Illinois Senate passes Privilege Tax on investors

[warriorchick]

Of the top 11 wealthiest cities in Illinois (per Forbes), only Hinsdale, OakBrook, Hawthorn Woods, and Western Springs saw population growth from 2014 to 2016.

Not sure that means anything, Dish. A lot of the wealthy burbs are basically built out,  and are the types of places that aren't exactly hospitable to new  high-density housing.

[DegenerateDish]

Not sure that means anything, Dish. A lot of the wealthy burbs are basically built out,  and are the types of places that aren't exactly hospitable to new  high-density housing.

Agreed, I thought it was just interesting for context.

[dgies9156]

States are legally forbidden from filing for bankruptcy. It would take an act of Congress to change that. Do you think Congress wants to get involved in Illinois' mess? You think they want take sides in it?

At some point, Congress is going to have to get involved because the political discipline to do so in Illinois does not exist.

In Puerto Rico's case, Congress enacted a law that allowed for Conservatorship.

In fact, we who lived in the south learned early in life what our country calls Congress' direct involvement in state affairs -- Reconstruction.

[mu03eng]

At some point, Congress is going to have to get involved because the political discipline to do so in Illinois does not exist.

In Puerto Rico's case, Congress enacted a law that allowed for Conservatorship.

In fact, we who lived in the south learned early in life what our country calls Congress' direct involvement in state affairs -- Reconstruction.

Congress' willingness and ability to address something like Illinois' solvency is only greater than that of the Illinois politicians simply because Illinois politicians will power is the square root of a negative number (if you are a math geek, that means an imaginary number). There is absolutely no way that Congress will step into the Illinois mess, it creates too much precedent for other states and our governments were specifically set-up so that the federal government couldn't absorb state debt again(after it absorbed the state debt as part of the Hamilton-Jefferson compromise).

Just to give an idea of the total debt issue I took a look at the debt load at one city, Cary, Illinois which has debt at the city, elementary school, and high school levels. What's not included is any debt at the county or state level.

District 26(K-8th): $29,745,998
District 155(9-12th): $8,150,201*
City: $12,824,173
Total: $50,720,372

Yes I'm not accounting for assets but either way a city of ~17,000 is carrying a debt load of over $50 million dollars. If most of the suburban cities are like that it makes the Illinois problem even worse.


*a fourth of the total district debt as there are 4 high schools but Cary only accounts for a fourth of the student population

[jficke13]

[...]
Yes I'm not accounting for assets but either way a city of ~17,000 is carrying a debt load of over $50 million dollars. If most of the suburban cities are like that it makes the Illinois problem even worse.

[...]

Simple, special one time tax of aprx $3k/citizen, boom, debt free city.

Debt crisis, schmet crisis.

[Tugg Speedman]

Simple, special one time tax of aprx $3k/citizen, boom, debt free city.

Debt crisis, schmet crisis.

The average salary $63k/year ... down from $66k/year in 2005

http://www.deptofnumbers.com/income/illinois/chicago/

So you are going to hand a family of four a $12,000 bill?  The same family of four that has seen no raise in the last 12 years and already pays about $12 to $15k in property taxes.  So, the fix is easy, take half the income of the average Chicagoan so city workers can continue to get pensions of $100k/year.

Is your plan to destroy Chicago?  Because this is a pretty good way to drive hundreds of thousands out of the city and destroy it.

[mu03eng]

Simple, special one time tax of aprx $3k/citizen, boom, debt free city.

Debt crisis, schmet crisis.

National debt adds $61,300 per citizen
Illinois debt adds $12,007 per citizen


So one time bill for a family of four to cover all debts in the city of Cary up to the national level is: ($3k+$61.3k+$12k)*4 so a total of $305,200. Just city and state(leaving county out even) would be $60,000 as a one time bill.

Oh, and totally unaccounted for is how cheap debt is right now, and this is especially critical for Illinois, the cost of servicing their massive amount of debt is going to go up over the next several years which will chew up a lot of any additional tax revenue they can generate by raising taxes....same thing at the federal level.

[jficke13]

The average salary $63k/year ... down from $66k/year in 2005

http://www.deptofnumbers.com/income/illinois/chicago/

So you are going to hand a family of four a $12,000 bill?  The same family of four that has seen no raise in the last 12 years and already pays about $12 to $15k in property taxes.  So, the fix is easy, take half the income of the average Chicagoan so city workers can continue to get pensions of $100k/year.

Is your plan to destroy Chicago?  Because this is a pretty good way to drive hundreds of thousands out of the city and destroy it.

Easy Francis...

I thought "debt crisis, schmet crisis"  was a viable teal stand in, but please don't let reasonable context clues get in the way of your urge to argue on the internet.

[mu_hilltopper]

FWIW, I felt the teal, jficke.

[mu03eng]

FWIW, I felt the teal, jficke.

I did too, but decided to really pile on with the debt doom and gloom....guess I have a case of the Mondays

[Pakuni]

Congress' willingness and ability to address something like Illinois' solvency is only greater than that of the Illinois politicians simply because Illinois politicians will power is the square root of a negative number (if you are a math geek, that means an imaginary number). There is absolutely no way that Congress will step into the Illinois mess, it creates too much precedent for other states and our governments were specifically set-up so that the federal government couldn't absorb state debt again(after it absorbed the state debt as part of the Hamilton-Jefferson compromise).

Just to give an idea of the total debt issue I took a look at the debt load at one city, Cary, Illinois which has debt at the city, elementary school, and high school levels. What's not included is any debt at the county or state level.

District 26(K-8th): $29,745,998
District 155(9-12th): $8,150,201*
City: $12,824,173
Total: $50,720,372

Yes I'm not accounting for assets but either way a city of ~17,000 is carrying a debt load of over $50 million dollars. If most of the suburban cities are like that it makes the Illinois problem even worse.


*a fourth of the total district debt as there are 4 high schools but Cary only accounts for a fourth of the student population

Except debt in and of itself isn't a bad thing, nor is carrying a debt a sign of financial mismanagement/struggle. If it were, the majority of the Fortune 500 would be in tatters (Apple debt = $100 billion; Amazon debt = $20 billion; GE debt - $128billion; GM debt = $91 billion).

In fact, in many cases - such as funding capital projects - it makes far more sense to carry debt (especially given current interest rates) than to pay as you go. And I think with a little more probing you'd find that the debt of the governments in Cary is a result of just that - facility improvements, life-safety work, infrastructure upgrades, etc.
When a government is issuing debt to cover its operating costs - outside of perhaps tax anticipation warrants, which are sometimes necessary because of the state's tax payment schedule - then you have cause for concern.
But issuing debt to cover capital projects is not an example of poor financial stewardship, and quite often is evidence of just the opposite. Unless you think it's better to impose massive one-time tax hikes every time you need a new school, police station or sewage plant.

[mu03eng]

Except debt in and of itself isn't a bad thing, nor is carrying a debt a sign of financial mismanagement/struggle. If it were, the majority of the Fortune 500 would be in tatters (Apple debt = $100 billion; Amazon debt = $20 billion; GE debt - $128billion; GM debt = $91 billion).

In fact, in many cases - such as funding capital projects - it makes far more sense to carry debt (especially given current interest rates) than to pay as you go. And I think with a little more probing you'd find that the debt of the governments in Cary is a result of just that - facility improvements, life-safety work, infrastructure upgrades, etc.
When a government is issuing debt to cover its operating costs - outside of perhaps tax anticipation warrants, which are sometimes necessary because of the state's tax payment schedule - then you have cause for concern.
But issuing debt to cover capital projects is not an example of poor financial stewardship, and quite often is evidence of just the opposite. Unless you think it's better to impose massive one-time tax hikes every time you need a new school, police station or sewage plant.

Actually, especially the school debt, is at least in part covering operational expenses....not just capital projects. Additionally, just because you can take on debt for a new project, doesn't mean A) that project should take place or B) that debt is the most effective means of paying for that project.

I fully understand the usage and benefits of debt, and in of itself it is not bad. However when you stack debt across all levels of government and recognize the only way to resolve that debt is to increase tax revenue or reduce services that debt becomes more daunting.

Lastly, you mention the Fortune 500 companies and their debt. This is correct, but what you left out was their annual revenues:
Apple - $214.23 Billion
Amazon - $135.99 Billion
GE - $119.87 Billion
GM - $166.388 Billion

With the exception of GE, they are generating more revenue per year than debt they hold which is an entirely stable position. In the case of the federal government and a lot of districts/municipalities that is not true and is not sustainable over the long term, especially as service on the debt increases.

[jficke13]

Except debt in and of itself isn't a bad thing, nor is carrying a debt a sign of financial mismanagement/struggle. If it were, the majority of the Fortune 500 would be in tatters (Apple debt = $100 billion; Amazon debt = $20 billion; GE debt - $128billion; GM debt = $91 billion).

In fact, in many cases - such as funding capital projects - it makes far more sense to carry debt (especially given current interest rates) than to pay as you go. And I think with a little more probing you'd find that the debt of the governments in Cary is a result of just that - facility improvements, life-safety work, infrastructure upgrades, etc.
When a government is issuing debt to cover its operating costs - outside of perhaps tax anticipation warrants, which are sometimes necessary because of the state's tax payment schedule - then you have cause for concern.
But issuing debt to cover capital projects is not an example of poor financial stewardship, and quite often is evidence of just the opposite. Unless you think it's better to impose massive one-time tax hikes every time you need a new school, police station or sewage plant.

Unfortunately, determining whether debt is "good" or "bad" requires a looking line-by-line at each item. That's work. It's much easier to line up by partisan tribe and shout platitudes.

[Pakuni]

Actually, especially the school debt, is at least in part covering operational expenses....not just capital projects.

Source?
And again, are we talking TAWs, which are just a timing mechanism, or debt to cover year-over-year operational deficits?

Additionally, just because you can take on debt for a new project, doesn't mean A) that project should take place or B) that debt is the most effective means of paying for that project.

Well, OK, but whether a project should take place or not is a completely different argument than the one you made earlier casting any debt as bad.
That said, I would argue that debt most often is the best way of paying for a project. When enrollment spikes mean a high school needs a $10 million expansion, you either issue bonds or you ask your taxpayers to come up with $10 million RIGHT NOW. Or you overtax your residents year after year after year to make sure you build up enough reserves that you never need to issue bonds for large projects.
Which do you choose?

Lastly, you mention the Fortune 500 companies and their debt. This is correct, but what you left out was their annual revenues:
Apple - $214.23 Billion
Amazon - $135.99 Billion
GE - $119.87 Billion
GM - $166.388 Billion

With the exception of GE, they are generating more revenue per year than debt they hold which is an entirely stable position. In the case of the federal government and a lot of districts/municipalities that is not true and is not sustrightble over the long term, especially as service on the debt increases.

You failed to mention annual revenues for Cary, District 26, District 155.
Cary = $17.32 million (2015)
District 155  = $114.3 million/4 = $28.6 million (FY 2015/16)
District 26 = $30.6 million (FY 2015/16)

So, like the companies I mentioned, all have annual revenues exceeding their debts, which is an entirely stable position. Likely moreso because, as governmental entities, they should be paying lower interest on their debts.

Look, I'm fine with an overall argument that governments incurring substantial debts - especially for operational deficits - is a bad thing. But an argument that debt is bad, without considering the type of debt or its purpose, is just plain wrong. Some debt is in fact good.

[mu03eng]

Source?
And again, are we talking TAWs, which are just a timing mechanism, or debt to cover year-over-year operational deficits?

My father sat on the school board for a number of year until a year ago and left because they chose to add debt to cover YoY operational deficits.

Well, OK, but whether a project should take place or not is a completely different argument than the one you made earlier casting any debt as bad.
That said, I would argue that debt most often is the best way of paying for a project. When enrollment spikes mean a high school needs a $10 million expansion, you either issue bonds or you ask your taxpayers to come up with $10 million RIGHT NOW. Or you overtax your residents year after year after year to make sure you build up enough reserves that you never need to issue bonds for large projects.
Which do you choose?

I am in no way implying that there should be no debt or that debt by government entities is bad on it's face. My ultimate point is that debt accrued against all levels of government is the concern as it represents an over leveraging of tax payers. Each level of government is part of the larger whole and we don't treat it as such. We only look at the pieces.

You failed to mention annual revenues for Cary, District 26, District 155.
Cary = $17.32 million (2015)
District 155  = $114.3 million/4 = $28.6 million (FY 2015/16)
District 26 = $30.6 million (FY 2015/16)

So, like the companies I mentioned, all have annual revenues exceeding their debts, which is an entirely stable position. Likely moreso because, as governmental entities, they should be paying lower interest on their debts.

Fair comeback. However, they aren't more stable because of lower interest rates, because they have less ability to generate revenue or decrease cost than would public/private company. At best it's a wash.

Look, I'm fine with an overall argument that governments incurring substantial debts - especially for operational deficits - is a bad thing. But an argument that debt is bad, without considering the type of debt or its purpose, is just plain wrong. Some debt is in fact good.

Again, never said "debt's bad, mmkay". Simply showed that the total debt load created by governments at all levels is likely very problematic.

[Pakuni]

My father sat on the school board for a number of year until a year ago and left because they chose to add debt to cover YoY operational deficits.

Which board? I might know your dad.

However, they aren't more stable because of lower interest rates, because they have less ability to generate revenue or decrease cost than would public/private company. At best it's a wash.

Boy, I really disagree here. Government entities have far more ability to generate revenue - and arguably decrease cost - than a company. All it takes is a tax hike.

Again, never said "debt's bad, mmkay". Simply showed that the total debt load created by governments at all levels is likely very problematic.

Well, again, it depends. Even the most financially sound governments - and companies, for that matter - carry debt because it's sometimes the most effective (including cost-effective) way of doing business. I don't think the total amount matters so long as your ratios are reasonable and the debt is being incurred for sound reasons.

[mu03eng]

Which board? I might know your dad.

D26

Boy, I really disagree here. Government entities have far more ability to generate revenue - and arguably decrease cost - than a company. All it takes is a tax hike.

On the cost side, governments are much less flexible as the majority of their costs are built into typically unionized contracts (not a pejorative, just fact) as well as contracts that are harder to get out of (single source, direct bid, etc).
As far as revenue, you are correct in the short term governments can simply raise taxes and generate additional revenue. However, long term that likely leads to resident flight which has diminishing returns as you have to increase taxes to generate the same revenue

Well, again, it depends. Even the most financially sound governments - and companies, for that matter - carry debt because it's sometimes the most effective (including cost-effective) way of doing business. I don't think the total amount matters so long as your ratios are reasonable and the debt is being incurred for sound reasons.

There is a lot of assumption here that government debt is being incurred for sound reasons. You have a lot more faith than I do.

[Pakuni]

D26

Nope. Knew a lot of the D155 board members, but no one at 26.

There is a lot of assumption here that government debt is being incurred for sound reasons. You have a lot more faith than I do.

I'm not assuming anything.
Simply stating that there's nothing wrong with incurring debt for sound reasons. Are you suggesting there are no sound reasons for a government incurring debt?
If so, how do you suggest paying for a new high school or police station or major road project?

[mu03eng]

I'm not assuming anything.
Simply stating that there's nothing wrong with incurring debt for sound reasons. Are you suggesting there are no sound reasons for a government incurring debt?
If so, how do you suggest paying for a new high school or police station or major road project?

Absolutely not, government debt is not bad on it's face, but even too much "good" debt can be bad.

If debt is generated for valuable, cost effective projects...awesome. If debt is generated for wasteful or unnecessary projects....no bueno. Additionally, if too much debt is accrued, regardless of "type" it would be bad. All I'm saying is that I think all the levels of government are coming close (IMO) to too much total debt and there is a a fair amount of "bad" debt on the books.

[Pakuni]

If debt is generated for valuable, cost effective projects...awesome. If debt is generated for wasteful or unnecessary projects....no bueno.

And on that we can agree.

[dgies9156]

Absolutely not, government debt is not bad on it's face, but even too much "good" debt can be bad.

"Good debt" and "bad debt" is a function of debt coverage ratios ("DCRs"). Most lenders have a minimum DCR of 1.2x debt service and ideally like about 1.5x to 2.0x or greater.

Bad debt is debt below 1.2x or debt with inadequate securing collateral or debt where borrowers don't believe in adhering to the covenants in the borrowing agreement.

Which one is Illinois?

[warriorchick]

"Good debt" and "bad debt" is a function of debt coverage ratios ("DCRs"). Most lenders have a minimum DCR of 1.2x debt service and ideally like about 1.5x to 2.0x or greater.

Bad debt is debt below 1.2x or debt with inadequate securing collateral or debt where borrowers don't believe in adhering to the covenants in the borrowing agreement.

Which one is Illinois?

[PBRme]

Govt debt is different.  As a private entity if I borrow money for new machinery there is an asset that has value that can be "attached" as well as potentially more efficient production method lowering cost increasing ability to pay back the debt.  And the value typically goes down at a lower rate than it depreciates using whatever depreciation rate the govt decides I get to use 3-7 years.  This excludes property improvements where the Govt says 29.5 years and the roof or parking lot usually are replaced in less than half that time.

If Govt borrows money for a school that asset has almost no value when sold because it is difficult to repurpose.  The product may or may not stay in the taxing district so it may not increase the ability to pay back and the value to the existing taxpayers (being in a better school district) is probably completely gone before the final payments are made 20 to 30 years in the future.

[dgies9156]

If Govt borrows money for a school that asset has almost no value when sold because it is difficult to repurpose.

Wrong.

If you're lending on a school, the building and ground has some value that could be recovered. We've seen the value of tollways, airports and even parking meters in recent years.

Also, there is a difference between revenue bonds, which are secured by a project's revenue, and g/o bonds, which are secured by all the revenue in a community. In a well-run community, I'd rather have the G/O bonds. But in Illinois, the revenue from the project or the securing asset may have more value.

 

[PBRme]

Wrong.

If you're lending on a school, the building and ground has some value that could be recovered. We've seen the value of tollways, airports and even parking meters in recent years.

Also, there is a difference between revenue bonds, which are secured by a project's revenue, and g/o bonds, which are secured by all the revenue in a community. In a well-run community, I'd rather have the G/O bonds. But in Illinois, the revenue from the project or the securing asset may have more value.

The building has little value unless bought by a non govt school for the same use.  The land has value but you need to demolish the school and that is what in most cases the debt was incurred. 

Interesting the examples you use to prove I'm wrong are assets that future sum of cash flow analysis can be used to create a valuation. you don't list prisons, or courthouses or non toll roads

Thank you for proving my point