Budget

• Fitch Ratings puts State of Illinois bond rating on “negative watch” list.  Pointing to the 40-percent-funded ratio of Illinois’ state-managed pension systems, as well as these systems’ $96 billion in estimated liabilities, “Big Three” debt rating firm Fitch placed Illinois’ general obligation (G.O.) debt on its negative watch list on Friday, January 11.  This move is a traditional Wall Street precursor to a formal debt downgrade.  Fitch, along with Moody’s and Standard & Poor’s, is one of the “Big Three” debt rating firms that oversee the security and probity of the world’s bond-denominated debt. 

Observers responded to the Fitch move by calling upon the newly-convened 98th General Assembly to take swift action to resolve the pension crisis.  Fitch’s current ‘A’ rating, which covers Illinois’ $26 billion in G.O. debt, is classified as “upper medium grade” and is five notches below the rating agency’s prime “AAA” level.   In addition to its direct effect on Illinois’ G.O. debt, changes in the State’s debt rating also affects the status and interest rates paid on more than $150 billion in non-G.O. debt that has been issued by the Illinois Finance Authority or is otherwise tied directly or indirectly to Illinois.  
 

• Governor’s three-year funding projections indicate major cuts ahead.  Although Governor Pat Quinn is not expected to officially present the FY14 budget until mid-February or early March, the Governor’s office informally estimated this week that continuing to implement current law, which requires “full funding” of State-managed pension systems including their actuarial deficits, will require cuts of as much as $1 billion in other segments of the general funds budget in fiscal year 2014 (FY14).  These cuts, as estimated by the Governor’s office, could include $400 million in education spending, with parallel cuts to economic development programs and public safety.

Energy

• Oil, gas industry looks at Illinois shale, points out that Illinois’ energy production law dates back to 1983.  In that year, Ronald Reagan was President … with Russia led by rival Yuri Andropov, the Cold War was in full swing … engineers did not yet know how to conduct hydrofracking and horizontal drilling for hydrocarbon resources locked inside rocky beds of tight-knit shale… and Illinois adopted its most recent set of regulations governing enhanced recovery methods for the production of oil and gas.  The regulations could not deal with the questions of law and public policy generated by America’s newest energy technology.

With shale-based oil and natural gas production moving into full swing in other U.S. states such as North Dakota and Pennsylvania, calls are increasing for Illinois to adopt a new law, and new regulations, to enable increased production from Prairie State shale beds.  Geologists say Illinois, with one of the thickest layers of underground shale (the “New Albany” formation) in the United States, could utilize this undervalued resource to create much-needed Downstate jobs.  The U.S. Energy Information Administration, a bureau of the U.S. Department of Energy (USDOE), estimates that the New Albany could contain as much as 11 trillion cubic feet of economically recoverable shale gas.  Interest is particularly concentrated in far southern and southeastern Illinois.  The 98th General Assembly is expected to take up the issue of revision of the Illinois Oil and Gas Act with an eye towards fracking laws and regulations.  

Environment

• Owner of Illinois’ largest coal-fueled power plant completes major environmental upgrade.  The 1,750-megawatt Baldwin Generating Station, located in Randolph County southeast of St. Louis in southern Illinois, is owned and operated by Dynegy Inc., the nationwide merchant power combine.  Working in cooperation with the Illinois Environmental Protection Agency (IEPA), the Houston-based firm in December completed a $1 billion program of environmental upgrades at Baldwin and three other Dynegy plants located in Illinois.  The successful completion was announced on Monday, January 14.   Key elements of the upgrade package include new and improved scrubbers to remove sulfur dioxide from Baldwin’s emissions, bag houses to reduce soot and particulate matter, and low-pressure boilers to reduce nitrogen oxide.   With the capacity to generate almost two gigatons of electric power, Baldwin has a greater capacity than most commercial nuclear reactors.

Guns

• Cook County Board president introduces “gun control” ordinance.  The ordinance, introduced on Wednesday, January 16 by Cook County Board President Toni Preckwinkle, would direct county residents to report any incident to law enforcement when their firearm or firearms are lost, stolen, or sold.  The report would have to be submitted within 48 hours of the loss.  Mandatory-reporting laws of this type are traditionally opposed by supporters of firearm rights because of their potential for use as part of a national police gun registry.

Under the Preckwinkle proposal, persons who knowingly fail to report the loss of a gun could face a fine of not less than $1,000.  Supporters of the ordinance defended the proposal as a necessary element in reducing “straw purchases,” in which a legal purchaser of firearms privately transfers one or more guns to someone who is not qualified to possess them.  Critics pointed out that Preckwinkle’s proposed ordinance, if passed, would effectively apply only to suburban Cook County; the city of Chicago already has a mandatory-reporting ordinance in place.  Gun-rights advocates also asserted that Chicago’s experience indicates that ordinances of this type are not fully effective or enforceable.    

Pensions

• Inaction by General Assembly leads to threatened budget cuts across a wide range of Illinois programs.  While the Democrat-controlled Illinois House and Senate was adjourning at the end of the 97th General Assembly on Tuesday, January 8 without taking action on Illinois’ State-managed pension fund crisis, comptrollers at a wide variety of Illinois programs were estimating the cutbacks that would be forced upon the Illinois public sector later in 2013 as a result of the continuing law that requires more and more of the State’s tax revenues be set aside for pension payments.   With a new fiscal year scheduled to start on July 1, and Illinois tax revenues continuing to be held back by inadequate progress in regaining private-sector jobs, other programs could face additional cuts of up to $1.0 billion. 

Taxes

• Pension “cost shift” could lead to major property tax hikes throughout Illinois.  Some proposals to fix Illinois’ troubled State-managed pension system include what is called a “cost shift” – a reorganization of teacher pension systems so that the costs of this major benefit will be funded not by the State as they are now, but by the individual school district where the retired teacher was employed.  Implementation of a “cost shift,” combined with new legal language demanding full funding for each pension system’s actuarial costs, would require most Illinois school districts to increase their tax extensions and tax receipts.  In a study by the Daily Herald, published Thursday, January 17, spreadsheet calculations indicated that the average suburban homeowner could face a tax increase of as much as $165 a year. 

The State of Illinois, current overseer of the Teachers’ Retirement System, paid more than $2 billion toward teacher pensions in 2012.  More than $1.5 billion of this sum represented the State’s actuarially mandated payment intended to try to meet the increasing challenge presented by the system’s unfunded liabilities.  Moving a progressively increasing share of this deficit to local school districts, which a “cost shift” would do, would require local property taxpayers to make up this multibillion-dollar slack.  The Daily Herald calculations uncovered the possibility that the burden might be especially heavy in some school districts with a high ratio of pension needs to taxable property.  The annual tax hike per homeowner in Grayslake Elementary School District #46, for example, was estimated to be as much as $270.

Transportation

• Illinois Toll Highway Authority projects scheduled to begin this spring.  The Jane Addams Memorial Tollway project, which is expected to be completed in 2016, will cost an estimated $2.2 billion.  When the project is completed, at least six lanes of limited-access highway will connect Interstate 39, near Rockford, with exurban Randall Road.  The Addams work will also include construction of a new interchange with Illinois Route 47 at Huntley.  

A second Illinois Tollway project also scheduled to commence work in 2013 will be a $719 million interchange between the Tri-State Tollway and Interstate 57 at Markham, Illinois.  The bridge, located in Chicago’s southern suburbs, where I-57 currently crosses over the Tri-State is one of the few U.S. locations where two signed interstate highways cross each other without a direct connection between the two roads.

Veterans

• Wal-Mart announces nationwide plan to hire more than 100,000 U.S. veterans over a 5-year period.  With incentives from the federal tax code, supplemented by limited incentives from states like Illinois, the global retailing giant told reporters on Tuesday, January 15 that its five-year plans include hiring more than 100,000 veterans of the U.S. Army, Navy, Air Force, and other uniformed services over the next five years.  The firm’s U.S. chief executive officer, Bill Simon, told the National Retailing Federation that his company’s goal was to ensure that “every veteran who wants to work in retail will have a place to go.”  Based on Wal-Mart’s presence in Illinois, the announcement could lead to the hiring of as many as 4,000 Illinois veterans.   In his address, Simon expressed awareness of the fact that many U.S. veterans have added to their skill sets in the services, and have acquired areas of expertise that could draw them away from Wal-Mart and into other professions and lines of work.