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* Yvette Shields at the Bond Buyer outlines the stakes if the “Fair Tax” fails at the ballot or if it passes…
Some market participants have warned that the state’s general obligation bond ratings — all at the lowest notch above speculative grade, with negative outlooks — will fall to junk if the amendment fails.
“It is hard to handicap the probability of Illinois getting downgraded before the end of the year since a lot will depend upon the approval of Illinois’s progressive tax ballot measure” as well as the outcome of the presidential race and the contest for control of the U.S. Senate contests, Vikram Rai, head of Citi’s municipal strategy group, wrote in a Municipal Weekly report in October.
“We expect the progressive tax ballot measure to be approved by voters, but if it doesn’t, we believe a downgrade is almost guaranteed,” Citi said. “If the progressive tax ballot measure passes but Republicans retain control of the White House and Senate, the outlook for downgrade is nebulous, essentially a toss-up.”
If the progressive ballot measure passes and Democrats take over the White House and the Senate, Illinois may be able to avoid a downgrade based on the expectation of more generous fiscal aid flowing from the federal government.
Citi estimates a 50 basis point widening in Illinois spreads after the first rating agency junks the state, with subsequent agency actions not having an impact.
Thoughts?
posted by Rich Miller
Tuesday, Nov 3, 20 @ 3:21 am
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They expect it to pass? They might be the only ones. Seems like the disinformation campaign has confused enough people which will cause them to vote no.
Comment by B up North Tuesday, Nov 3, 20 @ 5:43 am
Nah. We’re over believing in Griff/Koch baloney. It’ll pass, and then I look forward to another letter from Griff whining to his captives, err employees.
Comment by PublicServant Tuesday, Nov 3, 20 @ 5:56 am
Another example of folks like Griffin not caring about the state, but simply doing everything he can to protect himself.
Comment by Montrose Tuesday, Nov 3, 20 @ 5:59 am
Great news for the IPI and others who want the state to crash financially and bust out of obligations like pension funding. The fiscal scolds pretend they care about debt and weep over the state’s financial condition, but they’ve added trillions to debt and deficits in Illinois and nationally via their support of the current president and former governor. The silence is deafening from Tea Party types, over the explosion of deficits and debt during the last four years.
Comment by Grandson of Man Tuesday, Nov 3, 20 @ 6:59 am
It’ll pass. That’s why the people elected JB.
Comment by PublicServant Tuesday, Nov 3, 20 @ 7:03 am
I assume it will pass. Illinois is already paying some of the highest rates in the country for municipal borrowing. Based on how most folks tend to vote in Illinois, taxing someone else will be attractive to them. Kind of like our legislators that have for decades put off the hard work of solving the actual problems for short term politically motivated solutions like this tax. At the end of the day I expect it to pass and I also expect them to use little of the money to pay past due bills and for taxes to go up on the middle class within two to three years tops.
Comment by Really Tuesday, Nov 3, 20 @ 7:29 am
@Really - Can I borrow your crystal ball after you’re done with it?
Comment by PublicServant Tuesday, Nov 3, 20 @ 7:51 am
@really -
You’ve forgotten that this state and the country have a record of voting against their own best interests. Often because they’ve chosen to believe whom ever shouts the loudest or has the most commercials. I’d like it to pass, but I am not at all sure it will,
Comment by thoughts matter Tuesday, Nov 3, 20 @ 8:11 am
I voted no because there is no plan except endless spending and it was never going to be enough. The super rich hide their money off shore
Comment by Enough Tuesday, Nov 3, 20 @ 8:20 am
When IL finally achieves junk status, can we call JB something other than Governor Junk? I always felt like that nom de guerre really lacked creativity. We, as citizens, can come up with something better than that. I am open to suggestions.
Comment by essentially working Tuesday, Nov 3, 20 @ 8:23 am
If you’re rooting for a downgrade, as a “teaching moment” or as a political “thing” to divide, you’re doing it wrong.
You can’t say you want a better state AND cheer for downgrades.
On the other side… “thinking of Wordslinger”, part 1,564,933.
- Wordslinger - had it right.
I’ll let him speak. Miss his wisdom, daily.
=== - wordslinger - Tuesday, Mar 5, 19 @ 11:08 am
–Who is to say that if things get bad enough we don’t start treating bond holders the same way we do state contractors who wait months (in some cases years) to get paid for services they provide the state (something that doesn’t happen anywhere else but Illinois). –
Sovereign powers, exponential debt service coverage, state law, continuing appropriations and a history of never missing a bond payment.
Rauner piled on $12B in additional unpaid bills in 2.5 years — bonds got paid first, on time, in full.
It’s informative to take credit ratings as a measure of a state’s fiscal practices. But they mean nothing when it comes to paying debt service on bonds.
By any reasonable measure, every state should be AAA when it comes to their ability and track records in servicing their bonded indebtedness.
But if the rating agencies ever admitted that obvious truth, they’d be out of the business of rating states.===
The man understood. He made it clear. This was a fastball down Main Street and took it yard… as he would say, and do, every day.
Comment by Oswego Willy Tuesday, Nov 3, 20 @ 8:38 am
I am hearing record Democratic turnout in Illinois.
If that happens, it passes.
Comment by Yellow Dog Democrat Tuesday, Nov 3, 20 @ 8:43 am
=== They expect it to pass? They might be the only ones.===
I think latest polling shows a toss up.
Comment by Da Big Bad Wolf Tuesday, Nov 3, 20 @ 8:44 am
Thanks for that, Willy.
Comment by PublicServant Tuesday, Nov 3, 20 @ 8:54 am
I thought we didn’t care about the ratings agencies?
Comment by City Zen Tuesday, Nov 3, 20 @ 9:06 am
We care even less about drive-bys.
Comment by PublicServant Tuesday, Nov 3, 20 @ 9:08 am
City Zen, whoever told you that you were clever, or wise, is not your friend.
Comment by Flyin' Elvis'-Utah Chapter Tuesday, Nov 3, 20 @ 9:08 am
- PublicServant -
Welcome.
- Wordslinger -‘s words continue to resonate, their truth remains.
Be well.
Comment by Oswego Willy Tuesday, Nov 3, 20 @ 9:12 am
Too bad this news was delayed until today.
Comment by Norseman Tuesday, Nov 3, 20 @ 9:16 am
I tend to vote more on the Republican side (when we have decent candidates) but voted for the Fair Tax amendment. In speaking with my hard core Democratic friends, they are voting against the amendment because they don’t trust Springfield to not raise taxes even more and lower the base tier below $250,000. These are intelligent, politically savvy Democrats who are voting no. Sadly, I don’t think it passes, and, as a result, everyone’s taxes are going to go up.
Comment by Long Time Listener Tuesday, Nov 3, 20 @ 9:24 am
The local Moody’s analysts are pretty astute, informed and logical in their reports. I would like them to respond to Wordslinger’s argument, which is in essence:
If ratings agencies are supposed to rate the likelihood of state issued bonds being paid off, and if the law, history, and practical ability all predict near-zero actual risk, then why are not Illinois bonds rated AAA?
Comment by walker Tuesday, Nov 3, 20 @ 9:30 am
Wouldn’t the state’s fallback position be to just increase the income tax in general and then put some kind of credit or rebate or expanded personal deduction in so the poor aren’t hurt by it?
Comment by cermak_rd Tuesday, Nov 3, 20 @ 9:49 am
== I am open to suggestions. ==
Bond … Junk Bond Man …
Comment by RNUG Tuesday, Nov 3, 20 @ 9:50 am
It’s all going to depend on how many answer the ballot question. If polling at 55% is accurate, then it will be a tough journey.
Comment by UKVillage Tuesday, Nov 3, 20 @ 9:54 am
=I am hearing record Democratic turnout in Illinois. If that happens, it passes.=
I believe the Dem turnout will be high, particularly in the suburbs and City. Not sure the Fair Tax equates down the line to “vote Blue”.
The lack of a trust quotient for the Legislature is still a very real barrier (and the confusion created creates “no” votes).
Suspect that it will go down despite Dems picking up 5-6 seats net in the IL House.
Voting lines modest and quick here. Early voting started on September 24th, so many avoided Election Day dynamics.
Comment by Go Big Tuesday, Nov 3, 20 @ 10:33 am
A downgrade seems inevitable regardless of what happens. It’s more of a when not an if given Covid. The report says 50/50 if the CA passes and election results but that is over the next 18 - 24 months. 24+ months from now it’s still more likely a downgrade not an upgrade happens.
Comment by 1st Ward Tuesday, Nov 3, 20 @ 10:44 am
This news is a little late coming out the morning of election day. How many people are going to see it? Couple news articles on this over the last two weeks would have informed.
Comment by Park Tuesday, Nov 3, 20 @ 10:54 am
“Junk” status is not a matter of “if”, but “when”. And I would bet on “before yearend” as to when, given the Bond Buyer commentator criteria.
Comment by Unstable Genius Tuesday, Nov 3, 20 @ 11:01 am
Walker
First job out of university was at Moody’s. I am sure things are a lot different now.
Ratings are based on the ability to pay in the future. Everyone that wandered into Moody’s shop, are visited by an analyst or goes through a phone interview generally start out pointing out that they paid in the past, follow the law and have a plan to keep paying on time in the future. The trick is figuring out if the rating applicant has the financial balance sheet or the ability to increase revenue to pay the bond. The bond rating is more about the future than the past.
Wordslinger made a good point in that Illinois has just about the highest guarantee in the country that Bond holders get paid first. If you are a Bond buyer the high rates Illinois offers are makes buying Illinois Bonds with that high guaranties an interesting investment and investors that bought the bonds did well.
In order to get the rating higher and reduce the interest rate we pay we do need to improve the revenue stream or reduce debt. It is just really not possible to reduce debt much at this point so increasing debt reduction by either raising taxes on taxpayers or substantially increasing employee payments into pension and health funds are about the only way ratings are going to improve.
Comment by Back to the Future Tuesday, Nov 3, 20 @ 11:07 am
@publicservant/thoughtsmatter
I am not sure a crystal ball is needed. Since this tax does not solve the financial problems, is there really any question that once this passes, if it does, that in short order the Democratic led legislature will drop the income level that has to pay higher rates? Based on past history alone, it makes sense that the income levels with higher tax rates will be dropping in the not too distant future. We voted no for that reason. If we are to fix this problem and the only avenue available that the legislature will consider is more revenues, then we should all share in the pain.
Comment by Really Tuesday, Nov 3, 20 @ 11:21 am
“I am hearing record Democratic turnout in Illinois. If that happens, it passes”
This is irrelevant to the CA. It matters where in the state record dem turnout is. If it’s primarily in Lincoln Park/northside along with collar counties compared to the south/west sides and south suburban cook the odds of passage likely decrease.
Comment by 1st Ward Tuesday, Nov 3, 20 @ 11:23 am
=== Based on past history alone, it makes sense that the income levels with higher tax rates will be dropping in the not too distant future.==
Narrator: Illinois has no past history with progressive tax rates.
Comment by Oswego Willy Tuesday, Nov 3, 20 @ 11:26 am
=== If we are to fix this problem and the only avenue available that the legislature will consider is more revenues, then we should all share in the pain.===
You literally think voting against yourself, to punish yourself, makes sense.
Whew.
That’s some weird twisted logic.
So with that logic, I expect you to cheer if the flat income tax rate raises.
If you *don’t* cheer, your credibility will be embarrassingly questioned.
Comment by Oswego Willy Tuesday, Nov 3, 20 @ 11:31 am
I think the billionaires that are fighting the Fair tax have 2 objectives. First of all to keep a lower rate on their own tax bill. Second, they want the state bond rating to be downgraded to “junk”, in order to raise the interest rate on state bonds. They then can invest safely in the high interest bonds.
Comment by DuPage Tuesday, Nov 3, 20 @ 11:56 am
Time to rethink the role of government at all levels within the state. I am amazed at the lack of innovative thinking here on Capitol Fax on possible ways to restructure, consolidate and eliminate duplication of effort in all of our institutions. Our state universities, for instance, could operate on less money and more effectively under a single administrative structure and I am sure there are similar efficiencies to be gained elsewhere. The contributors here know the state intimately and yet there is a total lack of constructive suggestions in this area. The only possible reason for this is that the majority here are only interested in maintaining the status quo. Guess what? No matter what the results of the Fair Tax vote the way this state operates has to evolve. The status quo is no longer acceptable.
Comment by striketoo Tuesday, Nov 3, 20 @ 12:15 pm
==When IL finally achieves junk status, can we call JB something other than Governor Junk? ==
If the Fair Tax fails, wouldn’t it be more accurate to label Frerichs as “Treasurer Junk” due to his interest in taxing retirement sinking the CA?
Comment by Chatham Resident Tuesday, Nov 3, 20 @ 12:17 pm
===I am amazed at the lack of innovative thinking here on Capitol Fax on possible ways to restructure, consolidate and eliminate duplication of effort in all of our institutions.===
I’m amazed that anyone thinks consolidation saves a significant amount of money. If you have three entities with four people each and combine them to one entity, that one entity has the labor to be done by twelve people. You cancel three leases on buildings but now you need to lease a larger space which costs more.
Where is the savings? Oh yeah maybe you have one coffee pot instead of three.
Comment by Da Big Bad Wolf Tuesday, Nov 3, 20 @ 12:49 pm
== I’m amazed that anyone thinks consolidation saves a significant amount of money. ==
I don’t know what you call significant, but if 4 of those people, 1 in each office, are management, you may be able to eliminate 3 positions … and their associated future health and pension costs. Admin salaries in education are serious money. Do enough of that and you do start to add up to real money. Same thing at the teachers level … combine and either eliminate duplication to save money, or reduce the student / teacher ratio and get a better outcome for the same money.
Comment by RNUG Tuesday, Nov 3, 20 @ 1:04 pm
===Admin salaries in education are serious money===
Agreed. I still say consolidating counties would be far more doable. No issues with race or historic rivalries that are at the center of school consolidation. School district consolidation is more important (mainly because of racial issues), but county consolidation would save more money because it’s more doable. Just look at a map of southern Illinois if you are confused. It’s ridic.
Comment by Rich Miller Tuesday, Nov 3, 20 @ 1:09 pm
=
- RNUG - Tuesday, Nov 3, 20 @ 9:50 am:
== I am open to suggestions. ==
Bond … Junk Bond Man …
MY suggestion if it fails.
A Service Tax that actually Sunsets after five years. Purpose- to pay off back bills. Of course, this means not adding to the back bills. Thus a real pay down.
Comment by Unconventionalwisdom Tuesday, Nov 3, 20 @ 1:48 pm
=== Past history. Temporary tax hikes that weren’t temporary.===
Friend, it’s changing the constitution, this whole thing ain’t temporary.
=== Tollway fees that never went away.===
Still yelling at clouds on the porch. It’s not quite Festivus, the airing of the grievances. Facebook is best for anger.
===Recent tax hikes that were supposed to “fix” our financial problems.===
They were rolled back, then reinstituted… you mean that in a tax “hike”?
Even Bruce Rauner was grateful, why, he used every dime, he needed too.
=== I do realize that my no vote could increase my taxes as well. It is a risk I am willing to take. I want to see if they have the stomach to raise taxes in everyone including their political supporters.===
This makes you more foolish as you scream from your porch and admit you’re doing something utterly foolish as revenue is needed.
=== Bottom line, for me it is a matter of trust and I don’t trust our representatives.===
Again, being the angry guy who wants his taxes raised to prove a point, “ok”, be the in-law uncle, married to our favorite aunt who has to own the libs, even if it means voting against your best interests. We’re not laughing *with* the in-law uncle, ever.
=== disagree with===
“Let me do things against my own interests, stop disagreeing with my ignorance”
Have at it, lol
Comment by Oswego Willy Tuesday, Nov 3, 20 @ 1:51 pm
=== Oswego Silly===
Being a fool and then proving being a fool…
You should think on how you show yourself.
Comment by Oswego Willy Tuesday, Nov 3, 20 @ 1:52 pm
School consolidation.
Yes! But remember it has its limits in more sparsely populated areas.
Nevertheless, one would think that some money would be saved. The big question is how this would be done and how much would it actually save.
I am afraid that even under the best scenarios any savings would be small compared to the state’s financial mess.
Not a reason to forgo consolidation but keep it in perspective.
Comment by Unconventionalwisdom Tuesday, Nov 3, 20 @ 1:54 pm
- Really - Tuesday, Nov 3, 20 @ 1:39 pm:
@Oswego Silly,
Name calling is one overt sign of weakness in both argument and character…unmistakably.
Comment by Dotnonymous Tuesday, Nov 3, 20 @ 2:26 pm
This is a political twofer. You know who benefits if the fair tax is defeated, hedge fund owners like Ken Griffin. And you know who benefits if we’re downgraded to junk status and our borrowing costs (and yields) go up, hedge fund owners like Ken Griffin.
Comment by Pundent Tuesday, Nov 3, 20 @ 2:29 pm
If yields go up prices go down. If a downgrade comes then yields will probably go up (unless the downgrade is already built into the market) and anyone that currently holds an Illinois Bond loses money.
It doesn’t matter if your name is Ken Griffin or Mickey Mouse, if yields go up prices come down.
Comment by Back to the Future Tuesday, Nov 3, 20 @ 2:49 pm
The 1% pay a lot of $ to accountants to practice tax avoidance. The State will get an initial boost and then those that can will allocate their income to lower tax states, its not that hard. This amendment will hurt those that have W-2 salary income and cannot re-allocate their income. The irony is that this amendment is being pushed by a man who unabashedly practices tax avoidance both with his property and income taxes.
Comment by BulfrogVino Tuesday, Nov 3, 20 @ 3:26 pm
Pundent has it correct. I hadn’t thought of Griffin’s personal interest in the hedge fund side but it is so true.
This should have been central to the campaign.
Comment by Angry Chicagoan Tuesday, Nov 3, 20 @ 3:27 pm
the real disinformation campaign was trying to call it a billionaire tax, when in reality it increased a large % of Chicagoans family incomes who easily hit 250k combined salary, which they need to pay for all the other high taxes here… rightfully destroyed this bil
Comment by realchicago Wednesday, Nov 4, 20 @ 5:01 pm
=== when in reality it increased a large % of Chicagoans family incomes who easily hit 250k combined salary, which they need to pay for all the other high taxes here… rightfully destroyed this bill.===
Yet Chicagoans voted for this bill. Adults know paying for your expenses is the responsible thing to do.
Comment by Da Big Bad Wolf Friday, Nov 6, 20 @ 9:28 am
=== I don’t know what you call significant, but if 4 of those people, 1 in each office, are management, you may be able to eliminate 3 positions … and their associated future health and pension costs. Admin salaries in education are serious money. ===
Gosh I don’t know what to say. My experience is that bosses don’t sit around doing crossword puzzles after they’re done with administration tasks. They roll up their sleeves and help out with the workload. Which would mean if they were fired the workload would go up and more people would need to be hired.
Your experience must be way different than mine.
Comment by Da Big Bad Wolf Friday, Nov 6, 20 @ 9:34 am
=Yet Chicagoans voted for this bill. Adults know paying for your expenses is the responsible thing to do.=
responsible adults don’t spend money that they don’t have
nobody actually believes this funding is going to be used for citizens who live and work here now; its to backpay all the state’s mistakes with pensions that they refuse to reform. Pritzker said as much when he gave his presser after it failed.
Comment by realchicago Friday, Nov 6, 20 @ 11:11 am