ILLINOIS DEMOCRATIC PRIMARY: DALEY IS OUT; IS LISA BACK IN?

9/16/13

Now that Bill Daley has dropped out of the Democratic primary race for Illinois governor, we have to consider the ramifications of that move both for the state’s politics and for the state’s fiscal survival.

First, the politics.  We roughly six months will transpire before the March primary, so there is plenty of time for another candidate or two to enter the race.   Could one of those candidates be Attorney General Lisa Madigan?   Recall that Ms. Madigan dropped out in July claiming that her father’s remaining as House Speaker would make it difficult for her to win the race, and, if she did, to govern   She said this with a straight face as if it came as a surprise to her that her dad would not give up his job for life in order to make it easier for his daughter to take the next transitory step in a political career that the press has repeatedly assured her is heading to the very top.   See my 7/16/13 piece, LISA MADIGAN WON’TRUN FOR GOVERNOR:  WOULD YOU WANT THE JOB?

It’s easy to reflexively say “No way” when the question of Ms. Madigan’s re-entering the race comes up, but her potential re-entry deserves more thought than that.

Recall that in the aforementioned 7/16/13 piece, I gave two real reasons for Ms. Madigan’s hasty exit, or non-entrance.   First, as I explained it…

Lisa wanted a coronation, not an election.  Bill Daley made it a fight.

Whenever one is facing the incumbent office-holder in a primary, one is in for a fight.  The last person to win such a brawl in this state was Mike Howlett, the jovial but limited then Secretary of State who was able to topple Dan Walker in the Democratic gubernatorial primary in 1976, but only with the last major demonstration of the raw, dominant power of the Richard J. Daley Machine.   To say that Mike Howlett’s primary victory was Richard J. Daley’s last hurrah would not be an overstatement.  But I digress.   Daley went on to let the ever likeable Howlett hang out to dry once the bothersome Dan Walker had been dispensed with, but that is another story and another digression.  

A three way race involving the incumbent Pat Quinn (no relation), Bill Daley, and Lisa Madigan would have been tough to the point of impossibility for both of the two challengers; incumbency, even an inept incumbency, is almost always strong enough to face down two strong challengers.  Yes, Ms. Madigan had the advantage of being the only woman in the three way race and a press that simply can’t get enough of their imagined incarnation of Wonder Woman, and those factors might have been enough for her to prevail against not only the long odds against the incumbent but also Ms. Madigan’s “daddy problem,” but it would have been a long shot.  Once Daley got in, Madigan had little choice but to stay out unless she wanted something she had never experienced before…a very difficult, arduous election.

So does Daley’s leaving open a door for Lisa Madigan?   No.   Now it is not Bill Daley who is making it a tough fight; it is Pat Quinn who is making it a tough fight.  As I said only most recently in my 8/15/13 piece, PAT QUINN PUTS PAT FITZGERALD ON A VESTIGIAL COMMISSION:  IS THE GOVERNOR RUNNING THE TABLE?

Pat Quinn (no relation) may have a deserved, or otherwise, reputation as a reformer, but he is showing he didn’t get this far in Chicago and Illinois politics by spending an inordinate amount of time consulting the Marquis of Queensberry.

Pat Quinn has made some brilliant political moves which, no matter what Bill Daley says (see below), went a long way toward convincing Mr. Daley that this race was unwinnable or very close to unwinnable.  It would be equally nearly unwinnable for Lisa Madigan; she’d prefer to wait around for a coronation.

The second reason I gave in my 7/16/13 piece for Ms. Madigan not entering the race was, as I put it

The better reason is not quite as political but very simple:   Would you want to be governor of Illinois right now?   This state is in a hell of a mess, with bankruptcy looming over the fast approaching horizon.  In all likelihood, nothing will be solved before the next governor takes office.  One does not blame an ambitious pol like Ms. Madigan for not wanting to tie her dinghy to such a sinking ship.  It would be much easier, and conducive to obtaining that big job that every politician ultimately wants, to become a U.S. Senator, and that job may become available, albeit not necessarily for the asking, in 2016.

The state of Illinois is in a hell of a mess.  The daughter of the man who cannot deny a good measure of the responsibility for getting us in this mess was not the person to get us out of it.   Maybe (probably?) no one can get us out of it.  

So Lisa Madigan’s real reasons for dropping out—that it would be too difficult to win the primary and that the state is in such a fiscal mess that no sane person, and especially no sane, politically ambitious person, would want the job—remain valid.  So I don’t anticipate a dramatic Madigan re-entry into the race.   But anything can happen, and Ms. Madigan tends to believe the hagiographic press she gets.

The second aforementioned reason for Ms. Madigan not getting into the race gets us beyond the politics to the fiscal prospects for Illinois:  they stink.  Bill Daley, who, despite looking really bad for deciding to get out of the race after saying that he got into it after a great deal of thought, is no dummy.   In giving the reasons for his taking his leave, he stated

“To be honest with you, losing it wasn’t the worst of my fears. In many ways, winning it and having the commitment of five years to nine years was something I struggled with. You know, the dog catches the tire and, boom.”

A point of useful digression:   Whenever anyone uses the term “To be honest with you…” or something like it, and especially when a politician uses that term, yours truly immediately assumes that s/he is lying the rest of the time, probably all the time.  If s/he weren’t lying all the time, why would s/he have to preface anything with “To be honest with you”?  To do so is to indicate that one is not being honest when one does not use that preface.   So I believe and so I advise my students.   They need someone like me to balance this starry-eyed optimism fad.

His campaign manager, Pete Giangreco, said that Mr. Daley dropped out after considering “what it’s going to take” to dig Illinois out of its fiscal hole.

So Bill Daley, by his own words and through his campaign manager, is telling us that the state is in such bad shape that Mr. Daley can’t fix it, or at least not without an exertion of time, effort, and will that he is unable to provide.   This is coming from a man with no shortage of ego.   What does that tell you about the fiscal state of the Land of Lincoln?

 See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

GEORGE RYAN AND THE “INABILITY” OF ILLINOIS TO SELL BONDS

1/31/13

The state of Illinois yesterday pulled (The State said “postponed.”) a $500mm bond issue intended to finance a slew of capital projects.   S&P recently downgraded the state to A- from A.  That technically ties Illinois with California for the state with the nation’s lowest bond rating, but since S&P has a “negative” outlook on Illinois and a “positive” outlook on California, our state is, in reality, at the bottom of the heap.  In pulling the deal, the administration of Governor Pat Quinn (no relation) cited that rating downgrade and the unsettling effect the inability of our public servants to address the state’s fiscal maladies has had on the market.  So it looks like the Governor is using the state’s inability to raise money in the public markets as a cudgel to prod the legislature (i.e., Illinois House Speaker Mike Madigan) to do something about our money woes.  Good luck with that, Governor; who do you think got us into this mess?  But I digress.

There are mixed reports on whether the projects that are supposed to be financed by the deal will go forward; the Wall Street Journal said this (Thursday, 1/31/13, page A3) morning that the projects “aren’t expected to be delayed.”  The Chicago Tribune reported on page 8 of today’s paper that whether the projects will go ahead is “unclear.”  Since when did the unavailability of money stop a politician, and especially an Illinois politician, from spending said money?   But, again, I digress.

It’s not so much the State of Illinois’s inability to raise money that “postponed” this deal.  The State can raise the money; it just doesn’t want to pay the interest rates that it would have to pay on the paper.  According to Thomson Reuters, 10 year Illinois bonds yield about 3.2%, about 120 basis points (“bp”s) over 10 year treasuries.  But on an apples to apples, tax adjusted basis, assuming a 35% income tax rate (not the highest rate after the Obama tax increase, but let’s assume, correctly, that not every buyer of Illinois, or municipal in general, paper is in the highest tax bracket), the Illinois paper yields a touch over 4.9%, or nearly 2 ½ times as much as comparable treasury paper.  Astounding.

Further, one suspects, though one can never know, that the only reason that Illinois can sell bonds at those yields, and the only reason that its bonds are not rated junk (BB+, four notches lower than they are now, or below) is because the market, and the ratings agencies, assume that the federal government will not let a state go bankrupt.   Certainly nothing in the finances of the state of Illinois merits more than a junk rating and a yield at least, just to throw out a number, 100 bps (1%) higher than it is now.

So why does the state of Illinois have to pay so much to bribe (a very appropriate verb for out great state, don’t you think?) investors and/or speculators to buy its paper?  

The raw numbers, most saliently, the now $96.8 billion unfunded pension liability and approximately $8.4 billion owed to trade creditors, are bad enough.   But there is something else at work.  Our politicians simply can’t, or won’t, address the state’s fiscal problems, especially its pension problems   Terms like “unfunded liability,” “actuarial assumptions,” and “assumed investment rate” are abstractions to these pols; they will only feel pressure when checks start to bounce or Mike Madigan says “jump.”  Neither is likely to happen in the near term, though the former may be approaching more quickly than most people think.  Why this reluctance to do anything about our pension problems?   The same reason that we got into this problem in the first place:  As I said in my now seminal 1/9/13 piece at the now defunct Rant Political, ILLINOIS PENSION PROBLEMS:   SEND THE CHECK TO MY KIDS,

politicians have learned that, through granting generous pensions to public employees, they can buy today’s votes with tomorrow’s dollars.

Who is going to surrender such a holy grail?   And so while the politicians are nearly inexhaustibly congratulating themselves about doing something regarding immigration reform  (See WOULD THE LAST GUY TO LEAVE ILLINOIS PLEASE TURN OUT THE LIGHTS?, Rant Political, 1/28/13, reproduced below.) and may soon be doing the same about gay rights and maybe even a Chicago casino (See A CHICAGO CASINO:  MORE MONEY FOR THE POLS, MORE PROBLEMS FOR THE TAXPAYERS?, Rant Political, 1/9/13, reproduced below.), they continue to dither about what is clearly the most important and immediate issue:  the looming, if not real, bankruptcy, of the state of Illinois.

Such self-inflicted impotence on the part of our public servants would be bad enough for Illinois’s ability to sell bonds, but there is something else at work:   Illinois’s history and culture, the latter real or perceived, of corruption.   With George Ryan’s having left prison yesterday, only one former Illinois governor is currently living in federally provided housing.   But four of our past eight elected governors have done time, albeit one (Dan Walker) for crimes committed after leaving office.   This is the one area in which Illinois stands head and shoulders above its 49 brethren.  

No one accuses Mr. Quinn (no relation) our current governor, of the types of shenanigans that landed four of his recent predecessors in the hoosegow; his faults lie in the area of competence rather than criminality.  But it is not too much of a stretch to say that, while some people might be surprised, few would be shocked, if virtually any other prominent figure in Chicago/Illinois politics suddenly became the focus of intense federal scrutiny.   This is the legacy left us not only by Rod Blagojevich, George Ryan, Dan Walker, and Otto Kerner, but also by legions of lesser pols throughout the state who have had to become federal guests because of their dastardly deeds.

Further, even leaving aside criminality, the honesty of the whole Illinois political system, and of most of its participants, has to justifiably come into question.   This is a state that repeatedly elects corrupt politicians to high office.   This is a state that nearly revels in its reputation for dirty, dishonest politics, for having the “best politicians money can buy” and where the honesty of a politician is often gauged by his determination to, once bought, stay bought.

Is this the type of state in which you would want to invest?   How much would it take to bribe (again, a very appropriate verb for the Prairie State) you into lending the state of Illinois money?  

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on this subject.

Promised reproduced articles:

WOULD THE LAST GUY TO LEAVE ILLINOIS PLEASE TURN OUT THE LIGHTS?

1/28/13

Illinois Governor Pat Quinn (no relation) signed legislation yesterday allowing illegal immigrants to obtain driver’s licenses in the Land of Lincoln.   The platform on which Mr. Quinn signed this bill into law was crowded with politicians of all ethnicities and of both parties, as if there were two parties in Illinois, but that is grist for another mill.  

Leave aside the merits of the bill, which are, despite the breathlessness of the press coverage, debatable and certainly not self-evident.   What really stunned yours truly about the signing ceremony was that the assorted pols spoke for a combined TWO HOURS in the wake of the signing.   TWO HOURS of being subjected to the bloviations of self-important politicians is enough to make even the most determined, American dream seeking immigrant turn around and head home.  

What is really illustrative about the two hours of self-congratulations, and perhaps about the bill itself, is what it says about the lilliputians we have elected in the Prairie State.   Our state’s major problem is not illegal immigration which, while affecting the lives of many throughout the state, is a federal issue.   Our state’s major problem is that it is growing broke.   Like most states, Illinois is growing broke because the politicians have figured out that, through granting generous, unaffordable benefits to public employees, they can buy today’s votes with tomorrow’s dollars, (See my 1/9/13 post  ILLINOIS PENSION PROBLEMS:   SEND THE CHECK TO MY KIDS.), hence our $95 billion unfunded pension liability.   The politicians on the dais yesterday, breaking their arms patting themselves on the back over passing into a law a bill of questionable importance and efficacy, are the same politicians who have spent the state into oblivion and the same politicians who lack the spine to do anything about the problem they created; again, see my 1/9 post.

Yet these poltroons and popinjays see fit to endlessly and tirelessly congratulate themselves over the licenses for illegals bill…and feel it necessary to take two hours of people’s valuable time to display their manifest wisdom to those on the receiving end of their largesse.   When do they appear before those on the giving end?

A CHICAGO CASINO:  MORE MONEY FOR THE POLS, MORE PROBLEMS FOR THE TAXPAYERS?

1/9/13

While Illinois legislators continue to look for ways to delay action on the pension time bomb that could soon make our state uninhabitable by any rational person, the secondary, and at least tangentially related, issue of a Chicago casino still lurks very close to the surface.  A deal that will bring a casino to the city of Chicago is a virtual lock, now that Governor Pat Quinn (no relation) and Mayor Rahm Emanuel have done the usual chest beating dance designed to show their constituencies that they are tough yet concerned.   And it looks like the ill-fated, perpetually bothersome, and therefore appropriately named Thompson Center, just north of City Hall, might well be the site of the proposed paean to parlous profligacy. 

But one has to ask what benefit a casino would bring to the taxpayers, given Mr. Quinn’s (no relation) insistence, and Mr. Emanuel’s seeming agreement, that 100% of the tax and fee revenue generated by such a casino be earmarked for school construction and modernization.  If all the money goes to construction of new schools and modernization of old ones, nothing, zero, nada, bupkus will go toward solving Illinois’s $95 billion pension problem, Chicago’s proportionally similar pension woes, or paying the state’s unpaid bills.  All we will have accomplished by opening the Loop, or some other city site, to gambling is to give the politicians more money to spend under the diaphanous ruse of “education.”   And it gets worse…not only will the politicians spend the money the casino generates, but they will commit to long term projects based on casino revenue projections that, if history is any guide, will prove too optimistic, leaving such projects to be funded by already exhausted general revenues in the (not too far) out years.   The casino will not solve Illinois’s, or Chicago’s, fiscal problems…it will at best have no impact on them and more probably exacerbate them.

On the other hand, perhaps the politicians in the Land of Lincoln are being clever enough to realize that money is a fungible commodity.  Then they can fund school projects with casino money and use money that would otherwise have been spent on those projects to pay past due bills and fund pensions.  Those with a sense of the history of our once great state remember that was the approach employed when the Illinois lottery was initiated; all the lottery proceeds went to the schools, leaving funds that would have gone to the schools available for pols to spend elsewhere in their endless crusades to remain on the public payroll.   If the same approach is used with casino revenues, and the newly available funds are used not for spending in areas other than school construction but, rather, to fund pensions and to pay bills, a casino would indeed have a salubrious impact on our state’s finances.   But those are too huge “if”s.   Further, such an outcome would require duplicity on the part of our politicians, but that is one of the few “virtues” our state displays in fulsome abundance.