Week in Review for 8/29/16 - 9/2/16

Elections – Foreign Hackers
FBI says hackers, believed to have been from Russia, sought entry into Illinois election databases. Access from abroad was to databases operated by the Illinois State Board of Elections (ISBE) to monitor and enforce Illinois election law and election results. The foreign incursion included the possible theft of voter-identification data, including parts of voter Social Security numbers, from as many as 90,000 Illinois voters. The ISBE currently does not believe the access changed any of the data within the database or moved the dials on any of the ways the Board tries to monitor and enforce election law. For example, the Election Code requires disclosure of a wide variety of contributions to campaign committees and the ISBE keeps databases of these disclosures.

The foreign hacks were made public by the Federal Bureau of Investigation’s Cyber Division on Monday, August 29. The office of the U.S. Secretary of Homeland Security states that the Secretary has contacted state election officials, presumably including Illinois officials, to offer help in building or reinforcing “firewalls” around state election commission data.

Pensions - $420 Million Pension Hit
Teachers Retirement System (TRS) approves draw on State general funds of at least $420 million/year. The move came under state law that writes actuarial estimates of future pension investment returns into a position close to the top of the variables that determine future State spending. The State is required to make deposits into underfunded state-managed pension funds at levels intended to ramp shut the gap between current funding status and 90 percent of “full funding.” The gap decreases when future investment returns on existing pension monies rises, and widens with these expected future return rates decrease.

Under current global conditions in which the rate of return on high-quality fixed-income assets approaches 0.0%, it is tough for investment professionals and actuaries to project a healthy rate of return for existing pension assets. The gap, therefore, keeps widening. At its meeting on Friday, August 26, the board members of the State’s largest pension fund – the Teachers Retirement System (TRS) – changed this key future-rate-of-return number from 7.5% to 7.0%. The move reflected TRS investment advisors’ advice that they could not prudently invest pension assets and get a higher figure.

This move automatically increases the amount of money TRS can demand from the State for teacher pensions by approximately $421 million/year. Governor Rauner warned TRS that this additional demand would be piled up on top of all of the other unfunded and underfunded features of the State’s current budget situation. The news event reinforced the warnings from Wall Street experts and credit-rating agencies that Illinois’ structural budget situation is rapidly approaching a crisis that demands massive reform actions.

Budget – Bill Backlog
Moody’s Investors Service estimates that Illinois’ past-due bill backlog could grow to $14 billion. The bill backlog, for Illinois and its creditors, is the volume of monies represented by bills presented to Illinois and not yet paid. Major creditors include providers of health-care services, providers of services such as electricity to state offices, and providers of supplies such as food and clothing to state prisons. The current bill backlog is tracked and frequently updated by the office of Comptroller Leslie Geissler Munger. This week, the backlog of unpaid bills hovered above $8.0 billion.

In a report published Wednesday, August 31, Moody’s analyzed signs that this bill backlog could soon grow even further in size. Chief among these reasons is the lack of a balanced State budget. The “stopgap” spending plan enacted by the General Assembly in June 2016 did not contain revenues to match the appropriated expenditures, and did not provide for many of the expenditures that the State is legally required under existing law to spend before the end of fiscal year 2017 (ends June30, 2017).

A “structural deficit” exists when growing expenditure mandates, particularly the costs of medical care and pubic-sector worker pensions, are not matched by commensurate growth in any existing State tax or revenue stream; neither existing rates of income taxes, nor sales taxes, nor gambling taxes, nor any combination of the above will raise the required sums of money. Moody’s believes that, absent additional action to balance the budget, by the end of FY17 the State will be $14 billion or more in the red. The difference between the State’s current $8 billion in past-due bills and Moody’s projection of $14 billion at fiscal year’s end reflects the current $6 billion/year structural deficit being faced by Illinois.

Moody’s report included a warning that, absent action by the General Assembly to balance the budget as required by the Constitution, the firm may be forced to further lower the State’s already tottering credit rating. Currently rated at Baa2 by Moody’s, Illinois’ general obligation debt now hovers at only two steps above “junk bond” levels. In terms of its credit rating, Illinois is currently the lowest-ranked among the 50 states.

Chicago – Red-Light Cameras
Chicago red-light camera official sentenced to 10 years in prison. Chicago city executive John Bills, convicted earlier in 2016 for taking bribes in connection with Chicago’s ties to camera operator Redflex, was sentenced this week to 10 years in prison. The sentence was handed down on Monday, August 29.

In the widely-followed corruption case, prosecutors presented evidence that Bills had taken up to $2 million in cash and gifts from Redflex, the monopoly provider of red-light camera services to the city of Chicago. In the widely-disparaged program, the city allowed Redflex to mount automated cameras in red-light-controlled intersections. Snapshots of motor vehicles passing through an intersection would be followed by an automated letter to the registered owner of the vehicle announcing a heavy fine and demanding payment. As the alleged offenses uncovered by Redflex had never been witnessed by any human being, accused motorists found that they had no right to confront an accuser in court – because there was no accuser.

In addition, under the controversial contract between Redflex and the city of Chicago overseen by corrupt official John Bills, both parties had a commingled interest in manipulating Chicago intersection red-light times to maximize the number of offenses committed. Proceeds from the fines were shared by Redflex and the city. Studies of camera-mounted Chicago red-light intersections have shown yellow warning lights flashing for brief fractions of a second, trapping an estimated 77,000 motorists into involuntary violations. At the same time as he was overseeing the lucrative contract, John Bills was receiving substantial gifts from Redflex, including cash, vacations, an apartment, and a Mercedes-Benz.

While Chicago severed its contractual ties with Redflex after the Bills scandal broke, the red-light cameras have not gone away. Litigation to take down the cameras has run into a brick wall in federal court. The controversial imaging devices are hitched to many Chicago street corners to this day, buzzing eagerly under the control of their new operator, Xerox.

Criminal Law – Illinois Prison Headcount
Illinois Department of Corrections (IDOC) reduces prison headcount. The new numbers reflect Illinois prison populations as of July 1, 2016. They show that 44,680 inmates were in state prison confinement in July 2016, down from 47,165 in 2015 and 48,921 in 2014. The IDOC is housing and feeding 8.7% fewer prisoners at state expense than were being confined two years ago. The cost-per-prisoner to confine an inmate in state prison, a figure that is now partly driven by federal mandates and court orders, is approaching $40,000 per prisoner per year.

House Republicans have begun working with Governor Bruce Rauner to develop ways to reduce the Illinois prison population and its burden on Illinois taxpayers. The bipartisan Illinois State Commission on Criminal Justice and Sentencing Reform has heard testimony from law enforcement and corrections professionals to better differentiate between violent and non-violent offenders. In some cases, some non-violent offenders can be offered a chance to live in their home communities under close court supervision. Illinois has begun to enact laws, in summer 2015 and again in summer 2016, to encourage the courts to offer alternative dispositional pathways to some non-violent offenders. This also affects Illinois county jail headcounts, which also affect Illinois taxpayers. An example includes the new 2016 law to change the penalty structure for possession of small quantities of marijuana.

Economy – Amazon
New Amazon distribution center to open in Monee. The 850,000-square foot warehouse and distribution center will be Amazon’s fourth in Illinois and its third in Chicago’s south suburbs. The online retailer has already opened or announced plans to open centers in Joliet, Edwardsville, and Romeoville. The Joliet facility, at full employment, will employ an estimated 2,000 workers, and the Edwardsville facility will employ approximately 1,000 workers.

One of America’s largest retailing firms, Amazon posted revenues of $107 billion in 2015. Its fulfillment centers serve complex break-bulk functions related to the proper addressing and delivery of millions of goods shipments to customers. While Amazon’s hiring creates jobs in the communities where its fulfillment centers are located, conventional brick-and-mortar retailers may feel pressure from online retailers such as Amazon.

Education – Concussion Guidelines
New concussion guidelines affect coaches and players in contact sports. The new guidelines, adopted by the Illinois High School Association (IHSA) according to State law, are aimed at reducing the frequency of concussions in contract sports. One key feature of the new guidelines is a requirement that student-athletes be tested and monitored during contact-sports activities. The oversight activities are meant to diagnoses concussion events as fast as possible.

The guidelines also require that, once a student-athlete is found to have sustained a concussion or suspected concussion, they must undergo further monitoring and testing prior to being asked to resume their studies or authorized to return to a playing field. Once diagnosed, they will not be able to play again until a doctor has granted explicit permission for them to do so. The new concussion guidelines will be enforced, in each school, by the concussion oversight teams that each Illinois school that plays sports is now required to have.

The guidelines followed passage of the Youth Sports Concussion Safety Act, a 2015 law that asked the IHSA, licensed Illinois athletic trainers, and other professionals and educators to come together to develop a new program for reduction of sports concussions starting in the 2016-17 school year.

General Assembly – Bill Signings
As August comes to end, House and Senate bills become law. The General Assembly passed 443 bills in the first half of calendar year 2016, and more than 90% of these bills (403 of the 443) have become law. Of the forty bills vetoed by Governor Bruce Rauner, 30 are total vetoes and ten are amendatory vetoes. The Constitution of Illinois gives the General Assembly one shot at accepting the Governor’s amendatory vetoes or overriding his amendatory and/or total vetoes. Acceptance of an amendatory veto requires a simple majority in both houses, while overriding a Governor’s veto requires a three-fifths majority in both houses.

Actions on vetoes are a traditional focus of the General Assembly’s fall veto session. The veto session will be held on the third and fifth weeks of November, straddling Thanksgiving.

Higher Education – Students Leave Illinois
Studies show many students with high test scores have left Illinois. Reasons include threats to the budgets and even the accreditation standings of some Illinois public universities. The “stopgap” budget enacted by the General Assembly in June 2016 will enable Illinois public universities to keep the lights on and the doors open in 2016-17, but are seen as a funding level that imposes a long-term threat to the standings of many of these institutions. Several credit rating agencies have already downgraded the status of Illinois public-university debt. In July 2016, the Higher Learning Commission asked Chicago State University to be prepared to start showing cause why it should not have its accreditation pulled.

As a result of these and other trends, some Illinois high school graduates have begun to choose colleges in locations across state lines and not in Illinois. This is not a new trend. For example, in fall 2015 the University of Wisconsin at Madison reported enrolling 2,636 undergraduates from Illinois. Many states that border Illinois have public colleges/universities that rank highly on a variety of lists. Illinois’ higher education outmigration percentage is the highest among the U.S. Midwestern states.

Illinois public universities are forbidden, by law, from imposing the costs of their current budget squeeze upon Illinois in-state students who are already attending university in their second, third, or fourth years. Many Illinois public universities are trying to make up for lost tax revenue by increasing tuition for out-of-state students. However, this means that potential students from outside of Illinois are discouraged from accepting their admission to our universities and coming to Illinois. The result is a “student deficit” in which more post-high-school students are leaving Illinois than are coming to Illinois, with possible long-term effects upon the State’s economy and productivity.

Human Services – Medicaid Proposal
Twelve agencies discussing Medicaid revamp. One of the causes of Illinois’ budget crisis is the compounding cost of the State’s Medicaid program. Medicaid, the family of programs that provides reimbursements for medical treatments provided to many persons with challenged personal or income standing, spends billions of dollars every year. It is an “entitlement” program, which means that the General Assembly cannot easily enact legislation to cut the cost of the program. Most of its beneficiaries have a right, under federal law, to many of the services that the Illinois Medicaid program provides to them.

Some, although by no means all, of the costs of Illinois Medicaid are covered by the federal government. One of the features identified by the Rauner administration are growing gaps between what Illinois could apply for in Medicaid aid and the reimbursements in fact received by the State. Next week, the Rauner administration will hold hearings in Springfield and Chicago on an interdepartmental proposal to close some of these gaps. Advocates believe that adoption of the Rauner plan could create standing for Illinois to apply for $2.7 billion in additional federal Medicaid federal funds over a five-year period. Features of the proposal include improved housing services for persons whose health concerns are deemed to put them at risk for becoming homeless and pre-release services for prisoners.

Implementation of the Rauner proposal will require proof of ongoing cooperation between many different state agencies. In many cases, the agencies will have to standardize their database software in order to share client data on a frictionless basis. The Rauner administration’s ongoing reorganization of Illinois’ data management capabilities is an integral part of this proposal. The General Assembly will, in many cases, have to sign off on individual parts of the proposal. At next week’s hearings on September 8 and 9, twelve separate State agencies will be called on to provide public testimony on their readiness to implement this proposal.

Transportation – School Bus Penalties
Sharp penalties for passing a stopped school bus. With classes resuming in almost all Illinois school districts, school buses are once again a familiar sight in morning and afternoon hours. Significant penalties exist in law for the act of passing a stopped school bus with flashing lights and extended stop-sign arm. Traffic must remain stopped until the lights have stopped flashing and the stop-sign arm withdrawn. In addition to fines imposed by the local court, the Secretary of State is instructed by law to suspend, for three months, the driving privileges of a licensed driver who violates this law. A Secretary of State hearing officer may, but is not required to, grant restricted-driving privileges to a driver whose license is under suspension for this offense.

These penalties apply to traffic going in both directions on any road narrower than four lanes. On a four-lane road with at least two lanes of traffic moving in the opposite direction to the bus, only motorists going with the bus are required to stop.

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