Credit Ratings – FY16 Budget Crisis
Fitch, Moody’s downgrade Illinois. Fitch Ratings, whose credit ratings are closely watched by Wall Street and the global investment community, reduced Illinois’ “general obligation” (GO) bond rating from single-A-minus, the former ranking, to one notch closer to junk-bond status on Monday, October 19. The new BBB+ rating is only two notches above the lowest investment-grade rating (BBB-) and is three notches above BB+, which signals non-investment-grade (“junk bond”) status. Illinois’ GO bond rating is the lowest among the 50 states.
In their move, Fitch pointed to the “continued deterioration of the state’s financial flexibility during its extended budget impasse” and to Illinois’ act of continuing to “spend in most areas at the fiscal 2015 rate, which is expected to lead to a sizeable deficit.” The Fitch move affects $26.8 billion in Illinois’ outstanding general obligation bonds. Other Illinois-related debts, such as debts of the University of Illinois and other State universities, tend to move up and down in tandem with the benchmark Illinois GO rating.
Following Fitch’s downgrade, Moody’s Investor Services downgraded its ratings on Illinois bonds. Thursday, Moody’s downgraded Illinois outstanding $27 billion of GO bonds to Baa1 from A3, while also lowering ratings on the state’s sales-tax (Build Illinois) bonds to Baa1 from A3, and on the state’s subject to appropriation bonds to Baa2 from Baa1. The outlook for all of these obligations remains negative.
“The downgrades reflect weakening of the state’s financial position during 2015 and our expectation that an ongoing budget stalemate will lead to further deterioration,” Moody’s said in a statement. “Structural budget imbalance, accounts payable, and other fiscal metrics are back-tracking, despite a favorable economic climate, leaving the state more vulnerable to the next economic downturn, barring unexpectedly strong and swift corrective actions.”
James R. Thompson Center
Thompson Center sale could move major Chicago land parcel to private sector. HB 4313, sponsored by House Republican Leader Jim Durkin with the support of Gov. Bruce Rauner, is aimed at moving the Loop city block bounded by Clark, Lake, LaSalle, and Randolph Streets to its highest and best economic use.
The Thompson Center, the 17-story office building that currently occupies the site, contains 813,226 usable square feet of office space – considerably less than the square footage of comparable redeveloped Loop square blocks. As State real property, it is exempt from city and county property taxes. Moving the parcel to the private sector for redevelopment could increase Chicago assessment rolls and reduce burdens on other Chicago property owners. Approximately 50 State agencies, employing almost 2,200 workers, currently occupy the Thompson Center. New space will have to be found for these agencies and workers if the building were to be sold.
The Department of Central Management Services (CMS) is briefing lawmakers on the economic challenges of continuing to operate the Thompson Center as a State office building. CMS reports that continued tight budgets have prevented the State, for more than a decade, from carrying out necessary continuous capital maintenance. The building in its current form has built up an accumulated deficit of unperformed capital maintenance estimated at nearly $100 million. This figure represents work on the buildings’ “systems” – electrical, furnishings and fittings, plumbing, security, HVAC, elevators, and other – that will have to be done in the next few years if the center is to remain habitable. Alternatively, the site could be designated for redevelopment.
Auditor General – Mautino
General Assembly approves appointment of Rep. Frank Mautino. The Auditor General is a constitutional position created to supervise the audits periodically performed upon State agencies and other public-sector offices within Illinois. The position supervises about 90 full-time employees and has a budget of $30 million, including funds earmarked for contract audit professionals. On Tuesday, October 20, bipartisan majorities of the Illinois House and Senate approved SJR 35, appointing Rep. Frank Mautino (D-Spring Valley) to be the new Illinois Auditor General. His ten-year term will start on January 1, 2016.
The duties of the Auditor General are set forth in Section 3 of Article VIII of the Constitution of Illinois. The Auditor General, and his or her office, conduct the audit of public funds of the State, and shall make additional reports and investigations as directed by the General Assembly. Retiring Auditor General Bill Holland, who has served since 1992, carried out many high-stakes audits and investigations during his time in office. Scrutiny from Holland’s office is credited with being one of the forces leading to the law enforcement investigation, arrest, impeachment, and conviction of former Gov. Rod Blagojevich.
Budget stalemate continues; Comptroller Munger issues financial update. Comptroller Leslie Geissler Munger told Illinoisans on Friday, October 16 that the State’s unpaid bills, in the absence of budgeted appropriations for FY16, have reached $6.9 billion. Based on the assumption that no significant changes will alter current trends, the State’s backlog of unpaid bills will be about $8.5 billion by December 31, 2015.
While many subsets of the FY16 budget are being protected by at least 14 separate court orders, consent decrees, and continuing appropriations laws, not all of the budget is so protected. A major November 2015 pension payment of approximately $560 million, required by certified actuarial projections, is expected to be delayed. Payments due to many nonprofit socials service providers, Illinois university students and their institutions of higher education, counties, municipalities, 9-1-1 emergency call centers, and many other vendors are facing delay. Layoffs are taking place due to the inability of the State of Illinois to enact a constitutionally balanced budget.
Action once again delayed on State budget, other key issues. The Illinois House and Senate met in fall session on Tuesday, October 20, but House Democrats did not take substantive action on the general funds portion of the FY16 budget. As noted above, the General Assembly took action to select a new Auditor General. Testimony on the budget was heard, and the Democrats moved amendments to a bill to appropriate money from GRF and “other State funds” for various individual line items related to the testimony.
This week’s General Assembly action did not replenish the exhausted State general funds balance that forms the heart of the current unbalanced-status of the State budget. Nothing in this action was expected to affect the State’s declining debt and credit ratings. The next General Assembly session day is scheduled for Tuesday, November 10.
Ex-State superintendent of schools collected nearly $207,000 on way out the door. An investigation by the Chicago Tribune showed a substantial transfer of public funds to ex-State Superintendent of Schools Christopher Koch earlier this year. The payment was approved and made in conjunction with former Superintendent Koch’s agreement to leave office. Governor Rauner appointed the current schools chief, Tony Smith, in Koch’s place.
The Illinois State Board of Education is the supervisory board over elementary, high school and K-12 school districts of Illinois. It is a quasi-nonpartisan board whose members are appointed by the Governor. It has the currently controversial duty of examining and enforcing local school district compliance with a wide variety of standardized test mandates, including mandates intended to enforce so-called “Common Core” standards. ISBE oversees the certification and re-certification of teachers and other educator professionals, monitors the financial integrity of school district finances, and performs other mandated oversight tasks.
Superintendent Koch, like previous superintendents, served a fixed term and left after his term expired. The Board paid Koch $89,000 in formal severance pay, and an additional $118,000 for Koch’s 138.5 unused vacation days. Koch has returned to the private sector.
Chicago – Property Taxes
City Council advances $589 million property tax increase package. The City Council committee vote, which supported a request made by Mayor Rahm Emanuel, was 17-10. More than 90% of the projected increase is slated as a payment to underfunded police/firefighter pension funds. These “first responder” pension funds represent moneys that were supposed to have been set aside in prior years to cover benefits contractually promised to retired Chicago police officers and firefighters.
Concerns have been raised by the nonpartisan Chicago Civic Federation that even $589 million/year may not be enough to face the problems raised by Chicago’s overall fiscal crisis. The Emanuel administration has attempted to defend its property tax hike proposal by pointing to a proposed new Chicago partial property tax exemption for homesteads, but this homestead exemption proposal has not yet been approved by either house of the Illinois General Assembly.
College of DuPage
College of DuPage’s board votes to terminate President Breuder. The vote to terminate Breuder was called on Tuesday, October 20. The community college president had gone on extended leave of absence in April 2015, effectively ending Breuder’s leadership of the post-secondary institution. The College of DuPage (CoD), with more than 29,000 students, is the second-largest public post-secondary institution in Illinois. Breuder had become the college’s president in January 2009 and had presided over a major expansion in the college’s capital expenditures, operating expenditures, property tax extensions, and tuition revenues. More and more questions had been asked about CoD’s fiscal and budget policies. Several of these questions have evolved into legal investigations by prosecutors, in which Breuder and some of his top aides are said to be targets. The investigations are legally separate from, although closely related to, the action to terminate Breuder.
At the time he left the president’s office in April, Breuder submitted documentation to the College in which he asserted he was taking an approved medical leave. The longtime President and his counsel continue to assert that the transfer of this documentation, as well as other actions taken by Breuder, force CoD to hold harmless a lucrative $763,000 severance package approved by a previous lineup of the Board of Trustees. It is further asserted that this and other standings enjoyed by Breuder effectively prevent the current Board of Trustees from terminating Breuder for cause. The current Board of Trustees, by this week’s action, signaled their disagreement with this legal interpretation of Breuder’s employment status. Extensive preparations for litigation have taken place. Breuder responded to the vote to terminate by suing the College, claiming wrongful termination, but the Board believes that the legal work done by their counsel supports their standing to take this week’s action.
Education – Graduation Rates
Illinois high schools increase their graduation rates. The increase, tallied for school year 2013-2014, reflects a higher number of high school graduates as a proportion of those entering high school. For 2013-2014, the rate for Illinois was 86.0%, up 2.8% from the 83.2% reported in 2012-2013. Higher graduation rates mean fewer dropouts. The new numbers were reported by the U.S. Department of Education on Monday, October 19.
Illinois has room for improvement in its high school graduation rates. The 2013-2014 report shows 19 states scoring above Illinois. All five neighboring states – Indiana, Iowa, Kentucky, Missouri, and Wisconsin – outscored Illinois on high school graduation rates in 2013-2014. Iowa’s graduation rate, 90.5%, was #1 among the 50 states measured.
Firewood restrictions lifted. The Illinois Department of Agriculture has lifted previous restrictions in place against the legal transport of firewood across Illinois. The restrictions were meant to delay the spread of the emerald ash borer, a destructive pest beetle from East Asia that wounds and kills North American ash trees. The quarantine has failed, and more than 250 million ash trees have died across the American Midwest. Some ash trees, if they are continually treated with insecticides, may survive. Campers and other users of firewood are still being told not to carry firewood across state lines. The emerald ash borer was first caught near Detroit in 2002, and the now-lifted quarantine restrictions were imposed in 2007. The change in State policy was announced on Wednesday, October 21.
Gambling – Fantasy Sports
Gaming Board to ask Attorney General for opinion on daily fantasy sports betting websites. The Gaming Board’s intent was announced on Friday, October 16. Daily fantasy sports betting websites, such as DraftKings and FanDuel, are under serious regulatory scrutiny in many U.S. states, headed by Nevada. Critics say some of these sites have crossed the line and are offering online casino-like experiences. Nevada has ordered several daily fantasy sports sites to be shut down.
Daily fantasy sports betting sites have some similarities to amateur fantasy sports wagering, in that wins are based on actual sporting events. However, many gambling experts say that the timeframes within which daily sports-based betting sites take in and pay out money, and other factors, turns these games from being “games of skill” to “games of chance.” This distinction between games of skill and games of chance is one of the key dividing lines that help to define a gambling transaction separately from a non-gambling transaction. Unless specifically legalized, gambling is a Class A misdemeanor (up to 1 year in county jail) under state law.
O’Hare International Airport
New runway opens; noise complaints heard. In what is expected to be another move towards conclusion of the transition at Chicago’s O’Hare Airport from converging runways to a parallel- runway layout, Illinois’ largest airport commissioned its fifth east-west runway on Thursday, October 18. The new runway saw its first full week of operation this week, and many noise complaints were logged by residents and property owners east and west of the busy facility’s “footprint.” Online noise complaints can be lodged here.
Advocates of the multi-year O’Hare redevelopment project assert that the old crisscrossing runway layout created unnecessary delays and threats to public safety from converging jet airliners. The crisscross layout was in universal use during the first years of jet aviation after World War II, but has arguably been superseded in many of the world’s newest airports. Construction of a series of parallel east-west runways has added to the burden of jet noise inflicted upon residents of specific residential and commercial neighborhoods in the Chicago area. More and more of the planes that take off from, or land at, O’Hare Airport fly over their homes. The O’Hare Noise Compatibility Commission cais an intergovernmental agency that oversees noise reduction efforts at O’Hare, including the “Fly Quiet” program. Critics point out that the Commission is dominated by its largest municipal member, the City of Chicago, which owns O’Hare Airport. This could be seen as a conflict of interest.
Rauner Administration Reaches Agreements with Trade Unions. After several months of good faith negotiations, Governor Bruce Rauner agreed to terms on new four-year collective bargaining agreements with the International Union of Operating Engineers, the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry, and the International Association of Machinist and Aerospace Workers. The last set of agreements expired June 30, 2015.
The new contracts cover workers at the Departments of Agriculture, Central Management Services, Corrections, Historic Preservation, Human Services, Juvenile Justice, Military Affairs, Transportation, Veterans’ Affairs, and the Illinois State Police. The employees are all professional tradesmen and women who work as stationary engineers and plant operators, plumbers and steamfitters, and machinists.
The tentative agreements are being submitted to the membership of the trade unions for a ratification vote. The terms of the tentative agreements are confidential until the end of the ratification process.
As a continuation of the productive negotiating sessions, the trade unions and the Governor’s Office also pledged to form a long-term relationship to improve employer-labor relations in state government.
Autumn in Illinois
High school football season approaches the playoffs. 575 Illinois high schools are enrolled in the Illinois High School Association boys’ football program and 256 of them will qualify for playoff berths. Schools are divided into eight classifications, from 1A to 8A, with32 teams in each classification bracket. The first round of the playoffs will begin on Friday and Saturday, October 30-31. After a series of elimination games, the final eight playoff games to determine the champions of each class will be played on Friday and Saturday, November 27-28. These final games are always played on Thanksgiving weekend. Check your local newspaper or high school website for details.
Remaining firearm lottery deer-hunting permits go on sale. The lottery-drawing sale began on Wednesday, October 21. Resident and non-resident deer permits are sold by the Illinois Department of Natural Resources. The first firearm deer season will begin on Friday, November 20, with shooting allowed starting one-half hour before sunrise on that day and ending one-half hour after sunset on Sunday, November 22.
Pumpkin season across Illinois. Illinois is the #1 pumpkin-producing state in the U.S. The vine has been grown in sandy, irrigated Illinois soil since Native American days. Pumpkin-friendly soils can be found centered in Tazewell County east of Peoria, which is also the home of the only cannery plant in the U.S. that specializes in the processing of farm-grown pumpkins into pulp for pastries and pies. Other Central Illinois counties that grow many pumpkins are Mason, Peoria, Stark, and McLean. Unfortunately, heavy rain in the summer of 2015 has damaged production this year. After the pumpkin season is over, however, Illinois-grown winter squash will be enjoyed for further months.
Week in Review
Get the Week in Review emailed directly to your inbox! Sign up today to get a first-hand look at the continuing legislative and fiscal challenges facing policymakers in Springfield.