Week in Review for 9/2/14 – 9/5/14

Energy – Fracking 
New Quinn fracking rules seen as stalling budding industry in Illinois. The General Assembly enacted legislation in 2013 to add Illinois to the list of U.S. states that utilize horizontal hydraulic “fracking” shale drill operations to increase production of crude oil and natural gas. This is the technology used successfully in North Dakota, Texas, and other states. With the help of fracking technology, U.S. crude oil production has increased to 8.4 million barrels per day and natural gas produced has increased to 328 billion cubic feet per day. The United States is now the world’s largest producer of natural gas and gas liquids.

However, new rules drafted by the Illinois Department of Natural Resources (IDNR) and promulgated on Friday, August 29, are seen as stalling implementation of the new fracking law here in Illinois. Possibly drafted at the behest of environmental advocates that have called for a nationwide halt to fracking, the rules impose substantial and time-consuming new requirements upon applicants for an IDNR permit to conduct fracking operations. Lawyers have told oil and gas drilling firms that they cannot take the risk of drilling horizontally into shale for Illinois oil or gas until they possess a valid administrative-law structure to authorize their operations. Failure by an oil or gas driller to possess a permit that specifically enumerates and approves fracking operations could open a drilling firm to financial liability.

The new rules are seen by many members of the General Assembly who worked on SB 1715, including Rep. David Reis, as going far beyond the scope of the law and as being an unwarranted intrusion by the Illinois executive branch upon the constitutional role of the General Assembly as the shaper of Illinois law. The General Assembly’s Joint Committee on Administrative Rules (JCAR) may be asked, over the next six weeks, to rule on this question. The debate on fracking is expected to continue.

Insurance Tax – Economy 
House Republicans blast Quinn’s new insurance tax. Crain’s Chicago Business broke the story this week on a significant new business tax when it reported that a seemingly innocuous, technical piece of legislation from the Illinois Department of Insurance has been interpreted as a $100 million tax hike on companies headquartered in Illinois.

The Department of Insurance initially portrayed the bill as a technical amendment to existing law, not a tax increase. The Department’s own fact sheet on Senate Bill 3324 made no mention of taxing payments to captive insurance companies or closing “loopholes.”

On Wednesday, Leader Jim Durkin and the entire House Republican Caucus sent a letter to Governor Quinn requesting the Department of Insurance to reverse its interpretation of a law that otherwise will increase taxes on Illinois employers. With unemployment still hovering around 7 percent across Illinois, and as high as 13 percent in some communities, it is unimaginable the administration would impose yet another tax increase on job creators.

The House Republican Caucus letter to Quinn reads in part as follows: “We believe as though members of the General Assembly were misled in order to get the bill passed. Even the bill’s chief sponsor said that he was ‘surprised to learn’ the bill taxed payments to captives and, when informed of the tax hike, urged you to veto the bill entirely or to issue an amendatory veto to remove that provision. Instead, your administration is calling the exemption for captives a ‘loophole’ which the new law closes. Let’s be clear that was never the intent of the bill sponsors or of the General Assembly as a whole, which unanimously passed Senate Bill 3324.”

“Your administration and the Department of Insurance are being way too aggressive in their interpretation of the law and again, we ask that you reverse your interpretation. If not, we will work to repeal this tax hike during the upcoming fall veto session.”

Crain’s Chicago Business has more here.

Senior Citizens – State Retiree Health Care
Co-payment rollback implemented. In an attempt to balance its troubled general funds budget, the State of Illinois attempted in recent months to increase the required co-payments made by retirees in State-overseen health care management systems. This increase was subjected to litigation, and a recent decision by the Illinois Supreme Court (Kanerva v. Weems) found the increase to be unconstitutional and remanded the case to circuit court for further action. An injunction by the Sangamon County Circuit Court to implement the high court’s constitutional funding was issued on Thursday, August 28.

In compliance with this decision, the Department of Central Management Services (CMS) has withdrawn an emergency State rule implementing the premium increase and has directed the State agencies with responsibility over retiree health care to roll back the increase. Health insurance premiums will decrease from 2% to 1% of the annuity for retirees and survivors covered by Medicare, and from 4% to 2% for retirees and survivors not covered (for reasons of age or other causes) by Medicare. The court ordered the increased withholdings to stop for all retiree checks going out on October 1, 2014, and beyond. The State Employee Retirement System (SERS) announced that with respect to its beneficiary population, the premium reduction will be implemented with benefit payments scheduled to be made dated Friday, September 19.

Court action and negotiations continue with respect to refunds to retiree of premium increases already paid. Premiums collected from SERS retirees only have been deposited into an escrow account that currently holds just over $24.9 million. It will likely still be months before retirees begin to see refunds of the premiums they have already paid. The plaintiff’s attorneys will need to work with the court to determine a method of accounting for payments made by each individual retiree across all systems, as well as potential interest payments and deductions for attorney’s fees.

Chicago – Safe Passage
Crime-wrenched city demands State taxpayer funds to escort children to school. News reports indicate that the Quinn administration is contributing $10 million to the Safe Passage program, a social-work program operated with the cooperation of the Chicago Public Schools to reduce violence against schoolchildren by providing escorts to and from school. It is not clear where the money for this State-funded contribution is coming from; the program has not previously been funded by Springfield and the subject was not enumerated in the FY15 Illinois budget.

The Safe Passage program concentrates on areas of criminal gang violence, including neighborhoods where children from a neighborhood said to be controlled by one gang are assigned to attend school in an enemy gang’s “turf.” Chicago Public Schools (CPS) records confirm that truancy statistics sharply increase when children and their families are instructed to cross gang boundaries on the way to school. Need for the program was seen as intensifying after the Rahm Emanuel administration closed almost 50 Chicago schools last year. Pupil transfers following the school closures are forcing more students to cross gang boundary lines in the 2014-15 school year. 24 CPS students were victims of homicide in the 2013-14 school year.

New spending plans, announced on Thursday, August 28, are expected to lead to 1,900 paid Safe Passage escorts being made available for the security-guard service.

2014-2015 school year begins. The new school year marks the startup date for a new sheaf of mandates imposed by Springfield upon local school districts, professionals, and pupils. Many of these mandates are meant to reduce or eliminate the toll imposed by catastrophic health events or incidents of violent crime.

24 new statutory mandates have been created with an effective date coinciding with the new school year. Schools and their students will be required to increase the level of frequency with which they practice evacuating from a school building in case of an emergency. Training mandates are created for the automatic exterior defibrillators installed in schools and other public buildings.

The Quad-City Times details this story here.

Health Care – Medical Cannabis
High prices projected for patients authorized to purchase cannabis in Illinois. Strict security and other requirements intended to hedge in cannabis transfers within Illinois are expected to lead to significant over-the-counter sales prices for cannabis and cannabis-infused medical products. Under the new Compassionate Use of Medical Cannabis Pilot Program Act, a small number of approved patients with specific medical diagnoses will be granted the right to possess a medical cannabis card and enter the small number of secure dispensaries that will be authorized to sell the substance.

Severe limits on the numbers of authorized grow operations and dispensaries will intensify the ability of approved industry entrants to charge prices that will reflect the heavy mandates placed upon their businesses. Experts projected this week that the dispensaries are expected to charge up to $400/ounce for smokable cannabis, equivalent to some street prices. The Chicago Tribune has more on this story here.

Small Business – Cooperatives 
Wheeler bill helps cooperatives. Public Act 98-1122 was one of the final bills signed in the 2014 spring session cycle. Sponsored in the House by Rep. Barb Wheeler, SB 3438 loosens formerly-tight controls imposed by State law on the amount of money individuals can invest in a cooperative. Passage of this bill helps small businesses organized as cooperatives and their employees.

Under the former law, monetary ceilings (imposed prior to the inflationary spiral of recent decades) forbade any friend of a cooperative from investing more than $500 in the firm. A new cooperative seeking a hypothetical $500,000 as its minimal capital for required startup funds would have been required to gather more than 1,000 separate people together in order to legally make the investment. This organizational requirement had begun to make it almost impossible to legally organize a new cooperative in Illinois.

Many cooperatives perform food-production-related tasks. A typical co-op will organize its members, buy a small parcel of land, erect a chicken coop, hire keepers to supervise a flock of free-range birds, and allocate fresh co-op eggs. SB 3438 makes it possible for Illinois participants seeking shares of stock in a cooperative to subscribe up to $10,000 per household.

Smoke-Free Illinois Act – Outdoor Patios 
State agency prepares rulemaking to ban smoking in outdoor patios, beer gardens. The Illinois Department of Public Health is preparing an administrative rule that could shut down tobacco smoking in patios and other outdoor places of public accommodation. These areas, often called “decks” or “beer gardens,” are allowed by the zoning rules of many Illinois municipalities and local governments. They are used by restaurants and taverns to accommodate smokers who are eating or drinking at places where food or alcohol is served. Existing rules already promulgated to enforce the Smoke-Free Illinois Act prohibit the smoking of tobacco at indoor locations where food or beverages are prepared or served. The proposed new rulemaking would expand this prohibition to cover outdoor ancillary locations also used by an establishment for serving.

The proposed rule change will affect the private property of small businesses throughout Illinois. Several owners of licensed establishments have told their legislators and the press that they had built or modified patios and beer gardens in response to specific assurances, including in at least one case an alleged written assurance, from the Department of Public Health that smoking in a covered outdoor location would be acceptable under State law if the smoking area was accessible to servers but not adjacent to an ingress/egress doorway or window.

Comments on the proposed rule change will be accepted by the Department of Public Health through the end of September. Interested parties should contact the Department to gather information on the format, precise deadline, and address for comment submission. A news story from the Springfield-based State Journal-Register on the Smoke-Free Illinois Act rules change can be found here.

State Budget – August 2014
State revenues fall in August. The General Assembly’s Commission on Budget Forecasting and Accountability (CGFA), has released its monthly briefing on State revenues remitted to the State of Illinois in August 2014. The key document for State spending and tax planning purposes was released on Tuesday, September 2.

While Illinois individual income and sales tax revenues remain stable, certain other key revenue streams posted sharply disappointing results in August. Transfers from the Income Tax Refund Fund declined by $334 million, on a year-over-year basis, due to the disappearance of unrefunded one-time individual income tax payments made in December 2012 due to a change in federal income tax law. Measured on the same basis, payments from the federal government dropped $92 million, payments of riverboat tax by licensed Illinois casinos declined by $21 million, and corporate income tax revenues fell by $13 million.

The rate of decline in riverboat gaming taxes, down 45.7% from August 2013 to August 2014 on a 12-month basis, was especially dramatic in terms of percentages and served as a further sign of the state of the casino gaming industry both in Illinois and throughout the United States. Some large casino operations outside of Illinois appear to be facing declining demand for their entertainment services, with three large gaming facilities having closed down in Atlantic City, N.J. in recent weeks. Within Illinois the ten operating, licensed riverboat casinos are further challenged by sharp increases in the number of video gaming operations licensed to provide land-based play. Each facility licensed to offer video games can provide space for as many as five gaming machines.

CGFA will continue to monitor these and other key State revenue streams. Further declines in revenues will continue to stretch the State’s limited resources as it attempts to fulfill so-called spending mandates and pay back past due bills presented to the State for payment.

Transportation – High-Speed Rail
New taxpayer-funded bridge to be built over Kankakee River. The new span, a key element in an overall construction program expected to cost more than $100 million, will be constructed near Wilmington, Illinois. Built to carry passenger trains between Chicago and St. Louis, the railroad bridge will also be used for freight trains operated by Union Pacific (UPRR), one of the United States’ largest railroad firms. The UPRR is the owner of the right-of-way used to carry Amtrak trains that shuttle back and forth between Chicago and St. Louis. The train line provides extensive services to Springfield, the state capital; to Bloomington-Normal, home of Illinois State University; and to other intermediate stops.

The bridge will be built as an element of an overall Chicago-St. Louis railroad reconstruction program that will also include double-tracking the right-of-way between Mazonia and Elwood, Illinois. Work will be performed under the supervision of the Illinois Department of Transportation (IDOT). Completion of the proposed bridge is expected in 2017. The work is part of an overall program that aims at increasing the maximum speed of Chicago-St. Louis passenger train travel to 110 mph. Background information can be found here.

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