Illinois’ fiscal problems drive away GE, spur talk of bankruptcy, pension reform
The state must get its financial affairs in order by allowing municipal bankruptcy and enacting real pension reforms.
Providence, the capital of Rhode Island, is in such bad financial straits that former Hasbro CEO Alan Hassenfeld has this scary message for state officials: Providence should consider bankruptcy.
In a candid interview with the Providence Business News, Hassenfeld said he fears Providence is in deeper trouble “than anyone comprehends” and that officials should consider bankruptcy in order to right the ship.
“I’m not sure, and this will shock you, I’m not sure if we shouldn’t pull a Detroit or Central Falls and level the playing field and start all over,” Hassenfeld told PBN. …
Hassenfeld is among the most prominent Rhode Islanders to publicly suggest Providence should consider bankruptcy. …
In 2011, tiny Central Falls filed for Chapter 9 bankruptcy, slashing pensions and ordering 4% annual tax increases for five straight years in order to improve the city’s finances. Under new Mayor James Diossa, the city has earned high praise for helping the city recover, but Central Falls had the state’s fourth-highest residential property tax rate ($27.63 per $1,000 of assessed value) and second-highest commercial tax rate ($39.67 per $1,000) in 2015, according to the state Division of Municipal Finance.
Illinois needs bankruptcy solution
At least Rhode Island offers municipalities a choice.
Illinois has no provision for municipal bankruptcies. As a direct consequence, Illinois cities and school districts sink deeper and deeper in debt, even though taxes go higher and higher.
Illinois: “Too big a risk”
Chicago was supposedly on the “short list” of cities General Electric was considering for its new headquarters. But GE instead selected Boston.
GE considered “Illinois too big a risk.”
GE accurately cited Chicago schools, pensions, financial meltdowns, budget holes and a rock-bottom debt rating.
Too many risks? You bet. So what are Mayor Rahm Emanuel and the Illinois General Assembly going to do about it?
Tax hikes and more tax hikes
Emanuel’s solution to this mess was to pass the biggest tax hike in modern Chicago history.
On Oct. 28, 2015, the article “Chicago’s Sheep Dogs Approve Mayor’s Tax on Sheep; Quote of the Day `It’s Not a Piece of Art’” decried the abuse of taxpayers at the hands of politicians.
The “sheep” in question are Chicago taxpayers who will have to hand over $588 million in property taxes, most of which will go to fund the city’s police and fire department pensions.
Deal or no deal
Twenty-five cents out of every Illinois taxpayer dollar goes to Illinois pensions. Yet, Illinois has the worst-funded state pensions in the entire nation.
The Jan. 20 article “`B’ Word Hits Chicago: Illinois Governor Proposes Bankruptcy for Chicago Public School System” recounted the discussion by the governor and Republican lawmakers regarding a possible bankruptcy filing by Chicago Public Schools.
To appease the unions and save Emanuel’s own job in the process, Emanuel’s spokeswoman, Kelley Quinn, responded, “The mayor is 100 percent opposed to Gov. Rauner’s ‘plan’ to drive CPS bankrupt.”
But, as noted in that article, “[w]hen a politician’s job depends on not understanding a problem, there’s no way the problem will be understood.”
Rauner came out with a pension proposal Jan. 21 he said was based on a 2013 plan sponsored by Illinois Senate President John Cullerton – but Cullerton then said the plan wasn’t his.
A headline that yesterday read, “Deal reached,” today says, “Rauner backs Cullerton pension plan – but Cullerton says it’s not his plan.”
The fundamental difference is over collective bargaining. Cullerton said he believes collective bargaining should continue to exist, but that Rauner disagrees.
Rauner says, “Reforms first.” Emanuel and the Democratic General Assembly say, “Money first.”
It would be foolish for Rauner to accept that offer. So the state sits.
Illinois still does not have a budget for fiscal year 2016. A quick check of the calendar says it’s already 2016.
Rauner’s holdout should be applauded.
Chicago should not get one dime until Illinois gets needed changes in bankruptcy law, and until cities can escape the enormous expense of prevailing-wage laws and collective bargaining.