Country Club Hills is linked here.