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Business: Illinois' budget mess shackling growth

Bloomington Pantagraph

Monday, June 19, 2017  |  Article  |  Tony Reid

Bonds, Bonding, Borrowing, Debt, Credit Rating , Budget--State (8) , Business (10) , Governor (44) , Unemployment (93) Madigan, Michael--State House, 22

SPRINGFIELD — Illinois has seen some notable moments over the years: The world's first skyscraper was built in Chicago 1885, and Illinois was the first state to ratify the 13th Amendment, abolishing slavery.

But here's a new record no one is proud of: the Land of Lincoln has the lowest credit rating of any state in recent memory, and the Illinois business community is getting scared.

Many say the state's massive spending and pension debt, fueled by a political paralysis that has seen no state budget in 2-plus years, is hurting economic development. Lawmakers are preparing to return to Springfield next week after Gov. Bruce Rauner last week called for a special 10-day session, citing “tough, urgent choices” ahead. It opens Wednesday.

The Illinois Manufacturers' Association (IMA) says Illinois hasn't paid its bills for years, and a climate of uncertainty is scaring off business growth with long-term worries over just what kind of massive reckoning — in terms of tax hikes and budget cuts — will be needed to finally put matters right.

Business leaders warn job creation already is seriously behind levels achieved in neighboring states.

While no state has rebuilt its manufacturing base since before the Great Recession began in 2007, Illinois has clearly been a loss leader in the Midwest jobs department. According to the U.S. Bureau of Labor Statistics, from January 2010, the depth of the recession, to January 2017, Illinois has regained just 14,000 manufacturing jobs. Michigan has recaptured 150,800; Wisconsin, 44,500; Indiana, 88,300; Missouri, 19,000; and Ohio, 79,100. 

But Illinois has actually lost manufacturing jobs since 2015, according to the bureau, having dropped 15,600.

“Every state is getting these new jobs but us,“said Mark Denzler, IMA vice president and chief operating officer.

Denzler said companies won't invest where they fear the future: “Companies need to know what is coming down the road where they do business, and we don't have that certainty at all. Unfortunately, Illinois continues to be the laughing stock of the nation.”

As for Central Illinois business owners and leaders, the attitude ranges from resignation to intense frustration.

Kyle Ham, chief executive officer of the Bloomington-Normal Economic Development Council, said attracting businesses to locate in McLean County has been made more difficult as the impasse has continued.

“It definitely affects our ability to recruit,” said Ham. “It puts us on a national stage” where business owners see “we're not functioning as a state.”

Daniel Heckman, general manager of Decatur-based Heckman Healthcare, a supplier of medical equipment for home use, said slow Medicaid reimbursement has become a way of life, which makes for a tough business prognosis when combined with cuts in what federal programs will pay for.

“And a lot of states have cash flow crises in the Medicaid program,” said Heckman. “But with Illinois, it's a chronic condition; our state budget problems go on year after year. My company is just diversified enough that we feel that we can still hang on in there.”

Moody's Investors Service, one of the key rating agencies, recently downgraded the state's debt to Baa3 status, a notch above junk bond status.

“My records go back to 1970, and this is the lowest we have had a state rated in that time frame,” said Moody's spokesman David Jacobson, adding no one is sure what will happen if Illinois' credit rating gets flushed further down the toilet into junk bond status, a place no state has gone before. States cannot legally declare bankruptcy.

 

“Some investment firms that hold municipal debt have language in their covenants that says they cannot invest in debt that is not investment grade,” Jacobson added.

Political dysfunction and brinkmanship in Springfield, principally between Republican Gov. Rauner and the Democratic-controlled legislature and especially House Speaker Michael Madigan of Chicago, has seen no budget emerge for two years. Debts, pension debts and annual deficits pile up as citizens flee the state: The U.S. Census Bureau reports that more than 37,000 people moved out of Illinois in 2016, the biggest loss in the nation.

They are leaving behind a state debt burden so high it already works out at $12,000 for every Illinois citizen. The stack of previous unpaid bills stands at more than $14 billion, the current account deficit totals $6 billion — all dwarfed by a crushing unfunded public sector pension liability estimated at $130 billion.

Some business leaders have taken the bull by the horns and, while continuing to complain loudly about the budget mess, have also proposed solutions. The Civic Committee of the Commercial Club of Chicago spent months coming up with a detailed 40-page report that analyzed the problems and proposed a fiscal fix.

Basically, to end the current catastrophe, economists concluded Illinois needs $2 billion in annual budget cuts and $8 billion in annual revenue hikes every year between 2018 and 2022. “That will eliminate the structural budget deficit, pay off the unpaid bills and establish a reserve fund,” said Jay Henderson, chairman of the Civic Committee's tax policy task force.

Henderson said it's tough medicine, but business understands radical intervention is needed to save the patient while there is still time.

Rauner, Madigan and other leaders in Springfield have been shown the report, but it doesn't seem to have moved the needle much. 

Madigan spokesman Steve Brown said the speaker knows that business is being harmed, but it's Rauner's intransigence that is stopping any budget progress.

“He's regularly sabotaged anything that's been attempted so far,” said Brown. “He's continued to sabotage any effort at compromise day in and day out.”

Rauner never directly addressed the report from the Civic Committee, but continues to hammer at message that Democrats have not passed a "truly" balanced budget in decades when Madigan has ruled the House.

Rauner continues to push for a series of pro-business reforms that include term limits, legislative redistricting, a property tax freeze, a new school funding formula and workers' compensation reform.

“The true solution to fixing our budget is to raise revenue by expanding our tax base and growing our economy — not by raising taxes and driving more jobs and families out of our state," the governor said in his annual budget address in February.