Governor Quinn as SuperNanny: Time Out for a Summer Session, You Two!

Governor Quinn as SuperNanny: Time Out for a Summer Session!

Tomorrow, June 4, Governor Quinn will put both Senate Leader John Cullerton and House Speaker Madigan into their naughty chairs and a good time-out for misbehaviors this last spring.  In fact, it is suggested in various media that Quinn will force (ask) them to hold a summer session in order to get a pension “reform” bill passed. THIS JUST IN: Sorry, Governor, Madigan will be out of town.

According to the Illinois Government News Network, Quinn is on the verge of anger: “Today’s downgrade is no surprise. As I have repeatedly made clear to the General Assembly, this will continue to happen until legislators pass a comprehensive pension reform bill, and put it on my desk.

“Every time the General Assembly misses the deadline, Illinois’ credit rating is downgraded, which hurts our economy, wastes taxpayer dollars and shortchanges the education of our children.

“If I could issue an Executive Order to resolve the pension crisis, I would have done it a long time ago. But I cannot act alone. Legislators must send me a bill to get this job done.

“I plan to meet with the Speaker of the House and the Senate President tomorrow.

“I will keep fighting for pension reform until it is the law of the land” (^{http://www3.illinois.gov/PressReleases/ShowPressRelease.cfm?SubjectID=2&RecNum=11247}).

Sounds pretty tough.  And we all know how active and forceful the Governor has been in finding a solution to this problem of paying back the $billions owed to pensioners in Illinois, money taken from them by earlier Governors and, well, the very people who will be getting their time-out.

The fall-out for inaction has been quick in coming: various legislators are emailing to say they tried to do the right thing in voting yea for what would possibly and probably be an illegal assault on the constitutional protections afforded the victims of the pension thefts.  For example, Senator Dan Biss complained, “When this legislative session began, perhaps the clearest point of consensus was that we had to address the fiscal burden placed upon the state by our enormous pension debt. Given this universal agreement, it is quite simply unacceptable that we adjourned without making any progress -- this is a terrible indictment of our poor performance as legislators, and it will further a viciously unfair fiscal and psychological burden on public employees, taxpayers, and those who rely on state services” (^{http://senatorbiss.com/index.php/component/content/article/1-latest-news/107-a-disappointing-legislative-session} ).  

Perhaps Senator Biss overlooks some of the PTSD suffered by the million pensioners and families in Illinois who are assaulted on a yearly basis, not to mention their very real version of a forthcoming "viciously unfair fiscal burden.”  

Meanwhile, pundits are describing the inactivity in Springfield as a carefully choreographed dance by the two General Assembly leaders to assure potential gubernatorial candidate Lisa Madigan with an opportunity to attack Quinn’s strongest suit: ineptitude.

And Quinn?  He’s as clear as ever at avoiding any real leadership, calling on someone, somewhere, to do something, anything…  Which bill Governor?  He can’t say because showing any favoritism to either of his two “naughties” might threaten his constant act of imploring with some real decision-making. 

Finally, today Fitch Ratings did exactly as we knew they would after the General Assembly’s inability to legislate (that includes marriage equality, fracking, etc.).  Fitch lowered the bond ratings once again, making any attempts to raise funding for projects or even pensions more expensive.  According to the Tribune, “’Fitch believes that the burden of large unfunded pension liabilities and growing annual pension expenses is unsustainable, and that failure to achieve reform measures despite the substantial focus on this topic exacerbates concern about management's willingness and ability to address the state's numerous fiscal challenges,’ it said in a statement.” (^{http://www.chicagotribune.com/business/breaking/chi-illinois-debt-rating-20130603,0,6980287.story} ).

Nearly two years ago, Pension Education offered an explanation of how Bond Ratings can affect taxpayers and the State of Illinois.  Please see Reprise below.

Reprise: State Bond Credit Rating

Noun.  When deciding the reliability of an individual, corporation, or government to repay borrowed debt, certain companies provide ratings or grades for such levels of trustworthiness.  For you and me small consumers, we look to a FICO credit score that pinnacles at about 900, while most good borrowers remain in the 700’s.   The higher our credit rating, the more easily we can secure a loan or even reduce costs of repaying interest (that last point is extremely important). 

A state government like Illinois, on the other hand, is dependent on grades that are eerily similar to those we received in school, except the range is A – D.  The grades given to state issued bonds by private independent rating services like Fitch Ratings, Moody’s, or Standard and Poor’s indicate their credit quality.  In short, the grade reflects the state’s ability to repay the original amount borrowed along with interest in timely manner.   The ratings of the different companies may not necessarily be identical for a state, but movement from one grade level to another is considered significant.  (Remember the response to Standard and Poor’s downgrade of the U.S. Treasury Bond this last year.) 

“Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("junk"), which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves.

To illustrate the bond ratings and their meaning, we'll use the Standard & Poor's format:

AAA and AA:  High credit-quality investment grade

AA and BBB:  Medium credit-quality investment grade

BB, B, CCC, CC, C: Low credit-quality (non-investment grade), or "junk bonds"  

D:  Bonds in default for non-payment of principal and/or interest” (www.investopedia.com/terms/b/bondrating.asp#ixzz1io89yfQW)

Illinois is unfortunately not alone as states and especially cities and municipalities struggle with the fallout of the Great Recession.  Downgrades will no doubt persist for the near future; indeed, with shortfalls in payments and pension obligations due to past under-funding, Illinois has now edged aside California for the worst credit rating of all the states.  Such a dubious distinction comes with more than just an ugly metaphorical sash – remember, borrowing money, which all states do, will come at a much steeper price.  It is the vicious circle of down grades costing vulnerable states even more that exacerbates the monetary pain.  And, sadly, as the state pays more for its needs, we citizens of the state of Illinois pay more.

Illinois is one of seven states in the United States still operating under a regressive flat tax rate and a tax payment schedule that undermines cash flow (https://sites.google.com/site/pensioneducationsite/home/recent-commentary).