Week in Review for June 17, 2013

General Assembly holds special session on pension issues; appoints conference committee.  The rarely-used conference committee section of House and Senate rules enables both chambers, in the event of an otherwise insoluble impasse, to appoint ten members (six members of the majority party and four members of the minority party) to discuss how to break the deadlock.  SB 1 (Cullerton/Madigan) has been approved by both houses of the General Assembly with different answers to the State’s pension crisis.  The Senate has repeatedly turned down the House’s language, and the Senate language is characterized by many parties as not adequate to solve the crisis and has not been called in the House for a vote.  
The SB 1 Conference Committee will attempt to resolve the issue in a way that will allow the Governor to call the General Assembly back into special session with language in front of them that can gain the approval of both chambers.  The Governor has asked for new language to be prepared no later than July 9.

Major “fracking” law enacted to allow horizontal drilling procedures in Downstate Illinois.   Engineers have discovered a revolutionary new procedure to extract crude oil and natural gas from thick beds of shale rock.  Up until now, American shale formations held hundreds of billions of dollars’ worth of job-creating hydrocarbons with no way to extract them.  The drillers puncture a master vertical hole into the shale bed, drill fan-shaped horizontal holes outward from the vertical hole into many directions of the bed, and then pump formulas of high-pressure water, specialty sand, and individualized chemical mixtures into the shale to fracture and partly dissolve the rock and release much of its oil and gas.  
The signing of SB 1715, the fracking bill, was acclaimed throughout Illinois as a pathway towards increased energy production and stabilized prices for oil and gas.  Significant fracking production led to an increase in U.S. oil production of more than 1 million barrels a day in 2012, with much of the increase coming from fracking law pioneer states North Dakota and Texas.  A mammoth shale bed in southern and southeastern Illinois, the New Albany Shale, is believed to contain significant quantities of hydrocarbons ready for production.  Passage of SB 1715 may lead to the creation of an estimated 47,000 new jobs throughout Downstate Illinois.  Representatives David Reis (R-Ste. Marie) and Mike Bost (R-Murphysboro) were lead sponsors of SB 1715 and worked in the negotiations to create a bill that received the support of many facets of the energy industry and many environmental advocates.  The bill was signed into law as P.A. 98-22.
Governor’s Actions
Governor signs bill to reduce aid to schools, local governments.   The Governor’s actions on Wednesday, June 19, reduced the size of a slice of money that is paid to Illinois school districts and units of local government.  The slice, called the “corporate personal property replacement tax” or CPPRT for short, is money raised by a supplemental income tax that is imposed on corporations earning income in Illinois.  This money is used by school districts and local governments for general operating expenses, and compensates them for the fact that they can no longer charge a personal property tax on the moveable properties owned by corporations (this power was taken away by the Constitution of 1970). 
CPPRT money makes up a significant portion of the budgets of Illinois schools and local governments.  The nonpartisan Commission on Government Forecasting and Accountability (CGFA) has estimated that $1.054 billion in CPPRT monies will be transferred in FY13.  However, the CPPRT is vulnerable to statutory moves in which money is taken out of the fund created by this tax, and used for other purposes.  In the Governor’s actions on June 19, budget implementation officers were authorized to take money out of the CPPRT for chief election clerks, county clerks, county recorders, regional offices of education, educational service centers, operations of the State Board of Elections relating to the supervision of elections for offices of local government, and expenses of the Illinois Educational Labor Relations Board, thereby reducing the remaining monies in this fund that will be allocated by formula to school districts and local governments for general operating expenses.  
The Governor’s action this week was his signature on P.A. 98-24, the former SB 1329, which is the FY20914 Budget Implementation Act.  The House vote on SB 1329 was 66-52-0, with many House Republicans voting in defense of school aid funds and against the Act.

Attorney General receives second extension on concealed-carry deadline.   After the federal Seventh Appellate Circuit ordered the State of Illinois to conform its unlawful use of a weapon laws (which ban concealed carry) with the federal Second Amendment (which protects the right to keep and bear arms), the General Assembly passed a bipartisan measure, HB 183, to enact concealed carry in Illinois.  This bill is currently on the Governor’s desk awaiting his signature or veto.  HB 183 was passed in the spring 2013 session because the Seventh Appellate Circuit decision had ordered a new concealed-carry law to be fully enacted and in place by June 9, 2013.  
Attorney General Lisa Madigan has previously requested, and received, permission from the federal courts to delay implementation of this deadline by one month, until July 9.  On Tuesday, June 18, the Attorney General received a second extension, this time on the decision whether to appeal the July 9 deadline to the federal Supreme Court.   During the extension periods, the old State law will remain on the books and the Governor will not be faced with an immediate decision to sign or veto HB 183.  
In this complex situation, Second Amendment advocates have begun to accuse key elected statewide officials of foot-dragging their response to the actions of the General Assembly.   Representatives Ed Sullivan (R – Mundelein) and Mike Bost (R – Murphysboro) are members of the House Republican leadership team that helped negotiate and co-sponsor HB 183.   Meanwhile, increasing numbers of counties and metropolitan areas, such as Peoria County in and around the city of Peoria, are announcing that many of their police will not arrest, and their state’s attorney will not prosecute, unlawful use of a weapon violations of State law when the only element of the offense is the possession by a citizen of a concealed firearm.  The Peoria announcement was made on Tuesday, June 18.

Governor signs foreclosure measure into law.  SB 1674 contains language that, while it will be legally effective throughout the State, was drawn up with an eye towards the challenges faced by neighbors of foreclosed and abandoned properties in Illinois urban neighborhoods, and their city governments.  Under existing law, home lenders that take action to foreclose on a piece of delinquent property have to pay a special schedule of fees to the clerk of the foreclosure court, and these fees are used for court expenses and to fund the Foreclosure Prevention Program and the Abandoned Residential Property Municipal Relief Program.  These programs provide loan counseling to at-risk households and financial help to municipalities with disproportionate shares of taxable delinquent properties within their corporate limits.  The House vote on SB 1674 was 89-26-2, with many House Republicans expressing concern about language in the bill allowing the Illinois Housing Development Authority (IHDA) to cost-shift some of their overall administrative expenses onto these newly created programs.  SB 1674 became law on Tuesday, June 11 as P.A. 98-20.

Suburbs – Jobs 
Large suburban employer asks for tax break to retain jobs in Illinois.   Naperville-based OfficeMax, a nationwide “big box” retailer of stationery and office supplies, is in the process of carrying out what is anticipated to be a friendly merger with competitor Office Depot, a Florida-based firm in the same line of business.  With two states set to compete for what could be only one corporate headquarters, language was  unveiled in the Illinois Senate on Tuesday, June 18 to grant tax incentives to OfficeMax should the merged firm keep its head office here in Illinois.  The enhanced EDGE income tax credits would only be enjoyed by the merged firm if they retain at least 2,000 employees in Illinois, and invest at least $150 million to rebuild or expand their headquarters property here.  The deal, which has not yet been approved by either house of the General Assembly, would grant roughly $30 million in tax credits to OfficeMax over a 10-year period.

Illinois cigarette tax hike generates revenues that fall dramatically short of expectations.   The move in May 2012, which more than doubled the State cigarette tax from 98 cents per pack to $1.98 per pack, was expected to produce $350 million per year in new State revenue.  Support from two program areas that needed additional funding, school infrastructure capital spending and long term care for Medicaid-dependent senior citizens, was a vital element in developing the consensus necessary to gather majority votes to enact the controversial measure.  During the 12 months since enactment of the tax hike, however, revenues came in sharply below expectations.  In data discussed by the press on Thursday, June 20, the Commission on Government Forecasting and Accountability (CGFA) reported that the new levy is currently estimated to generate only $212 million in fiscal year 2013 (FY13), ending June 30, 2013.  This is $138 million (39%) below expectations for this revenue line.   
Various factors are described as having come together to cause this revenue shortfall.  Delays in implementing the higher tax rates enabled cigarette distributors to “push through” inventory that was taxed at the lower, pre-2013 rates.  Technical flaws with the new law prevented the higher rates from being legally imposed on “little cigars,” a subset of smokers’ supplies in which the cigarette-like smoking tobacco is wrapped in tobacco leaf rather than paper.    The higher tax rates may also be encouraging some Illinois smokers to increase their purchases of cigarettes from non-Illinois sources.  The collective tax burden on retailer purchasers of cigarettes within the corporate limits of the city of Chicago raises that product to among the highest prices charged for cigarettes in the U.S.  The outcome of these disappointing tax revenues is that the Long Term Care Provider Fund will get no help from the cigarette tax increase in FY13 to pay down the State’s unpaid bills to nursing homes; and money transfers to the School Infrastructure Fund for educational construction and reconstruction will fall far short of expectations.