Pritzker plans for Illinois require pension overhaul

In one of the most expensive gubernatorial elections in the nation, exceeding the one in California with Jerry Brown, with $90 million in TV and radio ads alone; the 53-year-old billionaire, who also spent a cool $171.5 million of his own money, says that he is glad that the one-term outgoing Republican incumbent Bruce Rauner is leaving, and supports plans to legalize recreational marijuana, to bring in much needed monies to the depleted coffers of Illinois.

Beset by a nearly two year absence of a state budget, the state accumulated more than $14 billion dollars in unpaid bills, and sent incoming freshmen to out of state colleges, rather than face diminished resources at Illinois public universities; social service budgets were slashed, and some forced to close, or severely limit the services they provided.

If cotton was once King, in the American South, then pot may rule in the land of Lincoln, as the governor-elect struggles to find ways to erase the red ink, mostly attributable to pension obligations that were often sidelined in the past, or had their funds diverted to other needs.

Pritzker says that he expects profits to be between $700 million to $1 billion a year.

The idea is not new; in March of this year, state Rep. Kelly Cassidy introduced the idea and said, in part, that she believed that given the current financial situation in Illinois, the legalization and taxation of marijuana “could help fill the much needed revenue gaps in our budget. In Colorado, marijuana sales generated about $70 million in revenue during the first year of legalization.”

“The fact of the matter is that marijuana is being bought and sold throughout the state right now, unregulated and untaxed,” Cassidy said.

The specter of unfunded liabilities --- more than $129 billion remains - is another factor that affects ratings by the bond rating agencies. Balancing that with an operating deficit of $6 billion requires more than both the State Assembly, and any governor, may be able to do.

Joining Cassidy on the Senate side was State Sen. Heather Steans (D-Chicago) who has also proposed legalization of cannabis. She, in turn said, “Right now, all the money being spent on marijuana is going into the pockets of criminals and cartels,” And, she also added: “In a regulated system, the money would go into the cash registers of licensed, tax paying businesses. [where] It would generate hundreds of millions of dollars per year in new revenue for our state. Prohibition is a financial hole in the ground, and we should stop throwing taxpayer dollars into it.”

In a recent interview with local media, Pritzker assured them, that there would be a budget during the next cycle in 2019.

Earlier this year, we noted that a “closer look at the details showed more than one sword of Damocles hanging over the heads of the governor and the legislature. As Bloomberg News reported in February: “$2.3 billion of deficit spending in the form of unappropriated liabilities held at state agencies as of Dec. 31; $8.4 billion of unpaid bills as of Feb. 7; $1.03 billion of late-payment interest fees incurred as of Dec. 31, 2017 (Note: At least $143m has been paid); and, a $1.7 billion general fund deficit, according to the governor’s office of management and budget.”

One idea that Pritzker has floated is a pension obligation bond, going against the accepted grain of not loaning money to pay off loans, but the governor-elect has said that he might be able to parse the interest rates to save money.

Giving some assurance that he will address his issue is his economic transition team consisting of former state comptroller Dan Hynes, Civic Federation president, Laurence Msall, and the esteemed Center for Tax and Budget Accountability head, Ralph Martire.

Harnessing this star power is essential to remove the muck and mire of Illinois state finances to avoid, what many are saying was the sty in the eye to the loss of Chicago’s bid for Amazon HQ2 transition to the East Coast, the imperiled financial state and the unfunded pension liabilities of Illinois being a major factor, although the mayor, Rahm Emanuel, has been reluctant to say so.

This also places education and health behind the largest financial elephant in the room., despite recent changes in funding, to avoid what had been the lowest per pupil funding in the nation for low income students, further compromised by racial inequity.

Despite the strong employment outlook, wages have not kept pace, and Pritzker says that this is also a priority, yet as we have shown, there are a number of factors that he may have overlooked: the big companies like Amazon that “freeze” wages, inflation that is nibbling away at wages.  And, as The Economist noted this June,” inflation is eating up pay increases and that real—that is, inflation-adjusted—wages are therefore stagnant. Real wages in America and the euro zone, for example, are growing more slowly even as the world economy, and headline pay, have both picked up.”

As the Fed keeps an eagle eye on US inflation, wage growth may be out of his hands.

Crain’s Chicago Business focused on one area ripe for reform, and that is Medicaid determination -- or redetermination: “The way we determine Medicaid eligibility each year is “arcane,” said Barbara Otto, CEO of Smart Policy Works. Letters are mailed to beneficiaries and if they don’t answer within 90 days, they lose coverage.

“It disrupts the marketplace,” Otto said. “I’m supportive of having program integrity, but the way we’re doing it isn’t working. . . .It’s easier to cut people off Medicaid in the state of Illinois than it is to keep them on Medicaid in the state of Illinois. What’s wrong with that picture?”

Taking these key areas into consideration, it’s going to be a busy opening for Pritzker, and the traditional honeymoon for a new lawmaker, does not seem like an option.