Week in Review for 10/20/14 - 10/24/14

Bills – Unpaid State Bills
Comptroller counts $5.82 billion in unpaid bills.  The October 2014 count of unpaid bills was submitted to her Twitter followers by Comptroller Judy Baar Topinka on Tuesday, October 21 under the Twitter hashtag #ILbillbacklog. The past-due bill count, which can also be seen on Topinka’s Facebook page, is $500 million greater than the comparable figure in mid-September.

Background for this number is available on the Comptroller’s monthly spreadsheet of the State’s cash-flow condition, “Monthly Money Matters.” The $5.82 billion figure includes $2.72 billion in bills actually presented to the Comptroller for payment. An additional $2.2 billion was in the pipeline process throughout various State agencies as of Tuesday, September 30, and additional past-due spending reflected lagging vouchers in comparison with fall 2013. Persons interested in the State’s fiscal condition may wish to subscribe to this spreadsheet, which is updated monthly.

Budget – Civic Federation Report
Nonpartisan oversight panel sees $6.4 billion in unpaid bills by June 2015.  Trends noted in October 2014 by the Chicago-based Civic Federation include Medicaid spending growth, increased expenses for non-Medicaid persons who share their health care costs with the State, the rising costs of responding to the massively underfunded State-managed pension systems, and the increased burden of Illinois public-sector debt service. The Federation reported that Illinois’ current leadership has responded to these trends by utilizing cash flow from a “temporary” income tax hike, by further increasing various forms of short-term and long-term borrowing, and by increasing the State’s sheaf of unpaid bills to an estimated total of $6.4 billion at the end of FY15. In addition to these unpaid bills, the enacted FY15 budget is in deficit by at least $650 million to cover the operating expenses of the State. The State’s official documents explain that the missing money will be found by borrowing the cash from various special funds held in trust by the State for defined uses outside the General Funds. The law requires that this money be paid back within 18 months, but no aspect of current State budgetary planning provides for raising these funds or repaying this money.

In rating the State’s current fiscal status, the Federation reported that Illinois is the lowest rated state of all 50 U.S. states in the eyes of all three major bond rating agencies. It is currently ranked A-/A3 by Fitch, Moody’s, and Standard & Poor’s. All three New York-based credit rating agencies have placed a supplemental negative outlook upon Illinois general-obligation debt. Should Fitch/Moody’s/Standard & Poor’s cut Illinois’ credit rating by four notches, Illinois general obligation debt would be marked down to “junk” level with a corresponding serious impact upon the ability of the State’s public sector to remain in operation. Even prior to falling into “junk bond” territory, Illinois’ shrunken credit rating is increasing the rates of interest the State must pay, thereby further increasing those portions of the State’s budget that are earmarked for debt service.

The report, by the Civic Federation’s Institute for Illinois’ Fiscal Sustainability, is available here.

Rep. Raymond Poe
Springfield lawmaker announces plans to maintain constituent services.  Representative Raymond Poe, who represents a Downstate Illinois district that includes many urban and rural neighborhoods in the state capital of Springfield and surrounding townships, was diagnosed with Myelodysplastic Syndrome (MDS) in May 2014. After examining his medical options, the lawmaker announced on Tuesday, October 21 that he is set to receive an adult stem cell transplant at the Anderson Cancer Center, a research-and-teaching hospital in Houston.

Poe has informed his family and colleagues of the length of time necessary for his hospital stay and recovery period. Poe’s legislative staff and four House colleagues who represent neighboring districts, Reps. Rich Brauer, C.D. Davidsmeyer, Bill Mitchell, and Wayne Rosenthal, have jointly announced plans to maintain the level of constituent services and lawmaking outreach provided by Raymond Poe’s Springfield office while he undergoes treatment and recovery. Poe has represented the Springfield area in the Illinois House since January 1995.

Ebola Virus – Illinois Hospitals 
Illinois hospitals expand anti-Ebola training.  In a statement released on Friday, October 17, the Illinois Hospital Association described their high-speed ramp up of efforts to rapidly diagnose patients infected with the Ebola virus and to protect them and their caregivers from further infectious activity. Four Chicago teaching hospitals have been designated as treatment centers for patients with potential cases of the virus.

Performed in cooperation with the Illinois Department of Public Health, the new IHA protocol includes strict infection control procedures for the screening and isolation of diagnosed and potential patients. For its part, IDPH has announced plans to cooperate with hospitals and other health providers on cooperation to further Ebola preparation activities in Illinois. Preparations include the creation of protocols for screening, diagnosis, and isolation of actual and potential Ebola patients.

Patients subject to screening, diagnostics and isolation will include passengers from flights originating outside the United States who land at Chicago’s O’Hare International Airport. Screening at O’Hare International Airport for potential Ebola patients began on Thursday, October 16. Passengers arriving from countries known to be infected with Ebola – Guinea, Liberia, and Sierra Leone – will be tested for fever before being allowed to enter the United States. If ill, they may be sequestered and transferred to a designated IHA facility for further isolation and treatment. As of Tuesday, October 21, two O’Hare arrivals whose travels originated in Liberia had been hospitalized, although they may have become ill for other reasons.

Ebola Virus – Task Force
Gov. Quinn names members of Ebola task force.  Noting the arrival at Chicago’s O’Hare International Airport of two travelers who have been placed under medical evaluation for Ebola virus infection, Gov. Quinn appointed a fifteen-member Ebola Task Force on Wednesday, October 22. Members of the task force include executive public-health officials from Illinois, Cook County and the city of Chicago, clinical experts on infectious diseases, and executive representatives of the Illinois Hospital Association and the profession of nursing.

Illinois has set up an Ebola webpage and a 24-hour hotline accessible at 1-800-889-3931.

The Ebola Task Force was set up pursuant to Executive Order 1411. The task force is set to be automatically dissolved on June 30, 2015, but may be renewed should the epidemic continue to threaten Illinois at that time.

State Superintendent of Schools says a fully-funded education budget will require at least an additional $3 billion/year.  Speaking to the Illinois Principals Association on Monday, October 20, State Superintendent of Schools Chris Koch decried what he called the drastically underfunded status of Illinois public schools and said that an allocation of an additional $3 billion to $4 billion per year in State school aid to public school districts is needed to fully fund the education budget. The additional aid would be in addition to increased payments also due from taxpayers to the State-financed teacher pension system.

Created in 1997, the Education Funding Advisory Board (EFAB) is required to issue a report with its education funding recommendations in odd-numbered years. In its 2013 report, EFAB recommended increasing revenue to schools by over $4 billion. The next report is scheduled for January 2015 release and it is expected to again recommend an additional $4 billion for public schools. EFAB is a five-member senior advisory panel that includes representatives of business, the general public, and the education community. EFAB is appointed by the Governor, with the advice and consent of the Senate. The General Assembly is not required to appropriate sufficient funding to match the EFAB recommendation level.

Energy – Gas Prices 
Motor fuel price drops down toward $3.00/gallon.  The average Illinois price this month is $3.38/gallon, with the customary disparity between lower Downstate prices and higher prices in the greater Chicago area. Additional supplemental taxes imposed by Chicago-area counties and municipalities, including a levy imposed to support RTA mass transit systems, account for much of the price differential.

Although the Quinn administration has not yet taken action to implement hydraulic fracturing for crude oil within Illinois, Illinois motorists are benefitting indirectly from the fracking boom. More than 2 million U.S. oil and gas wells have utilized hydraulic-fracturing technology, leading to new nationwide production of more than 4 million barrels of oil per day. The federal Energy Information Administration has the story.

This new supply of crude oil has helped bring the price of North American oil down below the most-widely-quoted global benchmark price, that of Brent crude from the North Sea in Europe. On Tuesday, October 21, Brent crude for December 2014 delivery was quoted at $85.40/barrel, while the December New York City price was $81.91 per barrel. For the first time in decades, U.S. crude oil production is rising as a percentage of total world oil pumped.

Jobs – September 2014 Unemployment
Federal government estimates jobless rate of 6.6% for Illinois in September 2014.  The numbers, published by the Illinois Department of Employment Security on Friday, October 17, indicate a statically insignificant change from the 6.7% posted in August. More than 414,300 Illinois residents remained jobless and actively looking for work in September.

Illinois jobless rates remained higher than those of the United States as a whole during the same time period (U.S. jobless rate for September 2014: 5.9%). Unemployment rates were also lower in September than Illinois’ 6.6% rate in many states that neighbor Illinois, such as Iowa (4.6%), Wisconsin (5.5%), Indiana (5.7%), and Missouri (6.3%). The federal U.S. Bureau of Labor Statistics chart for the 50 states can be found here.

The manufacturing sector continued to shrink throughout Illinois in real terms, losing 3,700 manufacturing jobs in the past year. The Illinois government sector generated 8,800 net new jobs during the same period.

Pensions – Civic Federation Report
Report scores unsustainable Illinois pension trends.  Although record quantities of Illinois taxpayers’ money are being transferred to pension funds that pay benefits to unionized teachers, State workers, and personnel in Illinois higher education, actuaries agree that based on current unfunded liabilities further massive increases are required. In a recent report on Illinois’ overall budget situation, the Chicago-based Civic Federation and its Institute for Illinois’ Fiscal Sustainability examined the implications of these projected increases.

If the State of Illinois is to obey the provisions of State law requiring actuarial full funding for mandated pension contributions to the five State-managed pension systems, these contributions much be modified in response to changes made by actuaries in future assumed rates of return on investment. With continued maintenance by central banks of near-zero-interest-rate policies throughout the world, it is not sustainable for pension funds (including Illinois) to assume massively positive rates of return from investments in relatively safe fixed-income securities. The governing boards of the State’s largest pension systems have adjusted their assumptions accordingly. Earlier in 2014, the teachers’ Retirement System (TRS) reduced its rate from 8.0% to 7.5%, while the State Employees Retirement System (SERS) and the State Universities Retirement System (SURS) made equivalent adjustments to lower its rate from 7.75% to 7.25%.

The Civic Federation’s report points out that these adjustments, if maintained by market conditions and not modified by pension reform measures, will lead to an increasing draw by these pension systems of approximately $800 million per year in FY16 and following years.

Police – Body Cameras
Illinois House committee hears testimony on potential push for police body cameras.  Police chiefs throughout the United States, including Illinois, believe that police body cameras are a useful and innovative way to improve the quality of day-to-day street interactions that include police officers. The devices, which are light and wearable, are used by an increasing number of police officers in states outside Illinois.

Testimony in favor of and in opposition to widespread potential assignments of body cameras to Illinois police officers was heard by the Illinois House Judiciary Committee in Chicago on Friday, October 17. Witnesses agreed that a widespread push for more body cameras will have to wait until an overall consensus can be reached on what level of eavesdropping is acceptable under Illinois law in various levels of public, semi-public places, and nonpublic places. “We want to be able to use these cameras,” said Illinois Association of Chiefs of Police Fred Hayes of Elwood, “but we need the Legislature to tell us how we can use them.”

The nature of police work means the officers, and their body cameras, are going to be in places that are not necessarily public. Examples include private homes and the interiors of motor vehicles. Furthermore, police officers may have a perspective on this issue that differs from that of chiefs of police. The hearing was covered by the St. Louis Post-Dispatch.

Soybeans – Harvest
Downstate farmers slowed in push to bring beans in.  Although much of Illinois’ field corn has been harvested, the latest report from the U.S. Department of Agriculture confirms that recent wet weather across much of Illinois has delayed the latter half of the fall season of field work. On a typical cash-crop farm, the second fields to be harvested are often the soybeans. After a stint of rainy weather, if any corn remains standing in the fields, it typically must be propane-dried to reduce the harvest’s moisture levels to elevator specifications.

Illinois farmers are not alone in facing a delayed harvest; USDA reports from Iowa are almost identical. An Illinois report was posted on Tuesday, October 21 by the Associated Press and its southern Illinois partner, WSIL-TV. An Iowa report describes conditions that also apply to much of northern Illinois.

Taxes – AbbVie
AbbVie and Shire end international merger talks; tax significance.  The North Chicago-based maker of biopharmaceuticals had hoped to merge with Shire PLC, a parallel firm based in Dublin. As announced earlier in 2014, the business combination was aimed at several operational and financial goals, including the reduction of taxes paid by AbbVie. As a firm based in Ireland, the combined firm would have been well-situated to gain eligibility for various tax incentives granted to international companies doing business from the Emerald Isle.

Various factors, including changes in administrative rules promulgated in Washington, have reduced the positive benefits of the proposed consolidation. The two firms signaled last week that the merger would be abandoned, and made this decision official on Monday, October 20. The merger abandonment decision was covered by Crain’s Chicago Business.

The merger abandonment decision will not be an inexpensive one for Illinois-based AbbVie. The firm will be required to pay a $1.6 billion breakup fee to its Irish rival. Breakup fees are standard when a firm backs out of a merger deal. While AbbVie makes high-margin pharmaceuticals characteristically prescribed to treat chronic and long-term health conditions such as rheumatoid arthritis, Crohn’s disease, psoriasis, and low testosterone, the merger plans and breakup fee indicate that Illinois’ current tax climate may be sub-optimal for maintaining research operations and jobs within the Prairie State. A statement released by the firm’s management expressed continued frustration with the current U.S. tax climate, signaling the continued possibility that the firm may continue to look for business opportunities outside Illinois and the United States.

Transportation – Railroads
Chicago takes step to retain title as nation’s railroad junction.  The $142 million Englewood Flyover, a long-span railroad bridge intended to speed up rail transportation through Illinois, opened for business on Thursday, October 23. The flyover replaced a level crossing in which frequently-used tracks operated by Metra’s Rock Island commuter line crossed other frequently-used tracks operated by Norfolk Southern to carry freight back and forth between Chicago and the U.S. East Coast. Approximately 138 trains cross this point in each weekday 24-hour period, leading to frequent passenger and freight delays.

The Englewood Flyover is part of the CREATE Program, a multi-agency initiative to speed up railroad traffic in greater Chicago and reduce train bottlenecks. Additional elements of the CREATE plan will move additional services to the two rights-of-way unsnarled with this bridge, creating multitrack pipelines for commuter train movements to the south suburbs, passenger train movements to Indiana, Michigan and the U.S. East Coast, and railroad freight traffic to a wide variety of locations in the eastern U.S.

University of Illinois – Early Admission 
University of Illinois ends early admission program.  The regular freshman/first-year admission cycle is ongoing for the 2015-16 academic year at the U of I/Urbana-Champaign; applications should be submitted no later than December 1, 2014, and the notification date will be February 13, 2015. The U of I’s Office of Undergraduate Admissions deadlines can be found here.

The former practice of accepting early admission applications had led to a large number of deferral letters going out as the University’s admissions office kept its options open. In the 2014-15 cycle, 30% of early admission applicants were deferred. This course of action became less attractive as pressure grew this year on the Urbana-Champaign campus to become more welcoming to applicants. An increasing number of top-ranking, accepted applicants are choosing not to attend the U of I, increasingly noted for high tuition rates and living expenses. Only 42% of the 2014-15 cycle’s accepted applicants chose to enter UIUC, which is believed to be a record low figure for the campus. The current UIUC application picture was described on Wednesday, October 22 by the USA Today.

Urban Weatherization Initiative
Better Government Association investigates State program.  The Urban Weatherization Initiative, created in 2009 as part of the Illinois Jobs Now program, was approved by the General Assembly as a way to provide valuable skills training to persons in urban areas challenged by long-term unemployment. The Initiative was set up to grant millions in taxpayer funds to grantees that pledged to use the money to give hands-on training to clients. During the course of their training, the clients would learn how to strip and weatherize residential housing. Legislators who voted for the initiative believed that Illinois would benefit twice over – challenged Illinois residents would learn valuable work skills, and Illinois houses would be remodeled to reduce their energy costs and needs. A ceiling was placed on each remodeling job of no more than $6,500 per house.

An investigation by the Better Government Association found that the program has produced disappointing results. Although more than $16 million has been spent thus far, only 183 houses have actually been weatherized at a net cost of more than $85,000 per house, and “only a small percentage” of persons trained by the program have found private-sector jobs related to the skills targeted by the program. According to the BGA, one reason for the disparity between money and results is the relatively high percentage of Urban Weatherization Initiative funding (more than $13 million) allocated by the Quinn administration and its grantees to administrative costs and training. Instead of going up on a roof, more than 80 cents of the typical dollar spent by the Initiative has been paid to maintain the office-based infrastructure of the program.

The Better Government Association investigation, co-published on Sunday, October 12 by the Chicago Sun-Times, can be found here.

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. As the fall 2014 veto session approaches and policy questions take center stage, the Week in Review is more essential than ever as a way to follow major Illinois issues, questions, and trends.