No way out
Fiscal conservatives back bailouts for oil, aviation, banks, hedge funds, but when it comes to aid for states the well is dry
Gov. Pritzker touts the benefits of the Rebuild Illinois infrastructure plan last year below the notorious I-80 bridge over the Des Plaines River. Lost gas-tax revenue in the coronavirus crisis now jeopardizes the entire program. (I-80coalition.com)
By Ameya Pawar and Ted Cox
As the COVID-19 economic crisis hit, the federal government provided instant relief in the form of bailouts to the oil and airline industries, as well as backstopping ready credit for banks and hedge funds.
But now when it comes to states and local governments needing to fill holes in lost tax revenue, suddenly there’s resistance.
Why is that?
It’s nothing new in Illinois, but the crisis came to a head this week when the state had to delay $2.2 billion in short- and long-term bond sales because penalties imposed by Wall Street lenders spiked to record highs.
Bloomberg reported Tuesday that “the sale would have marked a major test of whether struggling American governments will be able to borrow easily to cover temporary shortfalls in their budgets as tax revenue disappears.”
The federal government has done all it can to make credit available in coronavirus relief packages. Record-low interest rates have helped the realty market stay relatively robust in the midst of the unprecedented economic collapse brought on by the coronavirus pandemic and the economic lockdown meant to slow the spread of COVID-19.
Bloomberg ran a chart showing that the Illinois two-year spread over the AAA credit rating benchmark briefly dropped into negative interest in March, much the same way oil futures dropped into negative territory a month later. But for the state the interest almost immediately spiked back up to 3 percent, well above the interest rate of under 1 percent it had been hovering at going back to last July. Now it has risen to 4 percent, prompting the state to delay the bond sales — $1.2 billion of which was for short-term borrowing to address lost tax revenue that Gov. Pritzker said Tuesday had “fallen off a cliff,” not just for Illinois but for all states.
“The state of Illinois has developed its plan and is positioned to enter the market very soon if needed, but with the flexibility to assess the market as it returns from unprecedented dislocation,” Carol Knowles, a spokeswoman for the Pritzker administration, told Bloomberg. “Like many issuers, we are going day to day and assessing conditions to determine the best time to enter the market.”
Bloomberg reported: “The concern that market access could dry up — or become prohibitively expensive — has prompted the Federal Reserve to roll out plans to lend as much as $500 billion if needed, though the program has yet to extend any loans.”
There’s ready credit for big business in an effort to keep the economy at least breathing in the COVID-19 crisis, but when it comes to states suffering lost tax revenue they’re locked in a box with no way out.
Again, in some ways this is situation normal for Illinois, only magnified by the extent of the economic crisis. When the state tries to do bond deals to address debt, people like John Tillman, chief executive officer of the arch-conservative Illinois Policy Institute, file suit against it. Then they turn around and say the state doesn’t need a progressive income tax, raising taxes on the top 3 percent of wage earners making more than $250,000, when that’s specifically intended as a way for the state to pay its bills.
In short, they’ll do everything and anything to avoid paying their fair share and protect the wealthy, and everything and anything to watch the state sink. The only way out, in their eyes, is to destroy the retirements of working people by letting the state’s public pensions collapse. Only then they’ll be satisfied.
Basically, they don’t want to guarantee anything for working people, and only guarantee that they don’t pay taxes themselves while big business is given a free hand.
Look at the narratives they weave. They don’t want to pay taxes. They warn, with little justification, that higher taxes will prompt the rich to flee the state. Yet they also don’t want the state to borrow to pay its bills, nor to raise revenue to pay those bills and pay back those bonds. They actually squeal with joy when the state can’t borrow, and when we do borrow for things like capital infrastructure bills, such as the $45 billion Rebuild Illinois program passed last year by the General Assembly, they do all they can to stop that.
“Look at the narratives they weave. They don’t want to pay taxes. They warn, with little justification, that higher taxes will prompt the rich to flee the state. Yet they also don’t want the state to borrow to pay its bills, nor to raise revenue to pay those bills and pay back those bonds.”
The Illinois Economic Policy Institute — which is the polar opposite of the IPI, even though the names might be similar — just published a study Wednesday warning that the lack of travel as people stay home, combined with plummeting gas prices that were in the $1.65-a-gallon range across central Illinois last weekend, was blowing a hole in the revenue designated to fund those bonds for much-needed infrastructure. The study estimated that a prolonged economic lockdown lasting 10 months with a COVID-19 peak lasting through August would lose $560 million in projected tax revenue, this year alone, while the relatively rosy projection of a six-month disruption peaking in May would still cost almost $300 million.
“The downstream effects of the COVID-19 economic disruption will extend far beyond the immediate hardships for businesses who have closed their doors and employees who have been laid off,” said ILEPI Policy Director Frank Manzo IV, co-author of the study. “Vital public services and planned infrastructure investments by both states and municipalities are being threatened by the loss of income, corporate, sales, fuel, and other tax revenues on which they rely.”
As such, the study called for the federal government to address those shortfalls, pointing out that they pay returns on the investment of $2.30 on the dollar for the maintenance of roads and bridges, and up to $3.50 on the dollar for public transit systems — when we resume taking public transit, of course.
“The historic infrastructure investment — which was planned for Illinois before COVID-19 — was vital to the safety of the traveling public, but also to the economic future of our state,” added study co-author Jill Gigstad. “The data shows that, after COVID-19, it will be even more important because these investments will not only generate tens of thousands of jobs, but billions of dollars in consumer spending — a game-changing economic multiplier we will need to drive an expeditious recovery across all sectors.”
Yet President Trump has resisted what he’s called a bailout for “poorly run” states like Illinois, and Senate Majority Leader Mitch McConnell has suggested states instead go bankrupt, all while protecting big business.
Let’s address that “poorly run” charge right here. As Pritzker has repeatedly pointed out, lost tax revenue in the COVID-19 economic collapse isn’t unique to Illinois. All states are suffering, and all states need federal aid. He’s also insisted he’s not looking for a pension bailout. He’s looking for help making up for lost revenue in the state’s balanced budget — a budget that, with the help of a graduated income tax, even included contributions to the state’s long-dry “rainy day” fund, one of the sticking points for Wall Street investors and credit agencies.
So let’s make this clear. The state is trying to address its fiscal problems, but now it can’t — not because of any mismanagement, but because of lost revenue in the coronavirus crisis. Yet there’s no help to be had? It’s only for those already wealthy and powerful?
How much more do they need? They just got tax cuts in 2018 that went to the most wealthy U.S. citizens. An estimated 80 percent of the $2 trillion COVID-19 relief package just passed by Congress wound up going to millionaires. Yet the average American has been given a one-time payment of $1,200 — if they’ve been lucky enough to receive that given the pitfalls of government bureaucracy under the Trump administration.
What more do they want?
We understand, they don’t want working people to have a retirement. They want low taxes so that the government doesn’t have enough revenue to conduct the designated business of government, not even during an economic collapse — make that especially during an economic collapse.
What sort of state do they want for Illinois? Well, we got a glimpse of what sort of state they’d like to see under Gov. Rauner, going two years without a budget, decimating social programs, public schools, and higher education, and generally heading Illinois toward bankruptcy.
Illinois voters rejected that approach two years ago, and since then the state has been on the upswing — until the coronavirus pandemic hit. Now, like every state, it just needs help making up for lost revenue until the increased funding from the fair tax can provide it.
Without it, Illinois is locked in a box with no way out.