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CBS News: "State Budgets: The Day of Reckoning."

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Comptroller Hynes: Illinois is A "Deadbeat State"

 

We all know about the Gordian Knot that is Illinois' budget deficit. But the Land of Lincoln is not alone in having to deal with a deficit. A "60 Minutes" segment last night focused on the current and looming financial meltdowns in Illinois and other states.

 

But Illinois, along with New Jersey, was particularly singled out for their budget messes. Watching state Comptroller Dan Hynes tell "60 Minutes" correspondent Steve Kroft stories about how some legislators have been kicked out of their offices because the state can't pay their rent; state police turned away from gas stations because the owners won't accept state-issued credit cards; and small business owners and non-profits stretching their credit lines and dipping into their own pockets to stay afloat while waiting for the state to pay them should put the budget crisis into stark focus for those few who think that band-aid fixes like expanding casinos may serve as a cure-all. Because it won't. Hynes's money quote: "Illinois is a deadbeat state." Prominent financial analyst Meredith Whitney, who was also interviewed for the segment, called out states' lack of pro-active urgency in dealing with the whirlwind we're currently reaping and saying that we could be seeing bond defaults within the next twelve months.

 

More below:

http://chicagoist.com/2010/12/20/hynes_illinois_is_a_deadbeat_state.php


"You don't just walk into a bar and mix it up by calling a girl fat" - buildingcincinnati speaking about new forumers

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If the financial situation in Illinois was bad before, now it's really bad.  They should have tried bankruptcy while Obama was still in office.  Moody's already downgraded their credit rating to the lowest of any state.

 

http://www.foxnews.com/politics/2017/06/20/illinois-careens-into-financial-meltdown-and-not-even-lottery-is-safe.html

 

The state's comptroller has said last week that 100% of the state's monthly revenue is committed to court ordered payments, leaving nothing for discretionary spending.

 

For more background on how they got here, this is a great article on Michael Madigan, Illinois House Speaker for the last 31 years.

 

https://www.city-journal.org/html/madiganistan-14789.html

 

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Without the injection of partisan talking points, can someone summarize the issues of what is going on in Illinois?  I'd assume lots of public debt with declining or stagnant tax revenue?  A microcosm of rust belt / Midwest issues?  Every time I'm in Chicago, I marvel at the infrastructure there.  The costs to maintain it in a cold climate city must be a ton. 

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Without the injection of partisan talking points, can someone summarize the issues of what is going on in Illinois?  I'd assume lots of public debt with declining or stagnant tax revenue?  A microcosm of rust belt / Midwest issues?  Every time I'm in Chicago, I marvel at the infrastructure there.  The costs to maintain it in a cold climate city must be a ton. 

 

And it's old infrastructure. Consider the "L" -- comprised of 36 miles of elevated structures, is more than 100 years old and built of steel, often above salted roadways.


"The boss rolls up in a new Lamborghini and tells his staff 'The greatest part about America is that hard work breeds wealth. So if you work hard and dedicate yourself tirelessly to the task at hand, I can get another new Lamborghini next year.'” -- Overheard in a Cleveland bar.

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But then, how does New York do it? Look at everything they have to maintain. I mean, Chicago is a serious economic powerhouse still. Is the rest of Illinois that much of a drain to the state budget? There's really nothing else in Illinois. Sometimes it sucks having to disperse all of Ohio's funds amongst so many cities, but I guess I take for granted the amount of business all of these combined metros bring to the state. Would anyone agree or disagree with me? I am genuinely curious.

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^NYC continues to grow.  More revenue pouring in and more to come.

 

My guess is Chicago is as much of a drain as the rest of the state, if not more.  Chicago IS Illinois.  I suspect they've done everything they can to try to make it keep up with other growing large metros. 

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^If you went around the state of Illinois, there aren't a lot of cities or areas that are doing well.  Illinois is definitely full on rust belt through and through.  That's a big state with a lot of medium sized cities like Danville, Kankakee, Decatur, Springfield, Rockford, etc. that are hurting big time and not coming back around anytime soon.  I think even Peoria is hurting.  So when not only those cities are hurting big time but also Chicago, it isn't good news. 

 

Also on top of that it looks like they really need to get a handle on their pension reform.

 

Most of the cities I listed are cities which depend on agriculture machining, farm equipment, etc.  You are also seeing these issues in other states like Wisconsin and Iowa in certain parts.

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Farm equipment is not a good thing to base an entire economy off of. The demand for various types of equipment varies widely year to year and even month to month. Used iron is always moving around in price drastically. Ask a farmer sometime about how oversupplied combines built in 1987 and 1988 are on the market for example.

 

Another problem Illinois has is that crop prices went into the crapper in 2013 and have barely rebounded. Downstate is almost 100% farm. Ohio is a farm state of course as well but our economic diversity pulls us out of these individual-industry issues as a state.

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^^Same could be said about upstate NY, no?  Buffalo, Rochester, Albany, Syracuse, even places like Schenectady.  All with Rust Belt issues.

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Regardless of the causes of how Illinois got there, they are going to have to make some real hard decisions soon.  Higher taxes without a doubt and big spending cuts for a long time and major pension reform.  Without all 3, they're just kicking the can down the road.  Without a clear direction to fix the situation, it's going to hurt the business climate and employers will start leaving, further adding to the problem

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^^Sure, but Buffalo, Rochester, Albany, and Syracuse all have metropolitan areas over 700,000, still have significant amount of corporations, sizeable state universities in each, and in Albany and Rochester's case, are actually economically steady.  Basically, having New York City with Dayton, Akron, Toledo, and Youngstown.  Illinois is made up of a bunch of Canton-sized metropolitan areas with little corporate base (except for Peoria) and presumably geared towards Chicago, thus leaving rest of the state to empty out.

 

Illinois is an interesting case.  They should perhaps look towards Michigan (a fellow rustbelt uni-polar state with multiple Canton-sized metropolitan areas and stagnant large metro) in order to stop the swamp from being drained.  Kalamazoo, Grand Rapids, and Lansing are doing fine.  Flint, Saginaw, and Battle Creek not so much but hey, you can't win them all!


"You don't just walk into a bar and mix it up by calling a girl fat" - buildingcincinnati speaking about new forumers

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Also on top of that it looks like they really need to get a handle on their pension reform.

 

Most states need to get on top of pension reform.  Cops and firefighters should absolutely be allowed to retire after 20 years.  They have physically demanding and stressful jobs that may not be suitable at 60 years old.    Teachers, clerks and janitors?  They should join the rest of us for AT LEAST 65 year retirement threshold.  And definitely end the double-dipping we've been seeing in Cleveland over the years.

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^^Are you sure the double dipping drives up pension costs?  It seems that most people just take issue with it out of principle and a bit of jealousy.  I don't know that it actually causes any economic stress on the budget.  In fact, I think the justification for it is quite the opposite.

 

Retiree health care is something I would expect is going to see some major reforms in the near future.  The courts still haven't quite figured out the vesting angle to that.

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^^Are you sure the double dipping drives up pension costs?  It seems that most people just take issue with it out of principle and a bit of jealousy.  I don't know that it actually causes any economic stress on the budget.  In fact, I think the justification for it is quite the opposite.

 

Retiree health care is something I would expect is going to see some major reforms in the near future.  The courts still haven't quite figured out the vesting angle to that.

 

Change the retirement age to 65 instead of 40 and see how many of these guys quit their job, retire and start again at the same job on Monday.  I'm sure it would help the budget.  How could it not? 

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Why the f**k should safety forces get special treatment for retirement?  What about other physically demanding careers?

 

If your child was trapped in a burning building, would you want a 25 year old physically agile fire fighter climbing a 90' ladder to get to them, or your grandfather? 

 

With this being said--I think retirement happens when you RETIRE.  A cop shouldn't be able to retire at 40, get a desk job in the PD and start on a second pension.  He should keep paying in on the same retirement fund like private sector workers do.  If a cop decides to retire at 40, collect his pension and go work for a consulting firm then fair enough.  He can start collecting pension and start over at the new job with retirement as well.

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Farm equipment is not a good thing to base an entire economy off of. The demand for various types of equipment varies widely year to year and even month to month. Used iron is always moving around in price drastically. Ask a farmer sometime about how oversupplied combines built in 1987 and 1988 are on the market for example.

 

Another problem Illinois has is that crop prices went into the crapper in 2013 and have barely rebounded. Downstate is almost 100% farm. Ohio is a farm state of course as well but our economic diversity pulls us out of these individual-industry issues as a state.

 

What helps with Ohio, Wisconsin, Indiana and Michigan is that there is a ton of dairy in all those states.  It helps diversify the farm economy, keep local grain moving, etc.  And dairy can be lucrative.

 

I think Illinois is mainly corn and soybeans and hogs, which ties it up a bit more.  I don't think those three get as much government help as milk but I could be wrong on that.  When you got so much of the state tied to a sector not doing well, sales receipts go way down through and through and farmers turn into mechanics more so than if they were booming.

 

I once met a hog farmer in Iowa who did so well that he HAD to buy a new $200k piece of farm equipment every year becuase it actually saved him money because of the way the tax brackets were set up. 

 

Lastly, lots of farmland is now owned by corporations who funnel money to Ireland to Turks and Caicos etc. Places like ADM, even if they are headquartered in Illinois, aren't really doing as much as they could for taxes to the state because of the laws and regulations in place now.  Before 20 years ago when it was more individuals, that was say 100 PO's for tractors for $15 million versus 2 PO's for huge tractors for $500k

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Yes, much less equipment sold per capita in the U.S. as compared to 20, 40, 60 years ago. The market is still flooded with 1950s Ford 8Ns and 9Ns after almost 70 years. Granted, you can't do much with them today and there weren't many as choices back then but the sheer number of those tractors produced was staggering.

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People don't grasp that police and fire start paying 9%~ into retirement at age 19 or 20, with their first check.  So by age 30 they have already contributed a ton to the pension systems while most private sector workers have contributed nothing or little to their 401k's. 

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People don't grasp that police and fire start paying 9%~ into retirement at age 19 or 20, with their first check.  So by age 30 they have already contributed a ton to the pension systems while most private sector workers have contributed nothing or little to their 401k's. 

 

And I have no problem with this.  Maybe private corporations should be required to withhold from their employees for defined-benefit packages.

 

What I do have a problem with is a cop that retires at 40, collects a full pension, then starts the same job the next day--resetting him self for another full pension once vested.  He should just keep paying into the same benefits plan, and get higher payouts at his second retirement instead of automatically doubling it.  With American's living into their 80's and 90's, taxpayers (and retirees who are bankrupting pension systems), cannot afford this any longer. 

 

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^ age and agility are not synonymous.

 

Agreed.  Of course there are 25 year olds that can't climb the ladder either. And there are 65 years olds that are able. Speaking in broad strokes here about when a cop or firefighter should be able to retire. 

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Fair pensions versus double-dipping are really two different issues.  It's a shame that the unions negotiate so as to enable double-dipping since it attracts so much scorn from the non-union public, even though relatively few people take advantage of it.   

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And I have no problem with this.  Maybe private corporations should be required to withhold from their employees for defined-benefit packages.

 

 

In Australia they do a 401k-type investment account in addition to their equivalent of social security and it carries over from one employer to the next.  So a percentage of even summer jobs from high school starts feeding what can become a very large sum of money by retirement.  I don't know if they can do loans against it or not.  That's one of the huge problems with American 401k plans -- people use it as an emergency fund. 

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And I have no problem with this.  Maybe private corporations should be required to withhold from their employees for defined-benefit packages.

 

 

In Australia they do a 401k-type investment account in addition to their equivalent of social security and it carries over from one employer to the next.  So a percentage of even summer jobs from high school starts feeding what can become a very large sum of money by retirement.  I don't know if they can do loans against it or not.  That's one of the huge problems with American 401k plans -- people use it as an emergency fund. 

 

Or a New 2500 Silverado at age 44 fund.

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^Look at any parking lot around a Cincinnati Police station.  Lots of trucks, lots of SUV's.  Usually zero Civics or compact cars.  Reminds me of when I worked offshore.  I was literally the only person out of hundreds of cars on that gravel lot with a compact car.  I remember one time I came back to the car after 28 days on the boat, opened the door, and a weed I had apparently closed the door on a month earlier had grown inside the car up to the roof!

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People don't grasp that police and fire start paying 9%~ into retirement at age 19 or 20, with their first check.  So by age 30 they have already contributed a ton to the pension systems while most private sector workers have contributed nothing or little to their 401k's. 

 

THis is a false analogy - it doesn't matter if they pay 9%, 10% or 20%.  It doesn't balance out and taxpayers are on the hook for the balance. 

 

A better comparison would be union construction workers - the union balances incoming dues with benefits paid out.  They make sure it works and don't require a government subsidy

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Public pensions are usually much more conservatively invested than are 401k's.  It worked well in the past but two things happened in the past ten years:

 

1. layoffs and hiring freezes during the recession meant way less was coming into the system.  I know that Cincinnati Police and Fire didn't have *any* recruit classes for several years and numbers are still below 2008 levels.

2. unprecedented low interest rate environment has meant meager returns for the pension plans since the stock side of the portfolios were usually in blue chip stocks like GE that haven't appreciated much or at all while the S&P 500 increased 2X or more in value. 

 

Meanwhile, university endowments have famously been seduced by hedge funds and in some cases have lost money in recent years while the market surged ahead. 

 

 

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Public pensions can be set up as guaranteed benefit or benefit contribution.  Having more employees in guaranteed contribution plans helps shift the risk to the employee and allows the employer to to better account for these payments. 

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Fair pensions versus double-dipping are really two different issues.  It's a shame that the unions negotiate so as to enable double-dipping since it attracts so much scorn from the non-union public, even though relatively few people take advantage of it.   

 

Double dipping has nothing to do with unions.  It is mostly used by management employees

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^^Are you sure the double dipping drives up pension costs?  It seems that most people just take issue with it out of principle and a bit of jealousy.  I don't know that it actually causes any economic stress on the budget.  In fact, I think the justification for it is quite the opposite.

 

Retiree health care is something I would expect is going to see some major reforms in the near future.  The courts still haven't quite figured out the vesting angle to that.

 

Change the retirement age to 65 instead of 40 and see how many of these guys quit their job, retire and start again at the same job on Monday.  I'm sure it would help the budget.  How could it not? 

 

That's not the way double dipping works.

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People "double-dip" as a public employee in order to begin collecting their pension payments while still being paid their normal salary. You cannot earn a second pension.

 

Generally only high-level positions are allowed to do this which makes it seem even more unfair perception wise.

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So whatever the way double-dipping works, it is 100% safe to say that it would save the taxpayers money if a guy drawing a salary did so for another 15-20 years before touching his pension.  That is 15-20 years of growth in the pension plan, for a person that is going to live longer than when these schemes were designed.  To me the old argument that public employees make less than their private counterparts is absurd--and especially so if you go down in the skills required for the job. 

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^ i am not a fan of double-dipping but it's not double-dipping that creates the issue that you state.  The issue is created because public employees get enough service credits at a young age if they started their careers with government at a young age.  In your scenario, the employee could retire and leave his job and the employer must hire someone else to fill that role.  Financially it works out the same. 

 

I am not a fan of double dipping because it allows people to hang on and prevent new jobs opening for younger workers.  The thinking is that double dipping allows the employer to retain institutional knowledge which I think is spurious at best.

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