The Black Hole of Illinois

About 5 years ago, I was invited to attend a roundtable of about 15 Chicago businesspeople.  The topic was the business and deal climate in Chicago.  Each participant was given about five minutes to express his or her views on local business issues.  Rather than put forward a viewpoint, I asked a question, “If your child was graduating from college and had skills that could take them anywhere, and you wanted them to have a happy and prosperous future, would you advise them to settle in Illinois?”  The question elicited laughter in the room.  “Where would you advise them to start off?”  Texas was the unanimous answer from all the participants.

So after Bruce Rauner was stymied and suffocated by the Chicago Machine for four years, gridlock has been loosened and Madigan has his way with J.B. Pritzker at the helm and Pritzker is busy strengthening Madigan’s python grip on power in Illinois.  Pritzker’s first pronouncement was to grant 15% raises to all department heads.

Illinois is a functioning democracy only in the same sense the Islamic Republic of Iran is.  There are few competitive races at all.  Mike Madigan has altered the House rules so that no legislation gets to the floor without his signoff. 

Mike Madigan is a garden variety mob boss operating the protection racket in pre-Giuliani New York.  They propose tax increases and promise that will fix the problem.  BUT THEY ALWAYS COME BACK.  And this time, they are back for good.

To get the progressive tax on the ballot, Madigan was short of a key vote.  Jerry Costello, a conservative Democrat opposed it.  So Pritzker gave Costello the job of head of the Illinois Department of Natural Resources and appointed lapdog Nathan Reitz to replace him, paving the way for passage (Reitz’s father was a key vote in getting the last tax increase through).  “The fix is in,” declared Republican party Chairman Tim Schneider.  And indeed it was, as the measure sailed through along party lines.

The Illinois legislators defended their vote.  Representative Robert Martwick stated that this was “reform.”   This is a flat out lie.  There is no reform whatsoever in what Illinois is doing.  No process, no structure, no measure of accountability is changing one iota.  Nothing is being made more efficient.  Nothing is being consolidated or updated.   It is simply a grab for more money. 

The entire shenanigans reminded me of the Three Stooges skit where the three are in a rowboat that starts leaking.  Moe sees Curly bend over on the other side of the boat drilling a hole in the bottom opposite the place where the boat is leaking.  “What are you doing?,” Moe exclaims.   “I’m drilling a hole to let the water out,” answers Curly as Moe smacks him.   Such is the State of Illinois.

One of my mantras is that “Math is a very tough opponent.  Math wins every time.”  Illinois has some tough numbers to deal with.  Twenty five percent of the state’s budget now goes to pension obligations.  Yet, Illinois legislators will do nothing to fix THAT leak.   The birth rate in Illinois is down 20% since 2001.  The state is bleeding population.   Illinois has lagged all its neighbors in economic performance in this recovery.  Just wait until it gets smacked with the next recession.

The “fair tax” ignores hard realities.  The tax base is shrinking and the people that have the most flexibility to leave Illinois are the ones targeted for the highest marginal rates.  Learning nothing from New York’s experience of millionaires fleeing the state and leaving that state with a 2.3 billion budget gap, Madigan/Pritzker apparently believe things will be different here.

They won’t.  First Trust economist Brian Wesbury tweeted flatly, “Time to get the heck out of Illinois.”

I personally have had several friends depart Illinois already, and several others are actively planning to do so in the coming year or so.   Pritzker promised that he was doing this for the middle class, but it will be the folks at the highest marginal rates that have the most flexibility and mobility.  The rating agencies aren’t impressed.  Moody’s has already warned that the new tax regimen will cause residents to flee and Illinois is one of the two least prepared states to weather a downturn.  The rating agency has stated that pension contributions will climb from $8.5 billion to $13 billion.  The steady flow of outmigration will turn into a torrent.

I predict that the amendment will pass.  Instead of amending the pensions—the real source of the problem--- the Machine will be successful in getting out the vote to fleece the taxpayers of Illinois (or steal the election).  The new rates will raise about 30% of what they anticipate as more people pack up and leave.   More young people will see the writing on the wall and launch their careers somewhere else.   Older, more mobile people will figure out that the Chicago Machine is really grabbing their retirement funds and sticking them into someone else’s account.

Along with getting the graduated tax on the ballot the Illinois legislature legalized pot and is pushing to legalize sports gambling.  If they are going down those paths, why not go for the trifecta and legalize and tax prostitution and go all in on a strategy to smoke, gamble and screw our way out of this mess.