Monday, June 05, 2006

Reckless Sale of State Assets By Senator Chris Lauzen

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.” - attributed to Alexander Tytler, Scottish historian

The following is a letter from Senator Chris Lauzen click here to sign up for his news letter. Thanks to our friend Dave for the heads up on the above quote.

Reckless Sale of State Assets

By Senator Chris Lauzen

One of the saddest personal tragedies in life is to see a person addicted to alcohol, drugs, or gambling destroy the financial base upon which his family relies. The way it usually goes is an initial euphoria of hype as he doubles the mortgage debt to mask the problem. The next step is running all his credit cards so high that his credit rating is severely damaged. Eventually, he begins to sell his most marketable family assets at flea market prices. And, during all this time, he refuses to admit that he even has a problem.

The same is true about the current administration of the State of Illinois. Their addiction is to excess government spending. George Ryan, who was known as a prolific spender, increased state spending by $2.5B during his four years. Rod Blagojevich has increased spending by $3.5B-more than $1B more over four budgets. Both are in denial that they have done anything wrong. The reason why this is so important to all of us is that we will eventually have to pay back the mortgage, the credit cards, and will lack cash-producing assets that he sold cheaply.

Careful readers of this publication are already aware of the doubling of the state general obligation debt in the past four years to over $20B. You are aware of the accumulation of unpaid Medicaid provider bills that currently exceed a staggering $2 Billion that has New York credit rating company Fitch warning Illinois that they will downgrade our finances. Now we're starting to see the final desperate step in this "financial meltdown" pattern, i.e. the sale of state assets that have been paid for by generations of taxpayers and are now being offered at rummage sale prices.

For example, thank goodness that Attorney General Lisa Madigan stopped the ill-advised sale of the State of Illinois Building to a group of French investors about a year ago.

The state lottery is "on the blocks" as a bargaining chip in the negotiations to keep Reverend/Senator James Meeks from splitting the statewide Democrat vote in the current governor's race. Twenty years after the lottery was sold to unsuspecting state taxpayers on the false promise that "The lottery will go to education", apparently my friend Senator Meeks has fallen for that one again!

It is simply amazing to me that the Illinois Student Assistance Commission which holds a portfolio of $3,500,000,000 of student loans that you and I have paid our taxes to develop for decades, is being proportionately sold for $300M-$500M. If the portion-to-be-sold is practically given away for the equivalent of $350M, that transaction represents yard sale prices of a dime on the dollar (10¢ for what is clearly worth $1). This irresponsible fiscal decision is like selling a home that is worth $250,000 for $25,000. This isn't petty theft, its grand larceny! Don't be surprised when you see the investors who ultimately steal this asset show up on the list of "experts" who provided the incredibly low valuation and also show up on the Governor's campaign contribution reports.

But the real whopper is the sale of the tollway. This asset belongs to the people of this region and has been paid for by tollpayers for over a half century in nickels, dimes, and quarters. What right does an obviously reckless Governor have to sell this regional asset and distribute the money among political allies and to spend it around the rest of the state? This is a ransacking and pillaging of the Suburban region to benefit Chicago and Downstate.

On Wednesday of this week, I listened to more than two hours of testimony where one of the preliminary estimates was that the tollway is worth $15-$25B, according to the most prestigious investment banking firm Goldman Sachs. Yet, on May 8, 2006 in "Barron's Financial News On-Line", it was reported that investment banking firms "led by Goldman Sachs, are descending on state capitols" to buy up tollway opportunities. I learned painfully a long time ago not to play poker for money with people a lot smarter than me. As I applied the toll increases permitted under the Chicago Skyway sale of 7% per year for the first 11 years and approximately 5% for the remaining 64 years to the proposed 75-year Illinois Tollway Lease, my rough calculation for the discounted cash flow at a reasonable 5% internal rate of return yielded a lease price closer to $35B. We may not see the fangs and claws yet, but I feel like the three little piggies locked in the blood-thirsty glare of that big bad wolf! Let's not go there.

The result of personal addiction is despair, disappointment, and destruction. The result of public addiction to excessive spending and reckless sale of the state assets is further backbreaking tax increases.

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