Failure to Communicate

“They’re baaaack!” That semi-famous catchphrase from the movie “Poltergeist” is an appropriate one, both for the particular time of year … and because the legislature has begun its fall session, slogging through its first week with thrill, chills … plus a certain degree of dysfunction between the legislative and executive branches.

Generally, most of the final action in fall veto sessions takes place during its second week, scheduled for November 8,9,10. The just completed first week is used to set the table and finalize whatever discussions may be necessary to complete action during the second week.

And that table is filled to capacity, with possible budget reallocation, “smart grid”, casinos, corporate tax incentives, possible borrowing to pay back bills, maybe some modicum of pension reform, health care reform implementation, regional school superintendent salaries, hospital property tax exemptions, and a host of others. In terms of the number of issues on the table, there’s enough for legislators to gorge themselves. As for how clean the table will be when the smoke clears on November 10, that remains to be seen.

One thing that has been apparent since the middle of the spring legislative session, through the summer and this past session week is the absence of meaningful communication between the legislature and the Governor. You’ll recall that after his budget message last year, when he proposed spending an additional $2 billion with state finances in a freefall, the legislature took over the budget process, adopted a strict spending cap and pretty much excluded the Governor from any budget discussions. During the summer as major issues were being decided there was little communication between the Governor and legislative leaders. Using the casino issue as an example, the Governor spoke to few legislators about concerns or alternatives, preferring to wait until the 11th hour to announce his objections. Similarly, the issue of reallocation of $376 million dollars that the Governor reduced from the budget sent to him in June has followed the same path, where the Governor has threatened facility closures and layoffs but hasn’t really engaged in conversations about a solution.

Governor Quinn has taken numerous shots at the legislature, chiding them in the media about the way they have handled issues. Call a press conference and complain has been his approach. Ironically, that’s pretty close to the tactic that former Governor Blagojevich used to use, and also similar to Quinn’s modus operandi when he was a political gadfly prior to his election to various offices. It’s not known for being a productive way to handle business.

Legislative leaders and their minions complain about governing by press conference and the absence of meaningful discussion, even when the parties get together to talk. One leader has even stopped attending meetings the Governor calls, preferring to send a replacement because of the lack of productive dialogue. With many major issues to be considered in the next two weeks it will be interesting to see whether there will be any thaw in the executive/legislative dynamic that will result in productive resolution.


“Gimme Money, That’s What I Want”

Last May Illinoisans were treated to the state government version of a Hollywood cliffhanger, with a budget fraught with uncertainty sent to the Governor and with a plethora of issues popping up during the summer. In the world of celluloid the next episode begins with the hero saving the day and moving on to the next adventure. In the governmental version there is no hero and the “cliff” keeps getting more slippery. And in the Illinois version it’s state finance that’s on the slippery slope. While there seems to have been a slight reversal in the depth of the fiscal sinkhole, there are abundant pressures on state government as it tries to pay bills and grow the economy at the same time. Everyone wants a larger piece of a pie that can’t possibly feed everyone as it is. Here are some of the major issues that the legislature is may try to tackle in the next few weeks.

Borrowing: Had fallen out of any conversations for months until State Treasurer Dan Rutherford apparently had a slight change of position this past week and suggested that maybe borrowing a little (maybe $2.5 billion to $4 billion) to pay vendors might not be such a bad idea after all. He had been a fervent opponent to borrowing in the past. It’s not certain that he’ll stick to his guns or has the clout to get Republican votes for any proposal that is put forward. The GOP is almost apoplectic about opposing additional borrowing and, with a three-fifths majority required to approve any new borrowing, it’s not going to happen without a few of them jumping over. Proponents of this additional borrowing like to refer to it as “debt restructuring.” The rationale of proponents is that late payments to vendors currently cost the state somewhere between 1%-2% monthly or 12%-24% per year. Issuing bonds at a lower interest rate, maybe 5%-7% would cost significantly less and would save dollars that can be used to help make bill payments even more current and lessen the amount of outstanding debt. The Chicago Tribune has run almost daily editorials adamantly opposing more borrowing, no matter what the purpose. One wonders whether this failure to comprehend simple mathematics could be one reason they’re in bankruptcy? It’s too early to tell if this issue has any traction, but it appears to be on some tables.

Corporate Taxes: During the past few months a number of Illinois corporations have put out feelers about a better tax deal for themselves with a suggestion that they might seek greener pastures otherwise. The Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) have been in the forefront, but other companies have urged a 5-10 year reenactment of research and development credits, and others yet are looking for other enticements or incentives to help with their respective bottom lines. The cost of the CME proposal has been pegged at $75-$100 million. The research and development credit is estimated to cost $30 million per year.

It’s pretty much been Democrats who have been pushing for the current crop of business tax breaks with little GOP support. As to why, it has been the subject of both media accounts this week and debate in the Senate Executive Committee last Thursday that legislative Republicans feel that any tax incentive package considered by the legislature must be broader based and include more options for business relief. A package proposed by House GOP Leader Tom Cross is estimated to cost in the range of $500 million. In order for any legislation approved in the fall session a three-fifths vote is required, so that means that if there isn’t some bipartisan agreement it’s not going to happen, and agreement is far from certain at this point.

There’s one other sticking point with all the discussion about tax breaks. Where will the money come from? The state is pretty tapped out and there is a 33.2 billion pound gorilla in the room … namely, the spending cap the General Assembly approved last spring. It may take every creative juice that the legislature can muster to figure out how to make this happen without severely crimping state services, or their credibility, further.

Budget: The Governor cut $376 million from the budget sent to him by the legislature in May. In the meantime he indicated his desire to reallocate those funds or the result would be 1,900 layoffs and facility closings. He has also refused to pay raises negotiated under the AFSCME labor agreement negotiated last year, indicating that the legislature hadn’t provided enough funding. So far, hearing officers hearing AFSCME’s complaint about the raises have ruled against the Governor, so one budgetary thicket has been created. Legislative leaders have agreed to consider reallocating the $376 million so long as the spending cap is not exceeded. The bad news is that there have been at least double the requests for program spending so the reallocation won’t begin to make everyone happy.

In the meantime, Speaker Madigan created a stir last week when he introduced House Joint Resolution 45 that allows the legislature appropriate a specified percentage of increase for associated with any and all state government collective bargaining contracts. It also prohibits reductions in workforce from being bargained. Since the Governor has maintained that he can’t pay increases because the legislature didn’t give him enough money, the resolution is the legislature’s response … “then we’ll give you a finite amount you have to work with when bargaining”. Additionally, since the Governor agreed to no layoffs for two years when the current contract was negotiated in 2010, and that has become a contentious issue since the Governor has proposed laying off approximately 1,900, the legislature wants to be on record ending that practice. The Joint Resolution has been assigned to the House Revenue and Finance Committee but it’s too early to tell whether it will be moved or whether it was introduced to send a message.

Last summer, the Governor also vetoed the salaries of 44 state educational service region superintendents. He has commented that their cost, roughly $10 million, should not be paid from state resources because they provide a local government function. While there is much to quibble about with his rationale, efforts are being made to pay salaries from the Corporate Personal Property Replacement Tax, a tax that supports local governments. It would mean a loss of state reimbursement to those local governmental bodies. The regional superintendents have not been paid since July and efforts to approve the replacement tax transfer were defeated in the House last week, so the fate of the salaries is up in the air. Expect other attempts to try to have this legislation approved during the next veto session week. Some legislators have argued that these offices represent an unneeded layer of bureaucracy, so expect some discussion as to whether or not these offices should be abolished.

Tax Exemptions: Three Illinois hospitals potentially took a big hit this past summer when the Illinois Supreme Court ruled that the Illinois Department of Revenue was within its rights to repeal their property tax exemptions because those facilities did not provide enough charity care. The court ruling could have far reaching consequences and the Governor’s office, as well as the legislature, must decide soon as to specific rules that these and other facilities must follow in order to keep and/or restore the exemptions. Northwestern Memorial Hospital's Prentice Women's Hospital, Edward Hospital in Naperville and Decatur Memorial Hospital all, obviously, disagree with the Department’s actions. Action to actually take away the exemptions has been temporarily delayed while discussions take place between those hospitals and the administration … and there are potentially 15 other hospitals in the state that may have the same problem.

One of the hurdles that state policymakers will face when trying to determine appropriate levels of charity care that must be provided is that there is currently no particular standard or rules. The Illinois Department of Revenue, some have mused, uses the “I’ll know it when I see it” standard. Regardless, it’s going to be a battle royal as both sides prepare to address the issue of how much is appropriate. It’s doubtful that the legislature will be ready to address this issue in November but there is no doubt that it will be a focus of the 2012 general session.

The legislature is also in the process of addressing the question of erroneous homestead exemptions having been awarded to properties that do not qualify. House Bill 506 that was approved by the House last week stipulates procedures for determining penalties and payback of unpaid taxes. Erroneous property exemptions resulted in legislation two years ago to have senior citizens reapply each year for their senior homestead exemptions. As a result, some seniors have inadvertently lost their exemptions, have had to travel to county offices to reapply, and have howled about the hassle. It is expected that the General Assembly will repeal that provision sometime soon.

Pension Reform: For the last few weeks the Chicago media has been replete with stories about individuals who have used or abused Illinois pension statutes to enrich themselves. A few of the accounts were stories of individuals collecting multiple pensions or who were able to embellish their pensions by using statutory loopholes. But the big focus was the chronicling of various labor leaders who worked just short time for the City of Chicago but were able to meld in other time to their City pension account and collect substantial public pensions. There were also stories of some retired labor leaders apparently collecting both public and union pensions when state law permits only one or the other. These examples have given the Chicago Tribune the opportunity to carry on its crusade to have the legislature change and restrict pension requirements for current state and local government employees.

Legislation was approved in the House overwhelmingly this past week to address the abuses that were exposed by the media and it’s a given that the Senate will do the same next week. However, this legislation takes care of the “low hanging fruit” of pension reform. The big question is whether the General Assembly will address what many say the Illinois Constitution prohibits, and that is to change benefits for current employees. It’s doubtful that we’ll see action on those issues taken in the fall session because they will be extremely controversial. It’s unlikely that the extraordinary majority vote needed for enactment would be reached. But, you can be assured that pension reform will continue to be a hot topic through the 2012 session and the subsequent election season.



Long Odds on Gaming?

Just prior to the start of the veto session Governor Quinn announced his position on gaming expansion and promised to reject anything that reaches his desk that goes beyond his “vision”. The Governor’s position draws the line at five new casinos (Chicago, north suburbs, south suburbs, Rockford and Danville) and rejects slot machines at race tracks (racinos) and at the state fairgrounds. The Governor also espoused a change in the previously enacted video poker legislation that was approved two years ago to fund capital construction. He indicated that it is his preference now to see communities vote to accept video gaming rather than vote to reject it as is the current law. Lastly, he indicated a preference for all proceeds to be used for education rather than be placed in the General Revenue Fund.

While the original legislation containing the expansion is still being held by a parliamentary maneuver, the Governor has “dared” the legislature to send it to him so he can issue a veto. Because of the delicacy of the coalition that produced the votes to pass the bill initially, there is speculation that any expansion in now no longer possible. Opponents of additional gaming are thrilled at the prospect of the entire expansion proposal being thwarted. Their opinion is that the large expansion proposal was a “house of cards”. Remove one piece and the entire structure falls. And they may be right. Proponents are convinced that the Governor is posturing and can’t turn his back on $1.5 billion in upfront fees and potentially $1 billion of additional revenue annually. They feel they can put together a package that answers the Governor’s objections, but they have also indicated that without all the original pieces getting enough votes will be more than difficult. This may be a case where the growing number of lame duck legislators may prove decisive if proponents hope to succeed.

Discussions on expansion may take place during this week with some anticipation of trying to get a deal before the end of the veto session.

In the meantime, the Governor has replaced all members of the Illinois Gaming Board with the exception of the Chairman, Aaron Jaffe. Quinn and Jaffe have a relationship that goes back decades and the Governor trusts him implicitly. The remaining board members were Blagojevich appointees and the Governor has been replacing the vast majority of them on this and other board and commissions with his own.

It’s Electric

For Commonwealth Edison and Ameren customers, there’s a “Smart Grid” in your future. Last week the legislature overrode the Governor’s veto of legislation promoted by those utilities to upgrade the electrical grid. The proposal had been extremely controversial with consumer advocates contending that there was not enough protection for consumers and that the utilities should pay for any upgrade without nicking its users for the cost. The utilities, on the other hand, argue that the grid has not been upgraded in decades and that customers would be better served because outages could be minimized and/or outage power restored with greater efficiency, thereby providing less disruption. The anticipated cost to consumers for the upgrade is $3.40 per month for ten years.

Opposition to “Smart Grid” became a crusade for the Governor over the summer and fall. And his message did resonate with consumer groups and some legislators. Before the veto override votes were taken the General Assembly approved a “trailer bill” (legislation that takes effect only upon the enactment of another bill) that changes some of the provisions of the original proposal to take into account some of the Governor’s objections. But the elements contained in the trailer bill did not satisfy the Governor and consumer groups, who intensified their efforts to see the gubernatorial veto sustained. They lost, and by a razor thin margin the vetoes were overridden. The “trailer bill” was approved and sent to the Governor.

The override of the “Smart Grid” bill, and the subsequent passage of the “trailer bill,” creates a conundrum for Governor Quinn. The legislature overrode a bill he hated so it’s law regardless of his feelings. So, now he gets the trailer and he could be in a quandary as to what to do with it? If he signs the bill it could be perceived as his stamp of approval that makes what he considers bad public policy better. If he vetoes it will his detractors say that he passed on an opportunity to correct deficiencies and provide protections to consumers? It presents an interesting dilemma for Quinn. Sometimes, being Governor can be very frustrating.

Health Care Benefits Exchange

One of the major functions of the federal Affordable Care Act is the development of Health Benefit Exchanges in each state by January 1,2014. The Exchanges as must provide access (primarily through an internet website) to both public and private health insurance coverage for individuals and businesses with fewer than 100 employees. The federal government has stated that it will provide opportunity for residents of a state to access a federally‐run Exchange if their state chooses to not establish an Exchange so the pressure is on the state to comply.

A study panel was created this past summer to study available options and a draft report has been released, but specific recommendations were not made. Rather, there have been discussions and negotiations that have ensued to try to come up with a workable, agreeable program. As usual, lines have been drawn by consumer and business groups and those will have to be overcome in order to finalize plans for an Illinois Exchange. Current statistics show the present distribution of Illinoisan insurance coverage as follows: Employer plans – 52%, Medicaid – 20%, Medicare – 12%, Individual plans – 4%, and Uninsured – 12%.

Important issues that need to be resolved during current discussions are:

Exchange Model: There are two general models that can be followed. The “market organizer” model operates as a clearinghouse for health insurance coverage, where “any willing plan” that meets minimum requirements would not be precluded from being offered as an option for consumers. The alternative is the “market developer” model that would seek to leverage the Exchange buying power to get its members the best possible deal on the most valuable coverage.

Governing Board Membership: Who should be appointed to govern the Exchange and by whom? There is general agreement that the membership of any governing board be diverse, but there are questions as to whether or not certain groups should be excluded. For instance, it has been proposed that no representative from the insurance industry and no legislators be allowed appointment because of potential conflicts of interest. There is also a push to have any Exchange be independent from all state agencies.

Sustainability: The Affordable Care Act provides that Exchanges must be self sustaining by January 1, 2015, after initial start-up grants provided by the federal government. There are several options that will be considered to try to accomplish sustainability. Most of the options will most likely be rejected, and some hybrid plan will probably be developed based on what other states are doing and the reality of what can be achieved in Illinois in conjunction with the consent or objections of various consumer and business groups. Among the many options are:

• An assessment on participating Qualified Health Plans (QHPs) of approximately 2.24 percent and 3.39 percent of plan premiums;

• An assessment fee on insurers;

• A claims transaction fee, such as the one levied in the State of Michigan to fund its Medicaid program.;

• Use of General Revenue;

• Leveraging the state Medicaid program. Other states are considering utilizing the Exchange to determine Medicaid eligibility, which would allow Exchange costs to be charged to the state Medicaid program. The program would be able to offset this by receiving federal matching funds, which would lower overall Illinois costs

• Utilizing the Exchange as a purchasing agent for other state programs, including the State Employee Group Insurance Program and other managed care plans. This would potentially provide an ongoing source of income for the Exchange and useful experience in the health insurance field.;

• An assessment fee on consumers. No other state is pursuing this option and it is unlikely to be considered in Illinois;

• A licensing fee on “navigators” for the Exchange. Navigators are organizations who are utilized to help bring individuals and businesses to the Exchange, through advertising, social involvement, and a variety of other ways.

• Levying an assessment on all health care stakeholders in the state is also available as an option for financing the Exchange. This option is not being pursued by other states and most likely will not be pursued here.

Eligibility: There will be a push to allow any business with less than 100 employees to purchase insurance on Exchange. Initial language that had been offered limited participation to businesses with 50 or less employees.

SB 1313 has been identified at the bill that will ultimately carry the language that will establish the Illinois Exchange, however at this juncture it’s a blank canvass waiting for the picture it will carry to become clear. There had been some hope that the legislation could be finalized during the fall session, however while negotiations have been ongoing there apparently has been no agreement as yet. But expect that this issue will get boatloads of discussion once various specific proposals surface.

Reapportionment Update

Reapportionment lawsuits are still in federal court where a decision is expected soon. Candidate petition filing for the March 20 primary election begins November 28 and ends December 5, but there is no guarantee that the courts will render a decision prior to those dates.

Legislative Turnover

Rep. Tom Holbrook (D-Belleville) has resigned to become state Pollution Control Board Chairman. A replacement will be named soon.

Rep. Karen Yarbrough (D-Broadview) has announced she will not seek re-election to the Senate but will instead run for office in Cook County. Sen. Suzi Schmidt (R-Lake Forest) and Sen. Edward Maloney (D-Chicago) have also announced their intentions to retire and not seek-re-election. It is expected that Sen. James Meeks (D-Chicago) will also soon announce his intention to retire.

Candidate petition filing begins November 28 and ends December 5. The close of filing will yield the first official list of incumbents that are electing to take a pass on re-election. The addendum to the first list of non-returning incumbents will be the results of the March 20 primary election. A number of legislators are running against each other in the primary election so the losers will be added to the list of non-returnees. The November general election results will provide the last names to be added to the list. There is only one November race in the state that will pit a Democratic and Republican incumbent (Rep. Sidney Mathias (R-Buffalo Grove) v. Rep. Carol Sente (D-Vernon Hills)) so one of them will not be returning, but the prevailing opinion is that there will be a number of other very difficult races next fall that could send a few incumbents packing.

Veto Session

The final days of the General Assembly veto session will be November 8,9,10. It was also announced that the calendar for the spring legislative session will be released during that week.