DETAILS MATTER by Bob Ginsburg July 11, 2021
Budget Season in Illinois: The Focus on Bond Ratings and Misleading headlines Has Warped the Budget Process by Replacing Discussion of Funding Needs with Discussion of Funding Debt.
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Budget Season in Illinois: The Focus on Bond Ratings and Misleading headlines Has Warped the Budget Process by Replacing Discussion of Funding Needs with Discussion of Funding Debt. “Realpolitik” Has Us Running In Place.
Realpolitik: Decisions based on practical rather than moral or ideological considerations – e.g. what you want to achieve without a solid majority.
"There are three kinds of lies: lies, damned lies, and statistics" (Disraeli)
'Statistics is the art of never having to say you're wrong. '(Mark Twain):
‘The devil is in the details’
Continuing with the discussion of budgets, I was going to talk about a strategy of creating programs with multi-year funding outside of the budget process to speed project delivery and maximize results from new initiatives. For example the last Illinois Budget (HB2261-Guzzardi and Ramirez) created a $150Million fund for Affordable Housing (of course tied to Covid-19 to allow federal ARP funding to be used). This guaranteed construction and operating support funding for many years and switched the focus to IHDA and implementation. The challenge is monitoring the implementation and make sure it succeeds and meets the original goals. This same strategy could and should be used for other community investment needs.
However, I got distracted by several distracting announcements starting on June 29. First there was the announcement by Moody’s and then Standard and Poor’s that Illinois’ bond rating had been increased for the first time in 20 years. That was followed by several days of banner headlines and the Governor planning a victory tour touting the “achievement” and the “beginning of the end” of Illinois’s structural funding problems. Finally, July 3 and 4 found Greg Hinz and Rich Miller devoting whole columns to overstating the importance of the Moody’s announcement. And that was followed by big print headlines touting first the “55% increase in CTA ridership” which in small print said that ridership was still barely a third of pre-pandemic levels and remained at crisis levels. The next day there were more headlines about CTA bond ratings improvements. It is obvious that I am not overly impressed by largely symbolic change but there is a real question as to what this means other than symbolism..
I recognize the pressure in having to write weekly+ columns, and want to talk about progress, and it is absolutely worth it to write a positive story on the ratings. And it is absolutely good news for the State and CTA to be getting a better bond ratings. This will save the state and CTA millions in interest payments on State bonds. Any sliver of good fiscal news is useful. However, bond ratings are a symptom of the state’s problems not the cause. The hoopla over the ratings change is more a sign of the depths of Illinois’ fiscal problems and the fiscal crisis facing CTA, Metra and Pace. It is a sad day when a major legislator is praised for saying --”we did not do anything irresponsible …we paid down debt.” The Ratings increase does not mean we are any closer to solving the state’s problems in funding needed services and making long term investments in communities and residents (or even defining what those investments should be) or that we even have much of a clue on how to solve those problems. So, why all the hoopla?
Let’s be clear, better bond ratings are a good thing and better than a kick in the groin. However, all the ratings agencies evaluate (or care about) are the risk of bond holders getting paid back. The greater the guarantee that bond holders will be paid before anyone else (without much social/political instability), then the “higher” the rating and the lower the interest rate paid. That is why the Chicago “Sales Tax Securitization” gets such high ratings/low interest rates. The City’s sales tax is first sent to a new corporation which makes the bond payments and then any money left over is sent back to the City. Bondholders get paid first before any City needs so there is not much risk for the Bondholders. Bond ratings go higher when the State (or City or County) either raises long term revenue or makes big cuts to insure that bond payments can be made. The rating agencies prefer a balanced approach and a balanced budget which prioritizes debt payments and solutions which are stable. For example, when a few years ago Kansas drastically cut taxes to show that “supply side economics worked”, the ratings agencies were skeptical and lowered their ratings as the state began to run huge deficits. So what has the state of Illinois and Cook County done to get its ratings “bump”? And why didn’t the City’s change?
State of Illinois Budget
The State budget did do some innovative things to increase bond funding for affordable housing construction and operation under IHDA. There was some more funding for public health and IDES. Those were all needed and were covered under the Federal recovery plan funds. The state still does not have plans for another $5.5 Billion in Federal funds. Having lots of cash on hand makes bond holders happy.
The State budget also “had a surprise surplus” of $3 Billion in revenues over what had been included in the last budget. Of course budget analysts had been predicting that surplus since March and April. That was used to pay of the federal loans, reduce the state bill backlog and avoid cutting state support for transit and municipalities. It was a great victory that they kept funding for transit and municipalities at last year’s levels despite the crises facing both. But of course, bond holders like paying off other debts and “restrained” spending.
Cook County
Cook County addressed the pandemic induced financial crisis by freezing positions, hospital system layoffs and position cuts and proposing to use $75Million in reserve or “rainy day” funds carefully built up over several years by limiting spending and investments on new or expanded services. The new recent budget discussion indicated a continuation of those policies even without new layoffs. The county has less debt than its sister governments and fiscal restraint was rewarded.
City of Chicago
The City put off discussion of how to spend the Federal recovery funding and has rolled it into the planning for the 2022 budget. Thus the budget agencies have put off any decisions. The Mayor has signaled she wants to pay off all the borrowing done during the pandemic which will make the bond holders happy.
So where is the political and budget imagination?
As we move into budget season the real question – given the lack of on-going funding and the huge one-time influx of federal support is what can be done in these budgets. More importantly, how can they be used to build long lasting improvements in health care, transportation, housing, education and economic development? I have used the term Realpolitik to explain why it is easier to keep the bondholders happy than take political risks. I understand its provocative history (Kissinger/Nixon in the 70s and Bismarck in the 1890s.) Sometimes the best course of action is to stick to a principled position but sometimes, you compromise to make a substantial down payment on real change or just to avoid a bigger loss. Budgets sometimes get you too little, alienate supporters and do not build for the future but sometimes can make real progress. The challenge for progressives is to figure out how and when to negotiate but first how to propose and package bigger investments
As FDR pointed out in his 1933 book, Looking Forward, our “real problem isn’t extremism or wild ideas but the hand of discouragement signaling that things are in a rut- fixed, settled and unchangeable.” We face similar problems today. Many analysts describe Trump supporters as feeling left out and missing out on a better life and are grasping at the right wing illusion that the past was better and “others” are trying to cut them out. On the other hand we have many progressive groups proposing grand plans that will help people but may not change the specifics of how they live or how specifically they will improve the viability of their communities. People understand the limits of big programs and are not sure other things will follow such as better transportation or safer communities without more police. I would bet that many progressives do not believe that government could carry out the details.
With a little imagination and tapping into the practical knowledge of programs, we can come up with new budgets and ways to spend Federal ARP funding that will invest in real needs and be specific enough to be delivered quickly. Broad measures that fail in implementation will not build the kind of communities we need nor win political support we need in 2022 and 2024. The “Cook County Resolution For A Racially Equitable And Thriving Recovery“ introduced in May 2021 and the “Chicago Rescue Plan” introduced into City Council in June both provide an outline but no details or implementation requirements that would insure long and short term changes in underserved communities. It is not enough to fund categories but to invest in ways that the changes in specific communities or in specific areas will be understood and demonstrable.
Greg Kelley (President of SEIU HCII) proposed some criteria for health care that that are simple but measurable and can be adapted for all areas: With the State still left to determine how to spend the remaining $5.5 Billion in ARP funds and the County and City budgets and ARP spending plans ($1B and $1.8B respectively) still to be determined there is plenty of opportunity to make a difference that will be visible by 2022 and 2024.
1. Invest directly in communities that have seen resources syphoned off to go to other programs or wealthier areas.
2. Create Services that are high quality, affordable and accessible - whether it is health care, affordable housing, transportation or broadband. Eliminating deserts for health care, transit, affordable housing and food should be a priority and progress clearly defined.
3. Tie funding to outcomes. Programs should clearly show how they are going to meet the needs of communities such as expanding access to jobs, adding so many units of affordable housing, etc. Public safety is essential but communities need to see more details of how it will be implemented differently than current policing. Accountable matters here just like other services.
4. Report Progress and Results publicly and in a form that is readily understandable and measurable. — don’t hide them from your consumers and taxpayers.