Week in Review for 3/28/16 – 4/1/16

Budget – FY16
Illinois budget impasse sets modern record among 50 U.S. states. With the coming of April 2016, the FY16 budget impasse entered its tenth month. According to the National Conference of State Legislators (NCSL), which maintains a database of the actions of legislative bodies nationwide, this is the longest time that any U.S. state has gone without a budget in the history of modern governmental activity.

There has been no state budget in place since June 30, 2015, the last day of FY15. The General Assembly was not able to pass a constitutional balanced budget in spring 2015 for FY16, and their subsequent meetings have not resolved the impasse. While some facets of State spending have completely stopped, other areas – especially areas of social spending controlled by court orders, consent decrees, and continuing appropriations – are generating increasing liabilities for taxpayers. Comptroller Leslie Munger has warned lawmakers that at current rates the State and its taxpayers will face a backlog of $10 billon in unpaid bills by the time the current fiscal year ends on June 30, 2016.

Census – population
Population of Illinois, Chicago area dropped in FY15. The decline was tracked by the U.S. Census Bureau. During the twelve-month period ending in June 2015, Illinois lost almost 22,200 residents. During this period, the six-county area that makes up the most widely-accepted description of the metropolitan Chicago area dropped by more than 5,400 people. The decline was led by Downstate Illinois, which lost almost 16,800 residents, and Cook County, which lost almost 10,500 people. The five so-called “collar counties” grouped around Chicago gained almost 5,100 residents.

Illinois’ most populous county, Cook County was, of all 50 states, the U.S. county that lost the most net residents during this year-long span. Cook County’s demographic performance underperformed another Midwestern county that had for many years led in this category, Michigan’s Wayne County (which is centered on the troubled city of Detroit). The Prairie State’s negative picture was accentuated by net outmigration, with more than 67,000 more people moving out of Illinois than moving in. Births outweighed deaths by more than 45,000 Illinoisans, but this was not enough to overcome the negative outmigration numbers.

The U.S. census figures have been correlated by economic observers with additional data points indicating relatively low levels of growth, or negative growth, in Illinois job creation, consumer consumption, retail sales, and tax revenues. Illinois this week entered its tenth month of “operations” without a State budget, in part because leaders have been unable to reconcile skyrocketing Illinois public-sector costs with a declining private-sector economy.

Chicago – credit rating
Fitch Ratings drops city’s credit rating to BBB-negative. The two-notch downgrade, imposed on Monday, March 28, left the credit rating of Illinois’ largest municipality trembling one notch above “junk bond” level in the eyes of Fitch Ratings. The move affected more than $10 billion in city debt, including $9.8 billion in general obligation bonds and almost $0.5 billion in city debt backed by sales taxes. Fitch Ratings stated that the outlook for Chicago continues to be “negative,” signaling that further decreases in the city’s credit rating are possible. Any further diminution of Chicago’s credit rating by Fitch, to BB-plus or lower, would signal the reduction of the city’s debt quality status to junk-bond levels. Fitch’s action this week followed a cession by the Illinois Supreme Court that the city continues to be “on the hook” for actuarial liabilities in the pension fund investments that it maintains for vested city employees, including unionized laborers and city workers.

Many observers point to various contingency clauses in Chicago’s debt contracts that impose various penalties or added obligations upon the city’s debt behavior and overall fiscal status should there be a consensus among the three major New York-based credit rating houses, Moody’s/Standard & Poor’s/Fitch, that Chicago’s city credit rating has dropped to “junk status.” As an example of this type of interaction, Chicago Public Schools (CPS) – an entity legally separate from the city of Chicago – has already had its debt rating cut to junk bond level. CPS has continued to borrow money throughout the 2015-16 school year, but have had to pay extremely high interest rates to gain access to these funds. In early February 2016, CPS was required to pay interest rates of 8.5% on its most recent round of borrowings.

Chicago – law enforcement
Embattled Mayor Emanuel picks new police chief. Under heavy criticism for actual and alleged lapses in law enforcement, Chicago’s mayor has named Eddie Johnson, a veteran of the Chicago Police Department, to be the troubled force’s superintendent.

Mayor Emanuel’s decision to reject all three names short-listed to him by an advisory committee and to promote in-house was seen by observers as a sign of the continuing upheaval surrounding many facets of City of Chicago governance. The Chicago Police Department and its relations with Mayor Emanuel’s office began to come under severe criticism in 2015 as news spread of the fatal shooting and cover-up in the case of Laquan McDonald. Other allegations of police brutality have been made; these and other events led to the involuntary departure of former Police Superintendent Garry McCarthy in December 2015.

Economy – unemployment
Illinois jobless rate rises from 6.3% to 6.4%. The most-widely-tracked measurement of joblessness, called “U-3,” ticked upward in Illinois in February 2016 from 6.3% to 6.4%. The announcement, made on Thursday, March 24, further widened the gap between Illinois and nationwide unemployment rates. The overall U.S. U-3 jobless rate stood at 4.9% in February 2016, 150 basis points lower than the unemployment rate in Illinois. “Illinois remains one of only three states that have not recovered jobs lost from the 2001 recession,” said Jeff Mays, director of the Illinois Department of Employment Security (IDES). In cooperation with the federal Bureau of Labor Statistics, IDES gathers and publishes month-by-month jobless data in Illinois.

There was some good news for Illinois in the February 2016 report. Employers created a net addition of 18,100 new Illinois jobs in the second month of 2016, signaling continued slow job growth in Illinois. The increased unemployment rate was partly caused by persons returning to or newly entering the Illinois work force and not yet hired, rather than net new layoffs. With almost 6 million (5,993,800) jobs, the Illinois February 2016 nonfarm payroll exceeded the 2008 peak for the first time. However, the anemic jobs peak reached in January 2008 in Illinois was actually lower than the number of jobs Illinois had prior to the next earlier recession, a downtown associated with the catastrophe of September 11, 2001. It was this pre-2001 jobs peak (6,055,100 jobs in September 2000) that Illinois has not yet matched.

As in previous months, the U-3 jobless count does not encompass the entire picture of unemployment in Illinois. Jobless numbers that include discouraged workers, persons marginally attached to the labor force, and involuntary part-time workers (U-4 through U-6) are typically not tracked on a month-by-month basis in the U.S. states. However, these workers and their stories are also part of the overall story of Illinois unemployment.

Energy – Wood River plant
Dynegy sets June 1 date for closure of Wood River generating plant. The 465-megawatt Wood River Power Station, a generating plant in southwestern Illinois, will close late this spring. The plant’s owner had earlier stated their intent to shut down the facility in “mid-2016.” Dynegy’s coal-burning plant employs about 90 people, who are slated to lose their jobs. The affected taxing districts – which include the Alton School District and the village of East Alton – are slated to relinquish approximately $1.6 million in property tax income.

Electrical holding company Dynegy had previously expressed the belief that the Midcontinent Independent System Operator (MISO), a consortium of deregulated electric utility generators, buyers, and resellers, has set peak-market electrical prices in such a way as to prevent the Wood River plant from recovering its costs. The holding company reiterated this belief in this week’s shutdown announcement. A MISO study has found the Wood River Station to be inessential to the power needs of southern Illinois. Wood River, a fixture for many years for motorists on Illinois Route 143 east of Alton, began generating electricity in 1954. Dynegy, which announced its final shutdown schedule on Thursday, March 24, retains legal responsibility for the coal ash ponds maintained adjacent to the power plant.

Higher Education – Chicago State University
As shutdown approaches, personnel told to turn in their office and facility keys. The university has previously announced plans to complete a truncated spring term on April 30. The request that keys be turned in signals a possible imminent cash-flow situation at Chicago State University’s South Side campus, where $36 million of an ordinary year’s operating budget is subsidized by the State of Illinois. This cash flow is one of the items not appropriated by the General Assembly as part of a constitutional balanced budget for FY16.

In response to questions from the news media, a spokesman assured the university community that the campus expects to continue to “make payroll through April 30.” However, keys must be returned by April 4. The key request was made public on Tuesday, March 29. While Chicago State University is attempting to open registration for academic terms in summer 2016 and fall 2016, the operation of CSU in these periods will be contingent upon the appropriation of operating money for the university from State taxpayers for FY17. The State of Illinois’ budget situation remains unresolved for FY17. The full rate of CSU tuition and fees for full-time students is $11,800 a year, although students have numerous options to apply for various forms of discounts and financial aid to cover their class attendance in normal circumstances.

State government – Illinois Department of Innovation and Technology
New State department moves forward in push to consolidate in-house IT functions. The Illinois Department of Innovation and Technology, created by Bruce Rauner executive order in January 2016, has been asked to consolidate the information technology (IT) functions performed by a wide variety of State agencies and departments. In a joint appearance on Wednesday, March 30, the Governor asked several of his department heads and senior staff to explain to the public what they are doing to increase the IT productivity of their departments.

Historically, almost every agency had their own IT staff and in-house technology standards. In many cases, this led to the selection of incompatible software platforms; in some cases, some State agencies are still using repeatedly-updated platforms that have roots in code written as far back as the 1970s. In some cases, these platforms continue to require the same data points to be added repeatedly to redundant databases, or require the use of obsolescent or obsolete technologies such as computer tapes. Individual agency IT staff members are now moving into the new Department, where they will have the chance to work together. Consultants have told the Rauner administration and the General Assembly that, over time, the rationalization of IT technology will lead to growing productivity benefits for the State of Illinois and its taxpayers.

Veterans – concealed carry
Representative Avery Bourne sponsors bill to cut concealed carry license fees for U.S. veterans by one-half. Persons who apply for a new license to carry a concealed firearm, or who seek to renew an existing license to do so, must pay a fee to the Illinois State Police. The fee covers the background check performed upon the applicant, and the overall costs of overseeing the concealed-carry law. HB 6111, currently assigned to the House Judiciary Committee for hearing next week, would cut these fees by 50% for honorably discharged veterans of the United States armed forces. The bill is sponsored by first-term Representative Avery Bourne, whose district office is in south-central Litchfield.

The fee reduction signals the reduced likelihood that an honorably discharged veteran will have any item in his or her background that would raise a negative flag on the background checks that are an important element of the concealed-carry law. Persons interesting in applying for a concealed-carry license can find a webpage to start the process. If enacted, this bill will reduce the cost of submitting a standard new license application, or license renewal application, from $150 to $75 for eligible U.S. veterans.

Spring in Illinois
Ag educators, extension agents once again point farmers to cover crops. Traditional secondary crops used by farmers for livestock feed and weed control, such as red clover and cereal rye, have been avoided by many Illinois farmers for years. The invention of specialty herbicides and the concentration of Illinois arable land on the two major crops used in Midwestern food science and industry, corn and soybeans, have made cover crops seem superfluous. However, this traditional practice of old-time farmers is regaining ground in central Illinois, including on acreage rated on the highest-productivity scales for growing cash crops. Additional reasons for planting cover crops, such as the preservation of soil nutrients and reduction of silt runoff, are being added to the decision to plant cover crops in addition to corn and beans.

The Illinois Nutrient Loss Reduction Strategy, an overall plan developed by the Illinois Environmental Protection Agency and implemented by agriculture educators and soil-and-water conservation districts statewide, aims at continuous reductions in the quantity of nitrogen fertilizers, phosphorus fertilizers, and other agricultural chemicals added to Illinois waterway runoff. The development of comparatively new cover crops, such as canola with its bright yellow flowers, is also part of the changing mix of incentives facing farmers.

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