The View from Right Field

State Solvency: Worst to First Just Takes 500 Miles and a U-Haul Trailer

The Mercatus Institute at George Mason University has once again ranked all 50 states according to their financial condition.  The most recent ratings were based on 2016 reports and considered:

• Cash solvency. Does a state have enough cash on hand to cover its short-term bills?
• Budget solvency. Can a state cover its fiscal year spending with revenues, or does it have a budget short-fall?
• Long-run solvency. Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?
• Service-level solvency. How large a percentage of personal income are taxes, revenue, and spending? How much “fiscal slack” does a state have to increase spending if citizens demand more services?
• Trust fund solvency. How much debt does a state have? How large are its unfunded pension and healthcare liabilities?

Rahm Emanuel on How Cities Can Solve Our Problems. Huh?

In a column on the Brett Kavanaugh nomination last week (as everything was – and still is), Gerald F. Seib talked in The Wall Street Journal about the American people’s declining faith in the Supreme Court.  Of course, this only matches the lack of faith people already have in Congress and the President. 

However, while confidence in national institutions has fallen, Mr. Seib noted a Gallup poll last year that said 70% of Americans have confidence in local government to solve problems.  At this point, Mr. Seib goes a little bit off the tracks – by quoting Chicago Mayor Rahm Emanuel.  Obviously, Mr. Seib knows Mayor Emanuel from his time in Washington, and Mr. Seib knows that he is not running for re-election. 

Here’s a Deal for Illinois Pols: A Progressive Income Tax in Exchange for Real Pension Reform

Illinois Democrats (or at least many of them) say Illinois needs a progressive income tax.  Illinois Republicans (all three of them) say Illinois needs real pension reform.  Both of these ideas require an amendment to the Illinois Constitution to be approved.  So here is my Monty Hall-“Let’s Make a Deal” suggestion.

Instead of just one constitutional amendment, we pass two.  (The Illinois Supreme Court would never let you bundle the ideas together.)  One of them would permit a progressive income tax.  The other would allow the state legislature to adjust future pension accruals of current state employees.  I am not talking about cutting pension benefits already earned.  I am just suggesting that the legislature should have the right to adjust, i.e., reduce, pension benefits that current state employees earn in the future.  (The current state constitution provides that, once a person is hired, their pension scheme can never be reduced in the future, no matter how far they are from retirement.)

Instead of an Illinois "Brain Drain Tax," How About a Wall

Here is Scott Stantis’s cartoon in today’s Chicago Tribune on the “Illinois Exodus,” i.e., all the people leaving Illinois:

If the brain drain tax doesn’t work, here’s another idea: a wall.  Not like President Trump’s wall, however.  President Trump’s wall is designed to keep people out. 

Rather, a wall like the one they had in Berlin.  That was a wall to keep people in.  And think of all the jobs for people in the guard towers and in an Illinois Stasi, trying to figure out who might be trying to escape.

Social Trust

Megan McArdle wrote about trust, and in particular social trust, in a recent article on “The left’s Denmark envy.”  The reason for the left’s “Denmark envy” is fairly obvious: generous welfare benefits, social liberalism, and high taxes.  Plus Denmark doesn’t have the things those on the right predict for a country with generous benefits and high taxes, such as high unemployment, fleeing capital, lower GDP, and benefit cheating.  Why?  According to Ms. McArdle: “Denmark and its Nordic neighbors get away with it because they have an extraordinary high level of social trust.”

Ms. McArdle explains how social trust works and why the United States has less of it:

“‘Social trust’ is, well, what it sounds like: How much do you trust your neighbors?  And in turn, how trustworthy are they?  In a low-trust place such as Greece, people don’t trust their neighbors not to cheat, which in turn makes them more likely to cheat themselves, because why should you stay honest when everyone else is getting away with something?  This affects everything: whether people pay their taxes, whether they take benefits they don’t really need, how easy it is to regulate companies.  And social trust also works as a productivity booster, because [it allows you to] do away with a lot of the cumbersome monitoring that is ubiquitous in modern societies – the supervisors who oversee low-level workers, the store clerks who keep an eye on the customers.  Every worker who is not making sure that people don’t steal or shirk can be re-employed doing something that actually increases output.

Illinois and Cuba: Maybe Not All That Different

I probably got a little carried away with my post earlier today about the upcoming Illinois primary election.  Perhaps a better comment is in Yoani Sanchez’s post of February 28, “The Arrival of the Potato and the President, in Priority Order,” in her blog Generation Y about life in Cuba:

“An agitation has been running through the neighborhood since the previous afternoon, when the neighbors spotted a potato truck while it was unloading at the market on the corner. …

All life seems to revolve around a tuber that for months has disappeared from the state market stalls, where now sales are limited to just five pounds per person.

Illinois Is an Absolute Joke

The primary election in Illinois is next Tuesday.  On Wednesday, an Illinois appeals court restored to the ballot a candidate in Democratic Party primary for Cook County Assessor.  She had been previously kicked off the ballot by board of election officials for the kind of broad accusations and technical minutia that seem to run election laws around here.

While the candidate’s name was on the ballot (the elections board didn’t get her kicked off until after the ballots were printed), when I early voted Wednesday morning, there was a sign that she was not a valid candidate and votes for her would not count.  I assume the sign was gone by Wednesday afternoon.  Of course, by Wednesday close to 100,000 people had early voted – without her name effectively on the ballot.

The Illinois Solution – Part Two, the Fantasy Version

An idea is circulating in Springfield on how to make most of our unfunded pension liability disappear, by magic.  I don’t think it is likely to be adopted,¹ but it is Springfield, so let me look at it.  The idea is based on something the state did during Rod Blagojevich’s administration.  In 2003, the state issued pension obligation bonds.  The state took the proceeds from the bonds and put the money into the pension system.  And in one way, it worked out for the state,² because while the bonds had an interest rate of 5.05% per year, the pension system earned 7.62% per year on the money. 

Which is where the idea comes from for fixing our pension problem.  The proposal is for the state to issue $107 billion in 27-year, fixed-rate, taxable bonds.  The money would be put in the pension system, and as long as the pension system earned the same differential on these bonds, +2.57% per year, as it did on those prior bonds, Illinois’s pension problem would be solved.  The pension fund would get the extra money it needs, without the state having to chip in more than it is paying now, because the Illinois pension system would make more money on the bonds than the state would pay in interest.  Just like it did on the 2003 bonds.

The Illinois Solution

I have said this before, but as we get close to the primary in Illinois (it’s March 20), I should probably say it again.  Democrats and Republicans are each half-right on how to solve Illinois’s budget and other problems.  Most Democrats say, in essence, that we need to raise taxes and increase spending.  Republicans, on the other hand, say we need to cut taxes and spend less.

As I said, they are each half right.  Because the only way we are going to pay off the unpaid bills and fund our unfunded pension liability is to raise taxes and spend less,  For a couple of decades Illinois has spent more (including pension promises) than it raised in taxes.  It is now time to do the reverse; i.e., raise more in taxes than we spend.

“The Chicago Way”

There was a brouhaha in the Chicago media earlier this week about whether Chicago Alderman Edward Burke had violated the City Council’s ethics rules.  A resolution was introduced in the City Council by almost two dozen aldermen (out of 50) to get the City to try to increase the assessed valuations (and, therefore, the real estate taxes) on seven big commercial buildings in Chicago.  Two of these properties had previously gotten their assessments lowered in tax appeals handled by Klafter & Burke, a law firm that does property tax appeal work and that Alderman Burke is a partner of.

The potential conflict of interest arose when, after the resolution was introduced, Alderman Burke said the resolution should be sent to the Finance Committee, of which he is the chairman, instead of the Housing and Real Estate Committee, whose chairman had agreed to give it a hearing.  By saying the resolution should go to his committee, Alderman Burke created a disagreement, which apparently means the resolution will go to the Rules and Ethics Committee.  According to the Chicago Tribune, the Rules and Ethics Committee is known as “the place where controversial legislation often withers on the vine.”