City of Chicago deficit will balloon to $1 billion without pension reform. The Chicago Tribune reported this week that Mayor Rahm Emanuel will not raise sales or property taxes to close a $338.7 million budget deficit for next year. By 2015, the shortfall will balloon to $1 billion without pension reform.
In 2015, Chicago is required by state law to make a $600 million contribution to its police and fire pension funds that currently only have assets to cover just 30.5 and 25 percent of their liabilities. Chicago leaders have suggested that the Illinois General Assembly should relieve Chicago of the pension payment “ramp up” requirement and allow the City to extend payments over a longer period of time.
Chicago’s deficit will rise to $994.7 million in 2015 and $1.15 billion in 2016 without strong pension reforms and possibly new revenues.
Two weeks ago, Moody’s Investors ordered an unprecedented triple-drop in the City’s bond rating, citing Chicago’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes. Moody’s suggested that Chicago has “nearly unlimited” ability to raise property and sales taxes and should use it to reverse a chronic underfunding of its pension funds.
Mayor Emanuel has thus far refused to raise taxes in order to address the budget shortfall. The mayor’s budget director, Alex Holt, indicated that Emanuel is “not going to increase revenue and increase taxes on people to put into a system that hasn’t been reformed. More taxes don’t solve the problem. You’ve got to have reform and then, we need to talk about how we pay for it. But if you do them in reverse, you’ll never get the reform.”
General Assembly
Madigan, Cullerton sue Quinn over legislative pay. The intra-party feuding between the state’s top Democrat leaders spilled over into the courts on Tuesday, as House Speaker Michael Madigan and Senate President John Cullerton filed a lawsuit challenging Governor Pat Quinn’s decision to withhold legislators’ paychecks until a pension deal is reached.
The two Chicago Democrats want a Cook County judge to overturn Quinn’s action and grant an injunction forcing Comptroller Judy Baar Topinka to issue paychecks. Lawmakers missed their first paychecks on Thursday, August 1.
Last month, Governor Quinn used his line-item veto powers to eliminate $13.8 million in appropriations for legislative salaries and stipends. Quinn indicated that he would suspend lawmakers’ pay until they passed pension reform.
The controversy over legislative pay and the lack of comprehensive pension reform highlights the failure of the ruling Democrats to agree on a path forward to address Illinois’ pension crisis, where the unfunded state pension liabilities are reaching $100 billion. However, Madigan and Cullerton have framed their lawsuit as a battle over the separation of powers and the independence of the legislative branch of government.
“The purpose of this lawsuit is to protect the independence of the Legislature and preserve the separation of powers,” Madigan and Cullerton said in a joint statement. “It is our hope that the court will remedy this constitutional violation, and that future governors will not feel empowered to use such coercive tactics.”
“If the governor’s line-item veto is upheld, the independence of each member of the General Assembly is forever compromised. Any governor will hold a trump card over a co-equal branch of government, attempting to bend the members of the General Assembly to his or her will with the threat of eliminating their salaries, which for some legislators is their only source of income,” the lawsuit states.
“In this particular instance, Governor Quinn has stated that his dispute with the General Assembly is over the lack of pension reform legislation. Next time it may be gun control, abortion rights or tax policy.”
Illinois’ Constitution states that changes to a legislator’s salary cannot “take effect during the term for which he has been elected.”
Base pay for lawmakers is $67,836, with many earning thousands more through stipends for serving in party leadership or heading various legislative committees. Governor Quinn’s salary is $177,412 annually. Quinn has indicated that he is voluntarily giving up his pay until the pension crisis is resolved.
Health Care
Medicaid reforms undermined by cancelation of Medicaid-eligibility contract. One of the most important components of the 2012 Medicaid reform law designed to save Illinois taxpayers $1.6 billion a year and help shore up the State’s Medicaid program was a strengthened effort to remove ineligible participants from the Medicaid rolls.
The future effectiveness of this provision has been undermined by a recent arbitrator’s ruling that orders the State to cancel its contract with the governmental consulting company Maximus by the end of December. The Quinn administration has not yet decided whether to appeal the arbitrator’s ruling or hire the estimated 100 additional state workers needed to completely take over the work Maximus has done since January.
The 2012 Save Medicaid Access and Resources Together (SMART) Act was intended to require the State to contract with a private vender to conduct “enhanced eligibility verification” to verify the income and residency status of all 2.7 million people on Illinois’ Medicaid rolls. Lawmakers negotiating the terms of the SMART Act estimated that the eligibility verification could save $350 million annually and should be conducted over a two-year period.
According to Rep. Patti Bellock (R-Hinsdale), early results from Maximus’ work were encouraging. As of July 22, 52,615 cases – representing a total of more than 90,000 people – had been removed from the Medicaid rolls.
Medical marijuana becomes law in Illinois. Governor Quinn signed House Bill 1 into law Thursday, legalizing the use of marijuana for medical purposes. HB 1 (PA 99-122), the strictest medical cannabis law in the nation, will take effect on January 1, 2014. It establishes a pilot program that will sunset after four years. Illinois will join 19 other states and the District of Columbia that have made marijuana legal in some form.
Medical cannabis could be used to relieve nausea from cancer treatment, ease symptoms of multiple sclerosis and provide relief to AIDS patients and those suffering from chronic, debilitating pain.
Under Illinois’ new medical marijuana law, patients must receive a physician’s approval before applying for a registry car with the Illinois Department of Public Health (DPH). The DPH is required to create a 24-hour-a-day verification system. Documentation providing a historical relationship between patient and doctor is required along with written certification by that doctor that the medical cannabis is necessary. A specific list of debilitating or terminal medical conditions is outlined in the law which patients must be suffering from in order to qualify.
The law prohibits home growing by individual patients. Cultivation centers will grow the medical cannabis for sale at dispensaries, which are limited to 60 statewide, and the Department of Agriculture may approve up to 22 cultivation centers. A patient may not possess more than 2.5 ounces of marijuana at a time.
An estimated 1,000 jobs could be created by the pilot project throughout Illinois’ new medical marijuana industry, and up to 15,000 Illinois patients could be served. However, it is important to note that marijuana use for medicinal reasons is not approved by the Food and Drug Administration and remains illegal under federal law.
State of Illinois
Backlog of unpaid state bills rising again. Illinois entered the new fiscal year in July after a nearly $2.3 billion boost in tax revenue. However, separate forecasts from the Commission on Government Forecasting and Accountability and the State Comptroller’s office indicate that this trend will not continue. General revenue in Fiscal Year 2014 is expected to drop $816 million from the $36 billion collected in FY 2013.
The Comptroller’s office also reported Monday that the backlog of unpaid state bills is rising again. The April tax windfall of $1.3 billion (attributed to high-income earners selling assets ahead of a change in federal tax law) allowed the State to pay down its backlog of unpaid bills. The estimated $6.1 billion owed at the end of June compared with $7.5 billion a year ago. But figures provided by Comptroller Judy Baar Topinka show the estimated backlog was $6.8 billion and rising as July ended. Topinka earlier estimated the figure would hit $7.5 billion in August and $9 billion by year’s end.
Tribune review finds lottery shortfall for second year. For the second straight year, the company hired to improve Lottery sales has fallen short of the revenue it promised to generate for the state, according to a Chicago Tribune review of the lottery’s sales and expense figures for the past year.
Unofficial year-end results for FY 2013 show Northstar Lottery Group posted net revenue of $804 million, about $143 million less than promised. As a result, the company may be required to pay Illinois more than $40 million in penalties. Northstar still owes the state $20 million in shortfall penalty payments after it missed profit goals by nearly $70 million in FY 2012, when it became the first private company to run a state lottery in the nation.
House Republican cost-cutting measure highlighted on ‘Waste Watch.’ Nineteen House Republicans joined together this spring to co-sponsor HB 28, a bill to sell most of the state's airplane fleet. Last week, WICS in Springfield spoke with Rep. Bill Mitchell (R-Forsyth), the bill's primary sponsor, as part of its feature on the state's airplanes for its "Waste Watch" segment.
WICS -- Hollywood actors, political spouses and Supreme Court justices are among hundreds of people flying around the state on your dime.
Judge halts transfer of Murray Center residents who are wards of the state. The Friends of Murray Center have successfully stopped the transfer of residents of Murray Developmental Center who are wards of the state to other state facilities until further notice. A previous court order had halted the transfer of residents, unless parental consent was given. However, a loophole was discovered allowing wards of the state to be transferred because the state was in effect their legal guardian.
State Representative Charlie Meier (R-Okawville) issued the following statement after this week’s decision: “Today is bad news for Governor Quinn and excellent news for friends of Murray Center. The safety and well-being of the residents of Murray Center will now be preserved. Far too often society has turned its back on mentally challenged members of society. This suit and the judge’s ruling clearly prove that there is care and compassion left in Southern Illinois…”
Suburbs – Metra
Metra chairman resigns in wake of patronage scandal. Embattled Metra Chairman Brad O’Halloran resigned Thursday, becoming the third board member to quit amid allegations of political back-scratching at the commuter rail agency.
Metra, the commuter rail arm of the Regional Transportation Authority, is run autonomously with its own executive director, board of directors, and chairman of the board. The authority operates 11 separate diesel and electric rail lines that service Chicago and its northern, northwestern, western, and southern suburbs. More than 300,000 Chicago-area residents ride Metra on work days. The board chairman is Brad O’Halloran of Orland Park.
Former executive director/CEO Alex Clifford, hired in April 2011, was let go in July 2013. Allegations have swirled concerning the circumstances of his departure, the reasons for a substantial severance payment to Clifford, and the existence of possible political pressure against Clifford and other Metra personnel involving the chairman and members of Metra’s current board of directors. The Legislative Inspector General has been asked to carry out an ethics probe.
Clifford has stated that he believes he was ousted because he resisted requests from House Speaker Michael Madigan to give a raise to one politically-connect Metra employee and promote another. Clifford said O’Halloran was concerned that refusing Speaker Madigan’s request would cause Metra to lose funding.
Cross, Tryon, Senger call for House hearing on Metra allegations. House Republican Leader Tom Cross (R-Oswego), State Representative Mike Tryon (R-Crystal Lake) and State Representative Darlene Senger (R-Naperville) called for an Illinois House Mass Transit Committee hearing into allegations of impropriety involving high-level Chicago-area mass transit officials on Thursday.
“As the Minority Spokesperson for the Mass Transit Committee, I have now made two formal requests for committee hearings so we can get to the bottom of these egregious allegations brought forth in the Alex Clifford memo,” said Tryon. “While I have been told the Speaker has taken my request under advisement, we need to proceed in a swift and strategic manner so we can take appropriate action and restore public trust in our transit system.”
“Every day there seems to be a new revelation in the media about this unfolding scandal. The General Assembly appropriates hundreds of millions of dollars each year for mass transit – it is appropriate that the House Mass Transit Committee conduct hearings in a prompt manner when allegations are made about taxpayer dollars being abused,” said Cross. “It’s time for a hearing.”
The representatives say the purpose behind the hearing would be to have Clifford explain the contents and allegations made in his April 2013 memorandum and reveal any conversations or communications he had with Metra board members or with legislators that could be perceived as in violation of State ethics laws or other related statutes. The representatives would also be interested in hearing from Metra Chairman Brad O’Halloran to explain his role in an alleged “golden parachute” scheme and continuing to accept a municipal paycheck in violation of state law.
“These are all serious allegations that need to be investigated out in the open,” said Senger. “It is disheartening to hear that attempts were allegedly made to divert money needed for operations, repairs and improvements to fund jobs and pay raises for politically connected employees. It has also been alleged that the $718,000 severance payment to ousted Metra CEO Clifford was an attempt to purchase his silence. The taxpayers deserve truthful answers.”
“The minority party members of the Mass Transit Committee are not willing to sweep this issue under the rug and we remain committed to bringing Alex Clifford in so we can gain a full understanding of the content of his memo to the Metra board and learn about any communications he had that could be perceived as violations to State ethics laws or other statutes,” Tryon concluded.