Rep. Wheeler's Weekly Roundup: October 14

Budget – Debt Refinancing
·         Underwriters agree to help refinance some Illinois debt.  The $600 million in variable-rate bonds that will be refinanced are stapled to a set of “crocodile” clauses.  Hidden under the dark water of the 2003 bonds’ contractual covenant are a series of punishment terms in which the State of Illinois promised to pay an enormous penalty ($150 million) should its credit standing fall below letter-of-credit level.  A consortium of four banks has agreed to refinance the debt under terms that will replace the letters of credit requirement that was stapled, by covenant, to the old debt.

The bonds that will be refinanced under this agreement were placed during the administration of former Gov. Rod Blagojevich.  The agreement, which was announced on Wednesday, October 12, is not expected to lead to an upgrade of Illinois’ sub-par triple-B credit rating.  In addition, it is expected that the State of Illinois will have to pay fees to the refinancing banks in return for their replacement of the letters of credit.  The refinancing is expected to be completed on November 7.      

Budget – Yield Picture Worsens
·         In latest sale of Illinois bonds, interest rates rise again.  The newest sale of Illinois general obligation (GO) bonds was completed on Thursday, October 13.  It drew a picture of worsening yields and interest-rate obligations for the debt-beleaguered State of Illinois. 

In the process that led up to this week’s bond sale, debt underwriters negotiated in the marketplace with potential lenders on the interest rate Illinois would have to pay as the price for selling its package of bonds.  When the sale process was complete, Illinois taxpayers learned that their BBB-ranked State government would have to pay a premium of 200 interest basis points (2.00%) in interest over the rates paid by borrowers which have achieved the coveted triple-A (AAA) rating.  AAA-rated borrowers include the neighboring state of Indiana.

The risk premium paid by Illinois and its taxpayers this week was a sharp upturn from the 1.62% risk premium quoted in the last Illinois debt sale.  These numbers signaled a further weakening of Illinois’ financial position relative to other U.S. units of government.  Illinois has now operated for more than 15 months without a full-year budget.  Continued growth in the State’s backlog of unpaid bills (more than $8.9 billion as of Wednesday, October 12) is leading to growing pressure on the State’s credit rating and perceived standing as a debtor.   

Chicago – School Settlement
·         School strike threat settled, but agreement does little to solve Chicago’s long-term fiscal problems.  The threat of a strike this week had forced the parents of 300,000 students enrolled in Chicago Public Schools to make plans for the caregiving of their children.  The Chicago Teachers Union (CTU) had voted in late September to start the countdown to a strike, which would have been the third such labor action since 2012.

Chicago Public Schools (CPS) has seen major increases in its pension costs in recent years.  In FY17, they are mandated to pay $720.7 million to their underfunded pension system.  Although CPS has imposed sharp increases in local property taxes to raise funds to fill this gap, the multi-billion-dollar debt imposed by this set of employee obligations has driven their debt down to junk-bond level.  CPS has almost $17 billion in obligations, including almost $7 billion in bonds and nearly $10 billion in unfunded pension liabilities.  

The announced agreement had not yet been approved by CTU members as of the end of this week.  The announcement did, however, prevent the walkout from taking place.  Critics pointed out that the agreement did not require existing CTU teachers and educators to make any additional sacrifices to their pay and benefits in order to keep the troubled pension plan afloat.   However, educator personnel hired on or after January 1, 2017 will be required to yield 9% of their pay as contributions to the pension plan.  The agreement also included stepped pay increases for these new hires so as to cover most (but not all) of the cost of these pension contributions.

Under the agreement, existing (pre-2017) CTU employees will get must smaller pay hikes.  However, they will continue to enjoy a lucrative “pick-up” of their pension contributions.  Under the contractual terms of the “pick up,” Chicago Public Schools voluntarily pays more than three-quarters (7% of the total 9%) of the share of CTU employee pay that is set aside from paychecks as a contribution to the pension plan.  Under the October 2016 agreement, this “pick up” will continue for CTU employees hired before the coming New Year’s Day.  Critics expressed concern that the combination of the “pick up” and the system’s pre-existing unfunded liabilities will impose a serious continuing burden upon the system.  The deal was announced late Monday, October 10.  

Criminal Law – Murphysboro
  • IYC Murphysboro to be repurposed and reopened.  When it was closed in July 2012 by then-Gov. Pat Quinn, the former Illinois Youth Center at Murphysboro employed 135 people and was one of the largest employers in Jackson County.  Fighting for her district, Representative Terri Bryant introduced HB 4340 last year to provide the funding and administrative support necessary to re-open the Southern Illinois facility.  Working with corrections professionals, Bryant developed a plan to re-purpose the minimum-security “work camp” facility as a place for adult offenders.

In negotiations with the Rauner administration, Rep. Bryant further developed the ideas presented in HB 4340.  On Friday, October 14, Governor Rauner announced his intent to reopen Murphysboro as a Life Skills and Re-Entry Facility.  Eligible inmates will be assigned to the minimum-security facility as part of the final stage of their path through the correctional system.  There they will experience total-immersion life skills training in a structured, disciplined environment.  They will be assigned to educational courses and vocational training experiences. 

 “When Pat Quinn closed this facility, he did it against the advice of everyone that knows anything about how the Department of Corrections works,” Bryant said.  “Our prisons are currently operating at 150% of their capacity.  Opening Murphysboro as an adult correctional facility will provide a much needed relief outlet for the overburdened and overcrowded facilities that pose a danger to our front line staff and to inmates alike.”  

Downstate – Harvest Time
·         Corn harvest passes 50% mark.  With continued dry weather in much of Illinois, farmers have reported to the U.S. Department of Agriculture that the statewide corn harvest is more than 50% complete.  As of Tuesday, October 11, 62% of the Illinois corn harvest was in.  This progress in Illinois contrasts with rain-hit Iowa, where muddy fields have prevented full output from farm harvest machinery and where the harvest is only 19% complete. 

Soybeans mature later in Illinois than corn, and if a farmer is growing both, the protein-rich crop is likely to be harvested second in line.  The Illinois bean harvest was reported to be 39% complete as of midweek.

Health Care – Affordable Care Act
·         Few Illinois Obamacare marketplaces are truly competitive.  The Illinois Department of Insurance (IDOI) reported this week that of the 102 counties of Illinois, three-quarters – more than 70 counties – now have only one or two insurance companies offering coverage through “Get Covered Illinois”, the IDOI Affordable Care Act marketplace. 

The announcement implies that many Illinoisans mandated to purchase individual-household insurance by the federal Affordable Care Act will have only one or two entities willing to quote a price to them.  While prices for health insurance differ from household to household based upon the age of the purchaser and other factors, a lack of competition is generally correlated with higher prices.  The IDOI announcement coincides with reports that there are likely to be sharp price hikes for ACA-compliant health insurance in Illinois for purchasers in 2017.

The announcement of diminished or absent ACA competition in Illinois follows decisions by large providers of private-sector health insurance, headed by UnitedHealth, to withdraw from the Illinois market.  This development also followed the financial collapse of a significant Illinois ACA-compliant health insurance cooperative, Land of Lincoln Health, which is now in liquidation and is not offering health insurance policies for 2017. 

The Department of Insurance reports that in seven significantly-populated counties of Illinois – Grundy, Kendall, Lake, Madison, McHenry, Monroe, and St. Clair – there is now only one insurance firm willing to sell ACA-compliant policies, Blue Cross Blue Shield.  The Obamacare mandate now impacts the consumer status of the 1.75 million Illinois residents of these counties.        

Higher Education – University of Illinois
·         UIUC is now the seventh-largest public university campus in the U.S.  The 44,880-student enrollment figure for the University of Illinois at Urbana-Champaign reflects the number of students who have accepted enrollment or re-enrollment at UIUC and are taking classes in the 2016 fall term.  Growing demand for the university’s historically STEM-oriented curriculum has made the University of Illinois’ flagship campus a highly desirable place of study for students worldwide.  In 2016, 7,600 freshmen students enrolled in UIUC for the fall term.

Many professionals associated with the campus and its infrastructure report that UIUC enrollment is at or near physical capacity.  The university’s future expansion plans include areas outside core college education, such as online education and graduate schools.  For example, the new Champaign-Urbana-based Carle Illinois College of Medicine will train physicians at teaching-hospital locations affiliated with, but separate from, the current campus.

Outmigration – Illinoisans Leaving the State
·         Study shows why Illinois residents are thinking about moving out of state.  The study, performed by the Paul Simon Public Policy Institute, found that 47% of Illinois respondents said they were thinking about moving out of Illinois.  When asked about their reasons for considering emigration from Illinois, the largest single subset of the respondent group (27% of total respondents) responded “taxes.”  The weather, bad government, and the state’s job/education picture were also cited as reasons to think about leaving the Land of Lincoln.  More than four-fifths (84%) of all of the respondents, including those who are not considering leaving Illinois, believe the state is “headed in the wrong direction.”  The study questioned residents who were registered voters within Illinois.  Results of the study were published on Monday, October 10.

Many former Illinoisans have already left the State.  The State of Illinois experienced a net loss of more than 1.3 million people between 1995 and 2014.  This number reflects the surplus of leavers over newcomers during this twenty-year period.  Many of those who remain as of 2016, and who are now thinking about emigration, are tied to Illinois by possession of a house or job here; and they know it will not be easy for them to leave.  When asked by the Simon Institute polling team, only 20% of respondents think it is likely they will in fact leave Illinois within the next 12 months.  The Paul Simon Public Policy Institute is an affiliated institution within Southern Illinois University (SIU) in downstate Carbondale.       

Pensions – Possible Payment Delays
·         Illinois warns bond buyers that key pension payment may be delayed.  The mandated payment in FY17 of more than $7.8 billion from state general funds to the five Illinois state-managed pension systems is required by statutory law.  State law requires that whenever the State falls short of past commitments to these pension funds, it must make actuarially determined annual payments to these funds to “ramp up” or “catch up.”  As these five funds now post, collectively, approximately $111 billion in unfunded pension liabilities, these ramp-up payments will be a feature of the State’s budget picture for more than a decade to come.   

State general funds income, particularly income taxes collected from individuals and corporations, is falling at the same time as mandated pension payments are rising.  At the same time, many other mandated recipients of state general funds have appealed to court orders, consent decrees, and automatic appropriations to ensure that they get positions at or close to the head of the line for the State’s remaining funds.  The result of the convergence of all of these trends was that the State of Illinois was legally compelled to print a warning in its most recent State bond prospectus released on Tuesday, October 11, that some of the mandated $7.8 billion FY17 pension payment may have to be delayed.

Warnings of this type, in bond prospectuses, are part of the data used by credit rating agencies to rate the debts of institutional borrowers.  Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings have downgraded State of Illinois general obligation debt to only two notches above “junk bond” level.  The three different firms use different terminology; in S&P phraseology, Illinois general-obligation debt is rated ‘BBB,’ or triple B.  While bonds stamped with this rating can be sold as investment-grade securities, they are classified as a relatively low-ranking, risky investment.  The State of Illinois, when it sells bonds in the marketplace, must offer to pay interest rates that are much high than the rates paid by other states.  Illinois taxpayers must pay annual interest rates on 10-year notes that are approximately 200 basis points (2.00%) higher than the rates paid by the AAA-rated neighboring state of Indiana.       

Taxes – Soft Drink Tax
·         Cook County Board President proposes excise tax on sweetened beverages.  The proposal, made on Thursday, October 13, is intended to help close a $174 million shortfall in the budget of Cook County.  The county faces fast-growing expenses at Stroger/Cook County Hospital, the Cook County Jail, county juvenile detention facilities, and the county’s offices that track and supervise people who are awaiting criminal trial or have been adjudicated to obey terms of court supervision.

The proposal, sponsored by county Board President Toni Preckwinkle, would levy a 1-cent-per-fluid ounce tax on all sweetened beverages.  Affected beverages would include not only soda pop but also non-carbonated sweetened drinks such as lemonade, iced tea, and sports drinks.  The tax, if fully passed on to consumers, would increase the Cook County cost of a six-pack of 12-ounce servings by 72 cents.  A 2-liter bottle of soda pop would be taxed at a rate of 67.6 cents.  The tax would not be imposed on non-sweetened beverages such as bottled water.         

Illinois, as a whole, already taxes sweetened beverages more heavily than many other items found on grocery counters.  While buyers of most foodstuffs pay a discounted rate of sales tax at grocery store checkout lines, the Department of Revenue imposes the full rate of sales tax on sweetened beverages and confectionery goods.  The American Beverage Association, which opposes the Preckwinkle tax proposal, states that implementation of the new tax would constitute unfair double taxation of sweetened beverages within Cook County.   

The Preckwinkle sweetened beverage tax proposal, to become law, would have to be approved by her colleagues on the Cook County Board.  The tax, by generating an estimated $75 million a year in new revenue, would close about 43% of the 2017 budget gap.  As a home rule unit, Cook County is authorized to impose supplemental taxes on a wide variety of goods and services.

Transportation – REAL ID Act
·         Federal government confirms Illinois is moving toward compliance with REAL ID Act.  Compliance, or movement toward compliance, is required for a state ID card (such as a driver’s license) to be seen as adequate identification for federal security purposes, such as entering an armed forces base or the boarding area of an airport.  Illinois is one of 14 states that have been officially ruled as out of compliance with the 2005 federal law.  Congress enacted, and former President George W. Bush signed, the REAL ID Act after the events of September 11.

Under the terms of the federal law, applicants for a drivers’ license or official ID equivalent are required to present a variety of official documentation to confirm and re-confirm their legal status within the United States.  In addition, the drivers’ licenses or equivalent state documentation must be produced in physically secure facilities and must comply with a series of federal mandates intended to reduce and eliminate counterfeiting.  The eventual goal is to bring the 50 states’ drivers’ licenses closer to the level of identification and security that are imposed upon applicants for a U.S. passport.  After a ten-year transition period, the federal government has begun to impose penalties upon the residents of states that remain out of compliance with the REAL ID Act.

The General Assembly responded to federal compliance issues in spring 2016 by enacting new legislation (SB 637) intended to move toward compliance with the REAL ID Act.  Under this legislation, the offices of the Illinois Secretary of State are no longer allowed to print out and distribute plastic drivers’ license cards.  Starting in summer 2016, Secretary of State employees who have undergone criminal background checks are now allowed to collect information from an Illinois resident.  The State employee will then send digital information over a secure phone line to a facility in a secure location.  The new drivers’ licenses, which are mailed to their recipients, are similar to the old drivers’ licenses in some ways and different from them in others.  They contain features that are difficult to counterfeit.

Under the new legislation and technology, Illinois has now been re-ruled to be 84% in compliance with the REAL ID Act.  This status will be valid until October 10, 2017.  During the 12-month period preceding this deadline, Illinois drivers’ licenses and ID-card equivalents will be viewed as adequate to enter federal security-secured areas, such as federal facilities and airport boarding areas.  The Department of Homeland Security is warning Illinois and 13 other states that they must take further actions in spring 2017 in order to move closer toward complete compliance with the REAL ID Act.  Eight other states, including Kentucky and Missouri, have been ruled noncompliant with the REAL ID Act.  Their residents could face identification-related sanctions as soon as January 30, 2017.

Fall in Illinois – Colored Contacts Warning
·         Illinois families warned against using colored contacts in holiday costumes.  The Illinois Department of Professional Regulation (IDFPR) reminds Illinoisans that contact lenses, and any other product intended to be seen through, must be fitted to an individual customer.  IDFPR reminds Illinois customers that the eye professional who is qualified to fit a set of contacts or prescription eyeglasses will instruct the patient on proper eye care, including when to take out the contacts and proper administration of the eye drop solutions familiar to people who wear contacts.   

Halloween contacts, bought by some thrill seekers to produce “extreme eyes” or “crazy eyes,” could be especially dangerous.  The Department reports that many of these products are made with other novelty goods in facilities that are not licensed or inspected by the U.S. Food and Drug Administration (FDA).  As with other non-professionally-administered, non-FDA-approved items and chemicals, these products could cause eye damage.   

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