Week In Review for June 7, 2013

Fitch, Moody’s cut State’s bond rating again; reduction is described as response to General Assembly’s May 2013 inaction on pension reform.  The Fitch reduction, announced on Monday, June 3, was from “A” to “A-”, and the Moody’s reduction, announced on Thursday, June 6, was from “A2” to “A3.”  Although these letter grades do not look to outsiders like bad letters, bankers and other professionals treat these letters as bad signs when they are displayed by a public-sector entity.

The Fitch and Moody’s ratings reductions further intensified the reputation of Illinois as the state with the lowest credit rating in the nation.  States traditionally pay among the lowest interest rates when choosing to borrow money, because they (unlike private borrowers) enjoy an unlimited right to replenish their coffers by raising taxes.

Illinois’ low credit rating reflects growing fears on Wall Street that the Prairie State, and its $27.5 billion in general-obligation debt, is “hitting a fiscal wall” – jobs leaving Illinois after the major January 2011 income tax increase, and the continuing presence of $100 billion in unfunded pension liabilities, are interacting with each other to create an insoluble dilemma.

A special session of the General Assembly, earmarked to deal with pension issues, has been called for Wednesday, June 19.

Chicago Public Schools face $400 million pension “ramp” in 2013-14 school year.  The Illinois House’s decision on Friday, May 31 not to grant a “holiday” from the “ramp” could create a Chicago school budget crisis in summer 2013 that could come to be discussed in tandem with the overall State pension crisis.  The defeat of SB 1920, as amended in the House, means that Chicago Public Schools are expected to increase their pension contribution from $200 million in school year 2012-13 to $600 million in school year 2013-14.  The vote on SB 1920 was 39-78-1.    

Cronus Chemical gets go-ahead to build $1.2 billion nitrogen fertilizer plant near Tuscola.  A State tax incentive package was a key element in the decision to construct the facility, which will refine anhydrous ammonia and urea from atmospheric nitrogen for sale to local farmers.  These chemicals are in high demand; many Illinois corn farmers have responded to high market prices for the ethanol-production grain by pulling back on nitrogen-fixing rotation plants such as soybeans.

The plant, which may use some of the increased supplies of natural gas expected to be generated from southern Illinois’s New Albany Shale formation under a separate law also enacted in spring 2013 by the General Assembly, is expected to create more than 1,500 construction jobs and 150 permanent jobs in east-central Illinois.

The Tuscola proposal was included in SB 20, the omnibus economic development package of spring 2013, which was approved by the House on Thursday, May 30 and by the Senate on Friday, May 31.  State Representative Adam Brown (R-Champaign) strongly supported inclusion of the Cronus incentives in the overall economic development package, as he had previously sponsored separate legislation (HB 2496) for the fertilizer plant.

Department of Natural Resources welcomes passage of Illinois “fracking” law.  DNR will start a search at once to begin the process to hire the specialized personnel necessary to carefully oversee and regulate this new industry.  

“Fracking” refers to the recently-invented process of deep-drilling a production well into a thick bed of tight shale rock that is saturated with crude oil or natural gas, and then freeing up the oil and gas by horizontally drilling outward from the vertical production shaft and then forcing specialty sand, pressurized water, and a variety of chemicals into the shale bed.  The pressure and chemicals are meant to fracture open the shale and release the hydrocarbons, which is where the word “frack” comes from.  Fracking procedures have led to dramatic increases in oil and gas production in North Dakota, Texas, and several other states, and the thick New Albany shale bed that lies underneath much of far southern and southeastern Illinois is a type of shale that is very similar to the rocks that include crude oil in other states.  Fracking may create as many as 47,000 Illinois jobs, especially in southern and southeastern Illinois.  

The fracking bill, SB 1715, was sent from the General Assembly to the Office of the Governor on Thursday, June 6.

Local government
Local government tax-and-borrow loophole scaled back under House Republican bill approved by the General Assembly.  Rep. David McSweeney (R-Cary) was the lead sponsor of the measure, which was approved in its final form by the House on Thursday, May 30.  

HB 983 was aimed at the well-known “alternative revenue bond” loophole.  Under this loophole, State law allows Illinois local governments to issue millions of dollars’ worth of property-tax-backed bonds whenever the local government and its hired consultants project (at the time of the bond sale) that user fees will generate a cash flow to service the borrowings.  If the project is built and the user fees fall short, however, the burden of servicing the bonds shifts to the property taxpayer, who has no recourse.  

HB 983 widened the pathway for local taxpayers to circulate a “back door referendum” petition when a dubious alternative revenue bond project is published by a unit of local government.   The unanimous House vote of 116-0-0 sent this popular measure to the Governor.