Governor Quinn Holds Illinois Cities Hostage Over Budget Proposal; Cities Face Massive Cash Crunch

By: Mike Shedlock | Sun, May 1, 2011
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In spite of the biggest tax hikes in the history of Illinois, the state is still $8 billion in a budget-deficit hole. Instead of cutting expenses, Governor Quinn wants to borrow $8.75 billion to pay the bills. Currently, Illinois is just starting to pay bills from November 2010.

To get approval for his preposterous proposal, Quinn threatens cities' revenue sharing unless they hop on board his plan. Currently $1 billion a year is distributed from state income tax collections to cities, based on population.

Amazingly, Quinn's budget director says this is "not a hostile message".

Please consider Quinn wants to withhold cities' money as pressure to borrow billions

Gov. Pat Quinn wants to stop nearly $100 million in monthly payments to Chicago, the suburbs and other Illinois towns if lawmakers won't let him borrow billions of dollars to pay overdue bills, according to a confidential memo the Tribune obtained Thursday.

The proposal, outlined in the memo and quietly distributed to top legislators, represents a pressure tactic by the Democratic governor. He hopes mayors from Zion to Cairo will squeeze their town's lawmakers to help get him the loan he wants.

Acknowledging the backlash from cities, Quinn budget director David Vaught said mayors and other community leaders should "come help us get the debt restructured, and then you would get paid. That's the message to them. It's not, it's not a hostile message. ... We have a cash crunch here, and we need your help getting out of it."

Chicago would be hit hardest, with the city getting about $220 million in the last budget year from that pot of money. Mayor-elect Rahm Emanuel already faces a money shortfall that could total $1 billion in day-to-day expenses and employee pension costs.

The Quinn administration's gamble comes a day after Republican Comptroller Judy Baar Topinka revealed the state would be slightly more than $8 billion in the red when the budget year ends June 30, pending any new moves by Quinn or legislators. The state this week is just getting around to paying bills dated Nov. 5.

If lawmakers instead decide to pass legislation allowing Quinn to stop the local payments, the suspension could be retroactive to February and last through year's end.

Suburban leaders say such a move by the state would cripple their budgets. In Tinley Park, the state income tax payments make up about 11 percent of village revenue. Elgin gets $683,000 a month from that state source. In Naperville, it's a little less than $1 million a month.


Quinn's Proposal Dead On Arrival

Senate Republican leader Christine Radogno said she will "absolutely not" support Quinn's borrowing plan. Even Democrats are balking.

Note that balancing the $8 billion deficit-hole just stops the bleeding. It will not pay $8.75 billion in current bills.


Massive Cash Crunch Coming

What cannot be paid, won't be paid and a massive cash crunch in Illinois cities is coming and/or the state will default on payments to vendors. Illinois cities may be forced to fire workers, raise property taxes or raise local sales taxes to make up for shortfalls in expected money from the state.

Step aside California; all things considered Illinois wins hands down for fiscal insanity, corruption, union pandering, and for setting an anti-business environment.

Note that cities cannot reduce expenses because of inane work rules that pander to unions. Illinois Public Labor Relations Act granted public employees and employers the right to bargain collectively and prevailing wage laws guarantee that all public work projects will pay some preposterously high wage.

The combination of those Illinois laws, in conjunction with untenable wage and benefit promises made to police, fire, teachers' unions has threatened the solvency of nearly every city in the state.

Instead of acting to help cities, Governor Quinn strengthened prevailing wage laws several time.


Madigan honored with "prevailing wage" award

Inquiring minds are reading Madigan honored with "prevailing wage" award

Illinois Attorney General Lisa Madigan accepted an award from the state’s Building Trades Council in Bloomington for her previous pro-union legislation. The Reuben G. Soderstrom Prevailing Wage Award is given annually. Madigan says she’s honored and will continue with the same work. She says she’s now working on a bill to enhance penalties for criminal violations of the prevailing wage act. Madigan says under the law, violations would be a class four felony.

“I think the real impact would be, that it would provide for debarment,” Madigan said. “In other words, employers, contractors who are found to have criminally violated the Illinois Prevailing Wage Act will not be allowed to bid on contracts for a period of four years.”


Democrats Running Illinois Into the Ground For Decades

Lisa Madigan is daughter of Michael Madigan, Speaker of the Illinois House every year since 1983 except 1994-1996. Clearly Democrats have been running Illinois into the ground for decades.

Instead of attempting to fix those structural problems, Governor Quinn with "leadership" from Michael Madigan ...

Note that corporations also have to pay a 2.5% "personal property replacement tax" effectively making the state corporate income tax rate 9.5%.


Blatant Lies By Governor Quinn

The Daily Herald notes that On the campaign trail, Gov. Pat Quinn told voters he'd veto any income tax hike that would raise Illinois' rate over 4 percent.

I believe that is one of the fastest proven lies in political history.


Sales Taxes

Illinois has a middle of the road sales tax, at least until you consider various local surtaxes.

Here is a nice table from Wikipedia.

State Tax Chart


Home Rule

With "Home Rule" Illinois has the top sales tax rate in the nation.

With that, inquiring minds might be wondering about "Home Rule". To help explain, please consider the following snip courtesy of the Illinois Department of Revenue.

Depending upon the location of the sale, the actual sales tax rate may be higher than the fundamental rate because of home rule, non-home rule, water commission, mass transit, park district, and county public safety sales taxes.

Lovely, isn't it. Note that sales taxes may rise because of home rule or non-home rule.


Gasoline Taxes January 2011

Gasoline Taxes January 2011

Diesel Taxes January 2011

Diesel Taxes January 2011

Overburdened Taxpayers

Union Freeloaders

What have Illinois taxpayers received for all these tax hikes?

In spite of those tax hikes, Illinois is still $8 billion over budget and still cannot pay its bills. This is what Democratic leadership has done to Illinois.

Meanwhile states like New Jersey under leadership of Governor Chris Christie, Wisconsin under leadership of Governor Scott Walker, and Ohio under leadership of Governor John Kasich have all taken steps to fix structural problems in their respective states.

It's time to stop this insanity at the national level. We desperately need to scrap Davis-Bacon and all prevailing wage laws and enact national right-to-work laws.

I wish Governor Christie would change his mind and run for president. Barring his position on military spending of which I am unaware, he is the ideal candidate.

 


 

Mike Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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