The Bellock Bulletin: December 4

FY16 Budget

·         Governor Rauner, legislative leaders hold budget summit; December cash flow affects talks.  The summit, which included House Republican Leader Jim Durkin, was held on Tuesday, December 1 at the State Capitol in Springfield.  There was a frank and full exchange of views on issues dividing the four caucuses, including the need for property tax relief, workers’ compensation reform, public-sector labor-management relations, and a reformed system to elect and re-elect State lawmakers. 

As Durkin, Governor Rauner, and other summit leaders met, Comptroller Leslie Geissler Munger announced that the State’s revenue picture was improving slightly in December.  Factors affecting State cash flow include the coming of the annual Christmas retail shopping season and larger flows of cash from sales taxes charged on retail goods.  Illinois will be able to make its required December 2015 $560 million contribution to State retirement systems, after delaying the November 2015 pension payment.  However, the Comptroller’s tally of unpaid State bills shows that the State now owes approximately $6.7 billion to providers of goods and services.

·         House approves funding for roads, public safety; Senate to act next week.  The December 1 “budget summit” did not lead to a comprehensive agreement to solve the impasse affecting passage of an overall FY16 budget.  House Speaker Madigan and Senate President Cullerton continued to use their majorities to block consideration of constitutional, balanced budget bills in both houses. 

The House met in floor session December 2 to take action on several bills where legal language needed to be passed before the end of the calendar year, including the unemployment insurance law rewrite (see “Unemployment Insurance”). 

In addition, the House passed a major appropriation bill, SB 2039, which appropriated $3.11 billion in “other state funds” to various urgently-needed budget areas.  An example of the money streams controlled by this bill includes the motor fuel taxes that are collected at gasoline pumps, deposited in the state Road Fund, and redistributed to local governments to maintain streets and highways.  SB 2039 provides funding for 9-1-1 services and will also allow the State Lottery to resume paying prize monies to Lottery winners.

The House vote to approve SB 2039 was 107-1-1, and the measure was sent to the Senate for probable passage when the Senate convenes on Monday, December 7.  However, none of the bills passed by the House this week discussed or debated overall constitutional balanced budget language for FY16. 

Credit Rating – Moody’s

·         Key New York debt-rating firm issues warning to Illinois.  Citing Illinois’ continued budget crisis and unfunded State pension liabilities, Moody’s warned Springfield that the State’s credit rating could be lowered to junk-bond levels.

Moody’s, which publishes public credit ratings that are closely monitored by investors and investment fund managers, currently ranks Illinois’ general obligation debt at Baa1.  Baa1 is three notches above non-investment grade, which in Moody’s terminology starts at “Ba1” and goes down from there.  Many investors refuse to invest in non-investment-grade interest-bearing securities, or sharply underweight these holdings, because of the risk that the securities could fall into default or bankruptcy.  Most of the 50 U.S. states have debts rated at Aaa or Aa1 by Moody’s, which are the two highest rankings granted by the firm.  This is due to these states’ perceived solvency and prudence at handling their fiscal balances. In many cases, the taxpayers who are represented by higher-ranking states enjoy lower interest rates and lower tax burdens as a result of their states’ perceived fiscal prudence and sound management.

Illinois currently owes approximately $6.7 billion in unpaid State bills.  These are obligations presented to the State by providers of goods and services awaiting payment.  A typical unpaid bill is presented by a hospital or health care clinic for services provided under the State’s fast-growing Medicaid program.  In its most recent solvency trough, suffered in November 2010, the State of Illinois owed $9.9 billion in unpaid bills for goods and services.  Continued inability to pass a constitutionally balanced FY16 budget could cause the State to once again approach this record number.     

Economy – Jobs

·         CGFA describes state of Illinois economy.  The “November 2015 Monthly Briefing” by the Commission on Government Forecasting and Accountability (CGFA), the nonpartisan economic forecasting arm of the General Assembly, continues to describe a pattern of slow Illinois recovery from the 2008-14 economic downturn. Much of this sluggishness can be attributed to overall national patterns.  CGFA’s nationwide economic monitoring partners report that nationwide wages paid to employees are up only 2.1% year-to-year, and retail sales have risen so far this year by a comparable 2.1%. 

In addition to nationwide numbers that are weighing down the recovery picture here in Illinois, factors unique to the Prairie State and its political picture continue to further retard the performance of the State and its budget.  The “November Briefing” continues to show State FY16 general funds revenues coming in sharply below the numbers posted in FY15.  For the first five months of FY16 (July through November 2015) posted to date, total general funds revenues are down $1,479 million from the general funds received during the comparable five-month period in FY15.  Declines are concentrated in individual income tax revenues ($1,194 million) and corporate income tax revenues ($176 million).  These declines affect the State’s ability to keep its general funds spending commitments and its ability to pay its bills.  

·         U.S. Steel announces closure of Granite City mill, lays off 2,080 workers. The steel mill makes a wide variety of products, but specializes in sheet steel that is drawn and rolled into seamless tubing for oil and gas drillers.  Declines in the international price of crude oil and other forms of fossil-fuel energy have reduced demand for products made at the Granite City Works, which combines two blast furnaces with a wide variety of finishing operations.  The closure announcement was made on Monday, November 23.

Pittsburgh-based U.S. Steel, the largest remaining steelmaking firm headquartered in the U.S., has undergone harsh economic trends since the start of the economic downturn of 2008.  Growing steel capacity in other countries, particularly China, has weighed upon the international prices of steel and steel products.  Evidence presented to U.S trading partners indicates that many types of steel, steel alloys, and steel products are “dumped” in the United States for less than the cost of production and shipping.  Compliance with environmental laws also weighs upon American steelmaking. U.S. Steel posted a loss of $261 million in 2015’s second quarter, and a further loss of $173 million in the third quarter.

The closure of the Granite City Works followed several warnings by the company that the furnaces were not sustainable under current market conditions.  The loss of 2,080 jobs in the St. Louis Metro-East area is expected to have a secondary effect upon many other jobs in southwestern Illinois.

Family Law – Divorce

·         Changes in Illinois law will affect future marriage dissolutions.  The recodification of the Illinois Marriage and Dissolution of Marriage Act moves Illinois divorce law closer to the consensus way that marriages are dissolved throughout many of the 50 states.  Often called “no-fault divorce”, the new law will point Illinois couples toward a public statement that the pair faces irreconciliable differences and that both members have lived separately and apart for a continuous period of not less than six months.  If this statement is proved up before a court of family law, and if the court finds further that future reconciliation attempts would be impracticable, the divorce will be granted.

The old Illinois dissolution-of-marriage law, which is being replaced, gave dissolving couples the option of seeking a divorce on grounds that included adultery, bigamy, or habitual drunkenness. These grounds, which included an implicit or explicit finding of fault in one or both parties to the marriage, have become less and less popular among many of the lawyers who practice Illinois family law, and among the couples therapists who often provide counseling or therapy to one or both parties in the dissolving marriage.  A growing consensus among many professionals is that reliance upon the content-neutral concept of “irreconcilable differences” is a good way to minimize the number of former married partners who fall into a state of resentment.

The new law will strongly encourage, in dissolving couples with families, the forward-looking input of professional therapists and counselors.  Parents of children will be required to file a “proposed parenting plan.”  The court is encouraged to direct both parties to negotiate to ensure that the plan will cover future questions including custody, visitation, child support, and educational support.  The court is given grounds to consider whether or not a parent’s future move or relocation will fit within the four corners of the plan filed with the court.  The new law largely completes the process of moving Illinois into the category of pure, no-fault divorce states pioneered by California in 1969.     

The new law was passed by the Illinois General Assembly in the 2015 spring session as SB 57.  Many House members voted against the new law because of its perceived consequences.  Completing a move towards “no-fault” divorce could make the divorce process easier.  Many religious beliefs, including many branches of Christianity, strongly oppose easy divorce.  Signed into law in July by Governor Bruce Rauner as P.A. 99-90, the new law goes into effect on January 1, 2016.

General Assembly

·         Representative Sara Wojcicki Jimenez takes oath of office for 99th Representative District.  Jimenez’s district includes much of the state capital of Springfield and surrounding rural townships.  She has experience in local government as a member of the Springfield Park Board.  Sara most recently worked with the Rauner administration as the chief of staff of the First Lady of Illinois, Diana Rauner.  House Republican Leader Jim Durkin and his colleagues joined this week to give Sara Wojcicki Jimenez a warm welcome to the House Republican Caucus.  She took her ceremonial oath of office on Wednesday, December 2.  Rep. Jimenez was chosen by the Sangamon County Republican Party to replace the former lawmaker from the 99th District, new Director of Agriculture Raymond Poe. 

Higher Education

·         University of Illinois increases financial aid, acceptance of applicants from Illinois.  An AP analysis of the Urbana-Champaign campus (UIUC) of Illinois’ largest state university indicates that admissions of students who gave an Illinois address as their home address recently increased by 11% over the previous year.  The year-over-year increase used the 2014 UIUC fall term as the baseline and the 2015 fall term as the active population.  

The UIUC admissions office had to make changes in other variables in order to achieve this significant change in the population of students who accepted their admission to UIUC.  A slight drop was recorded in average figures posted by admittees on the primary test, the ACT, used by UIUC for admissions purposes.  The university also offered slightly more generous packages of financial aid to many of its admitted students, with financial aid increasing by $5.4 million over the previous year.  UIUC financial aid is concentrated among students from low-income families and under-represented identity groups.

The changes reported by UIUC and tabulated by the Associated Press represent a partial strategic turn away from the university’s previous “business model” of concentrating its recruiting efforts among international students.  In many cases, international students have very high test scores and pay full or nearly-full tuition rate schedules.  UIUC continues to conduct significant recruitment efforts overseas.  Illinois’ flagship campus reports that 5,295 students with a Chinese home address are enrolled in Urbana-Champaign this fall, representing 12% of total campus enrollment. 

Medical Cannabis

·         Headcount of approved patients reaches 3,600.  The Illinois Department of Public Health announced on Wednesday, December 2 that the number of medical cannabis cardholders approved for permission to visit dispensaries and purchase the drug has risen to a new record of 3,600.  The Department has seen a new wave of application documents submitted after the opening of the first permitted dispensaries last month.

Many Illinois residents have expressed interest in the cannabis card application process.  29,300 residents have started the registration process, and 4,600 of them have submitted a complete application.  Further approvals will increase the current 3,600 cannabis-card count.  The Department of Public Health recommends that those interested in learning more about the process can start by visiting https://medicalcannabispatients.illinois.gov/.      

Pensions – Local Governments

·         Commission on Government Forecasting and Accountability issues report on status of Illinois local government pensions.  As with the State-managed pension funds overseen from Springfield, many local public-sector retirement funds are posting significant unfunded liabilities.  “Unfunded liabilities” are defined by actuaries as balance sheets where the present value of the actuarial liabilities of the system – the cost of future pension payments that must be paid to persons vested in the system – exceed the present value of the actuarial assets of the system.  Actuarial assets are the financial assets actually in hand, multiplied by a prudent estimate of future investment returns.  

The CGFA report showed massive Illinois local public-sector actuarial liabilities in a wide variety of separate funds.  The liabilities could bind future taxpayers in Chicago, Cook County, the (largely Cook County-based) Metropolitan Water Reclamation District, and municipalities throughout Illinois.  CGFA’s actuarial study found that eight separate Illinois local governmental retirement funds were each posting net unfunded actuarial liabilities exceeding $1 billion.   

In some cases, local Illinois public-sector retirement funds were displaying eye-catching excesses of liabilities over assets.  The Fireman’s Annuity and Benefit Fund of Chicago, the retirement fund for Chicago firefighters and medical first responders, has total actuarial liabilities of $4.344 billion.  As against these liabilities are assets which, when multiplied by a reasonable rate of future investment returns, total $988.1 million – only 22.7% of firefighter-fund actuarial liabilities.  In other words, the total sum so far invested by the city of Chicago and set aside for these firefighter retirement pledges is estimated to potentially cover less than one quarter for every dollar of future liabilities. 

In this report, CGFA estimated total Chicago retirement system unfunded liabilities (counting the unfunded liabilities of the nominally independent Chicago School Board) at $32.104 billion, or more than $10,000 for each adult and juvenile resident of the city.

In addition, several Illinois local public sector retirement funds heretofore thought to have been well-managed have fallen into deficit.  This list is headed by the Illinois Municipal Retirement Fund (IMRF), which backs retirement benefits due and owing to a wide variety of municipal employees outside Chicago.  Historically fully funded, the IMRF is now posting net unfunded liabilities of $4.765 billion.  One major factor affecting the balance sheets of retirement funds like the IMRF is that public-sector retirement funds with defined benefits are getting whipsawed by a combination of compounding actuarial liabilities and near-zero investment rates of return on high-quality fixed-income investments.  These fixed-income securities often make up a significant percentage of prudently-managed retirement fund assets. 

The CGFA report was released on Monday, November 30.  CGFA has posted its report, “November 2015: Financial Condition of Chicago, Cook County & IL Municipal Retirement Fund Systems” on its website here (http://cgfa.ilga.gov/home.aspx). 

Transportation – Motor Fuel Tax

·         As FY16 budget crisis continues, leaders agree to advance money to local highway departments.  The Illinois House took action this week to pass amended appropriation language within SB 2039 which will appropriate Illinois Road Fund money and move it to local highway departments throughout the state.  This money will be used for necessary and ongoing wintertime street and road maintenance costs, such as road salt and overtime for snowplow crews.  This money will not come from a tax increase, because these are taxes Illinois motorists are already paying.  Under current law, motor fuel taxes are collected at each Illinois gasoline pump and placed in the Road Fund.  However, the absence of a constitutional balanced budget for FY16 has, up until now, meant that Road Fund monies have gone into sequestration and have not been disbursed to local highway departments.  The House vote on SB 2039 was 107-1-1.

The Illinois Senate has the chance to take action on SB 2039; their leadership has called for them to be session on Monday, December 7.  If this bill is passed by the Senate and signed by the Governor, Road Fund money will be released from sequester and will go to Illinois local governments.  The Rauner administration has expressed its support for making these badly needed payments and making sure that Illinois streets and roads are safe to drive on this winter. 

Unemployment Insurance

·         House sends unemployment insurance (UI) reform bill to Governor, takes action to increase UI benefits for many senior workers.  HB 1285, which was reached by an agreed bill process chaired by the Governor’s office and the Illinois Department of Employment Security, includes provisions to extend the life of the Illinois unemployment insurance program.  The bill also eliminates the so-called “Social Security offset,” a feature of existing State law that, under some circumstances, has led to cuts in unemployment insurance payments to persons eligible for Social Security benefits.  These cuts have been eliminated by HB 1285, which will allow persons eligible for Social Security who are laid off and are eligible for UI benefits to be paid their full unemployment insurance at the same time they collect Social Security. 

The agreed bill process that generated this bill included leaders from business and labor.  Business won long-sought changes in the law governing the eligibility of persons to collect unemployment insurance after employment action has been taken based on employee misconduct.  The bill’s reduction in the UI taxes paid by employers should lead to increased job creation in Illinois.  Representative Dwight Kay fully participated in the bill negotiation process on behalf of his fellow House Republicans and co-sponsored the final version of the bill.  The House approved HB 1285 on concurrence by a unanimous vote, sending the measure to Governor Rauner’s desk for final action.

Winter in Illinois

·         Second shotgun deer season begins on Thursday, December 3.  The four-day season is scheduled to end on Sunday, December 6.  Shotgun licenses are made available through the Illinois Department of Natural Resources and its affiliates.  Separate categories are broken out for residents and nonresidents, and for senior hunters and youth hunters.  Deer hunting, as well as being a long-established custom, has become as essential element of Illinois animal control and traffic safety throughout many regions of the state.

·         Safe Shopping Guide for 2015 Christmas season.  Many parents and relatives of young children are concerned when they learn that a product has been recalled for reasons of child safety.  The Safe Shopping Guide provides detailed descriptions of many of the toys, baby products, children’s clothing, bedding, and other products recalled by the U.S. Consumer Product Safety Commission.  The Guide also provides helpful information for parents and relatives considering the purchase of many types of well-known electronic goods asked for by children.

·         Winter emergency preparedness guide.  The Illinois Emergency Management Agency (IEMA) has posted their annual winter guide to Christmas, holiday, and winter safety.  IEMA is especially conscious of the need for Illinois homeowners to be prepared for possible ice storms and related power outages.  The Holiday Safety Tips list includes homeowner maintenance of flashlights with fresh batteries in a house and car, a battery-powered radio that can access weather alerts, and other items.  

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