Week in Review

Protests and looting break out; state of emergency declared in fifteen Illinois counties. The declaration followed numerous statewide incidents of looting in the wake of protests. While these protests were sparked by the murder of George Floyd in Minneapolis, many voices are now being raised concerning the overall state of race relations in the United States. The disaster declaration accompanied the deployment of hundreds of National Guard troops to strategic locations throughout Illinois. 
Many Guard personnel were asked this week to supervise Illinois highways and transportation, including the closure of highway interchanges and entries/exits when necessary to discourage or prevent violence and looting. Both the city of Chicago and its suburbs were included in the deployment. Many of the National Guard units deployed include personnel trained in military police work.

The fifteen counties declared by Gov. Pritzker to be disaster areas include more than 80% of the population of the state. Major Downstate counties such as Champaign County, Peoria County, Rock Island County, and Sangamon County have been added to the list of major counties in the Chicago metropolitan area. Civil disobedience has been reported in all of these counties. The most recent addition to the disaster-county count was issued on Wednesday, June 3.

In responses to these outbreaks of public disorder, the Illinois State Police (ISP) and the Illinois Emergency Management Agency (IEMA) are working in cooperation with local law enforcement to coordinate peacekeeping activities. On Tuesday, June 2, in a conference call with State legislators, the commander of the State Police and the director of IEMA assured lawmakers that the State’s powers of law enforcement coordination would be used to make sure that the police would use as light a hand as possible and would protect the rights of peaceable people to make statements of protest and dissent.

COVID-19 recovery plan enters Phase 3. During the first week of June 2020, Illinois completed its move from “Phase 2” to “Phase 3” of the coronavirus recovery plan implemented by the Illinois Department of Public Health (IDPH) and the Office of the Governor. Under phase 3, Illinois places of religious worship have reopened with capacity restrictions. The rules change, which affected churches, synagogues, and other places of religious worship throughout Illinois, came after sharp activity by many Illinois religious leaders who asked for relief from the previous guidelines.

Also under Phase 3, restaurants and taverns are able to reopen in outdoor settings if tables are placed at social distances apart from each other. Customers can go inside an establishment to use necessary facilities, but the indoor serving of food and alcohol remains banned. In addition, Illinoisans continue to be required to wear facemasks or other facial coverings when doing business in indoor places of essential business such as grocery stores and pharmacies.

However, testing counts, case counts, hospitalizations, and deaths from the COVID-19 coronavirus continued to increase. As a decline in positive case counts as a percentage of overall test results is a necessary condition for Illinois, or any of its pandemic ‘super regions,’ to move from Phase 3 to Phase 4, this week’s COVID-19 numbers did not offer immediate hope that Illinois would be able to make this transition soon.

CGFA reports on May 2020 revenues. The Commission on Government Forecasting and Accountability (CGFA) issued its monthly report this week covering State revenues, including general revenues, for May 2020. The report reflects many effects from another full-month-long shutdown of Illinois economic activities. The COVID-19 pandemic has had a serious effect upon the State of Illinois’ tax receipts and budget picture, and analysts from CGFA are advising the General Assembly on how these effects will continue to operate with respect to state spending and taxes.

In particular, sales tax receipts from levies on retail transactions were hit hard by the stay-at-home order. Receipts from sales taxes dropped $182 million in May 2020 as opposed to May 2019, a decline of almost 25% in this key revenue stream. While Illinois continued to collect sales taxes from “essential” brick-and-mortar retailers and from many Internet retailers, this could not make up for the lost revenue. Many of the “essential” goods that Illinoisans continued to buy in May 2020 were groceries and pharmaceuticals, many of which are not taxed at the State level. At grocery stores, Illinois charges the full sales tax rate on sweet goods such as soft drinks and candy, and local governments charge a tiny sales tax on other foodstuffs.

The serious decline in May 2020 tax revenues indicates that Illinois will close fiscal year 2020 (ends June 30, 2020) in a position of serious deficit. This will, in turn, force the State to either cut its expenditures significantly or borrow a significant sum to make up the deficit, or both. One reason for the Illinois House Republicans’ unanimous decision not to support the majority party’s budget and spending proposals in the May 2020 special session was the existence of unanswered questions concerning both possible budget strategies.

Governor’s Office of Management and Budget (GOMB) announces that Illinois will soon owe a significant debt to the U.S. Federal Reserve.
The ability to borrow $1.2 billion from the federal central bank for one year is a response to the collapsing revenue picture tracked by CGFA. State general revenues began to collapse in March 2020 due the effects of COVID-19, coupled with the delay of the State’s income tax filing deadline by three months from April 15, 2020 to July 15, 2020. However, at the same time, all of the State’s existing debts and obligations continued or increased. The significant new GOMB/Federal Reserve debt, owed by Illinois taxpayers, raises the funds necessary to meet the immediate cash-flow needs of the State. GOMB, a State agency that is part of the Office of the Governor under the direct leadership of Gov. Pritzker, made the borrowing announcement on Wednesday, June 3.

The $1.2 billion federal debt note is not scheduled to be the end of the debt cycle to be owed by Illinois. Democrats enacted legislation in the May 2020 special session, SB 2099, that authorizes the State to borrow up to $5.0 billion from the Federal Reserve. Existing Illinois law had not authorized the Governor to borrow emergency money from the federal government. The changes enacted in May 2020 enabled the recently announced $1.2 billion in emergency short-term borrowing through the Federal Reserve. It also authorized up to $5 billion in future borrowing through the newly created federal Municipal Liquidity Facility. Illinois House Republicans unanimously voted against this legislation because it did not contain any sort of plan for paying back the borrowed money. In addition, the borrowed money would fund a budget that had not been the subject of legislative discussion or debate and which contained no input from the House Republican Caucus, and would arguably constitute a violation of the State’s constitutional balanced-budget requirement.

As borrowers of the debt, the GOMB agreed with observers of the U.S. debt market that the $1.2 billion debt announcement on June 3 was a response to the higher yields demanded by private-sector lenders to the State. These higher yields could be attributed to the State of Illinois’ overall deteriorating financial picture and its precarious budget. The State of Illinois could have tried to sell $1.2 billion in short-term debt in the global debt marketplace, but the interest rates demanded by financiers willing to lend to Illinois are now so high that this was not seen as an optimal move to make. In its most recent private-sector bond sale, Illinois was forced to offer interest rates of more than 4.8% – well more than 300 basis points higher than the interest rates paid by high-quality triple-A (AAA) debtors.

The U.S. Federal Reserve lending was made available in spring 2020 through the enactment by Congress of legislation creating the Municipal Liquidity Facility (MLF), an emergency COVID-19-related lending window designed for U.S. state and local governments. $500 billion in total loan capital has been allocated to the Federal Reserve to lend through the MLF window.

Standard & Poor’s: Illinois’ budget “precariously balanced.” The negative review this week from one of the world’s largest fiscal-monitoring firms served as a continued signal that that the credit rating of the State of Illinois is hovering close to junk-bond level. This week, Standard & Poor’s renewed its rating of Illinois general-obligation debt at BBB- with a negative outlook. BBB- is the S & P’s closest approach to a “junk bond” rating. So-called junk bonds, rated at BB or less, are debt obligations that are not seen as secure investments. Many investment funds, particularly funds that are bound by rules of prudence that govern the oversight of funds saved for purposes of pension funding and retirement savings, are contractually banned from investing in non-investment-grade junk-bond securities.

In its review, Standard & Poor’s stated that the State of Illinois’ pro forma FY21 “balanced budget” depends on up to $5 billion in borrowing from the federal government. The fiscal monitor labeled this dependence as an additional risk factor facing the State and its taxpayers. In particular, S & P pointed to a feature of SB 2099, the majority party’s FY21 borrowing-authorization bill, which authorizes the Governor to borrow money from the U.S. Federal Reserve’s Municipal Liquidity Facility lending window for a period of up to 10 years. This 10-year Illinois-federal debt was authorized in SB 2099 even though the Municipal Liquidity Facility was created and authorized by federal law with a time limit of no more than 36 months. The conclusion of S & P’s analysts was that the State of Illinois’ ability to implement its current borrowing plan is a “precarious assumption.”

Sharp increase in Illinois unemployment continues. Many people have been laid off, in Illinois and around the world, during the current COVID-19 pandemic. While federal aid to many employers is enabling some workers to be called back to their jobs, other workplaces are “hitting the wall,” and layoffs continue. This week the Illinois Department of Employment Security (IDES) reported that 46,522 new initial claims for unemployment insurance (UI) compensation had been filed in the week that ended on Saturday, May 30.

Under current State and federal rules, UI claims can start being paid out immediately, without a “waiting week” as is imposed in normal times. However, many Illinoisans continue to report having to pass through a cumbersome electronic gauntlet to connect with IDES online and file a valid unemployment claim.

Illinois unemployment spiked dramatically in April 2020, the first full month of the coronavirus shutdown in the U.S. Statewide unemployment rose to 16.9% in April, with even higher numbers in major metropolitan areas such as Chicago (17.6%) and Rockford (22.4%).

Deputy Republican Leader Tom Demmer Calls For Real Small Business Support. When Governor JB Pritzker issued his first stay-at-home order more than two months ago, he told small businesses that assistance was available through the Downstate Small Business Stabilization Program administered by DCEO.

Local governments had to apply to DCEO on behalf of businesses in their jurisdiction who had financial need because of COVID related closures and limitations on business. Many small businesses were unable to apply for a grant because the amount of work required from their city or county was too much of a burden on small local governments.

The City of Dixon chose to participate and was a statewide leader, immediately hosting virtual meetings and establishing an 8-person team to assist small business owners with preparing and submitting an 80-100 page application for each business. The City was required to post notice and hold several public meetings to take a City Council vote to support each individual application. Altogether, the City team spent more than 500 hours to prepare, approve, and submit 52 applications on behalf of local businesses.

During this time, DCEO posted initial guidance and criteria, hosted a webinar to explain the program and answer questions, and revised their guidance and criteria more than once. Many applicants in Dixon had already done considerable work to apply for the grant when the rules changed mid-stream. I also contacted DCEO multiple times to try and streamline the application process so more small counties and cities could apply. After being told by DCEO that much of the red-tape was due to federal requirements, I worked through Congressman Adam Kinzinger’s office and contacted officials within the US Department of Housing and Urban Development who oversaw the grant program and got them to agree to waive certain requirements.

In Dixon alone, 52 small businesses chose to apply for a grant to help stabilize their businesses which were greatly impacted by COVID and the stay-at-home order. Many of these same applicants were also forced to wait more than 7 weeks to even be able to apply for unemployment insurance through the Pandemic Unemployment Assistance program. Some have still not received unemployment benefits. All through that time, after having been among the first to submit their thorough application for a Downstate Small Business Stabilization Grant, they waited to receive this emergency assistance from DCEO.

Now, more than two months after the stay-at-home order began, the City of Dixon was notified that just four of the 52 applications were approved by DCEO. Even though sole proprietors were originally said to be eligible, several Dixon applications were denied simply because “no employees.” Others were denied because they had “negative cash flow” in previous years — precisely the kind of business that you would think needs stabilization during a pandemic. Other businesses were denied because they had “insufficient length of business operation” — again, a fledgling local business would typically be exactly the kind of business you’d want to support when a statewide emergency strikes. Other businesses were denied for their entire grant request with a note that they received other assistance, despite the fact that DCEO guidance explicitly states that application for CARES or other assistance does not impact their ability to qualify for downstate stabilization grants.

Furthermore, many of these denial notes carry dates of late April or early May, meaning DCEO reviewed these applications more than a month ago and made small business owners wait in vain until June only to find out that the financial assistance they hoped for would not be coming.

Now, on June 5, the Pritzker administration has announced that just $1.3 million of the original $20 million has been awarded, and that only 65 businesses in the entire state will receive a grant.

I strongly urge the Department of Commerce and Economic Opportunity and the Pritzker administration to reconsider these grant applications and truly support small businesses in Dixon and throughout downstate Illinois.

“Cocktails to go” legislation signed into law. Bars and taverns have been hard-hit by the coronavirus pandemic and economic shutdown. For almost two and a half months, from mid-March until the end of May, these businesses have had to lock their doors. Restaurants have been able to make up some of their lost business by selling takeout food, but the State laws in existence at the time the pandemic hit did not contain provisions for the legal sale of “cocktails to go” by the drink.

Action by the General Assembly, signed into law this week, has opened the door to relief for bars, taverns, and the alcohol-pouring operations attached to restaurants. Illinois will now allow mixed drinks to be sold in sealed to-go packaging. A largely bipartisan measure, HB 2682 was approved by the Illinois House in the May 2020 special session by a vote of 104-6-0. The measure was signed into law on Tuesday, June 2. Passage of the new law coincided with changes in State pandemic rules to allow many places where alcohol and food are served, including bars and taverns, to serve outside under conditions of social distancing.

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