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Illinois lawmakers act on pensions, P3s, Medicaid, and transit

While passage of a fiscal 2024 budget took center stage during Illinois’ spring legislative session, lawmakers also advanced potential public-private partnerships, extended transit’s break from farebox funding rules, aided hospitals, and cemented a pension overhaul for Cook County.

Budget passage came late last month, one week after the General Assembly’s self-imposed May 19 date but ahead of a May 31 deadline when a higher voting threshold would be needed to pass the budget.

The state expects $50.7 billion of revenues in fiscal 2024 and plans to spend all but $100 million. It preserved Gov. J.B. Pritzker’s $200 million supplemental pension payment, modest deposits into the state’s formerly depleted rainy day fund that is on course to exceed $2 billion in the next fiscal year, and it pays off of the state’s remaining $450 million of tobacco bonds.

Some of those plans appeared in possible jeopardy in recent weeks amid rising Medicaid-related costs and revenue pressures.

The state’s progress in building up its rainy day fund, putting more toward pensions, and paying down debt helped drive several rounds of positive rating actions , including Fitch Ratings’ March shift to a positive outlook on its BBB-plus rating.

“The approved fiscal 2024 budget continues some of the positive momentum in recent years. The details of how the state manages a lowered revenue forecast and some expenditure pressure will be important considerations as evaluate the credit going forward,” Fitch’s lead Illinois analyst, Eric Kim, said in an email Tuesday. 

“To support an upgrade, we are looking for the state to follow through on its plans to make material improvements in fiscal resilience, primarily through building reserves to, or approaching, $2 billion or roughly 4%-5% of spending (which this budget does), while maintaining recent improvements in fiscal management through the near-term period of economic uncertainty,” Kim said.

S&P Global Ratings in February raised the state’s rating to A-minus with a stable outlook from BBB-plus. Moody’s Investors Service in mid-March upgraded the state to A3 and stable from Baa1.

The budget package passed along party lines with Republicans attacking it for being labeled balanced by the Democratic majority when it relies on yet-to-be taken actions to rein in healthcare costs, the lack of review time, and spending priorities.

The budget plan laid out in Senate Bill 250 raises education and social services spending along with the local government distributive fund rate — which holds income taxes that flow to local governments. Local governments will receive an additional $112.5 million in fiscal 2024, including $88 million from the percentage hike with the remainder coming from natural growth.

Lawmakers also authorized in House Bill 3551 an additional $700 million of general obligation borrowing to supplement existing authorization.

The budget was sent to Pritzker Monday and he’s expected to sign it soon although he has 60 days from the time bills arrive on his desk to act. If he doesn’t sign or veto bills, they become law.

Pensions
Lawmakers signed off on a long planned overhaul of Cook County’s pension system that enshrines supplemental contributions the county has made since 2016 that took the fund off a track toward insolvency. The payments above what was required under existing statutes were being made under an intergovernmental agreement while stakeholders negotiated legislation.

HB 2352 requires actuarially based contributions to reach a 100% funded ratio in 30 years. Cook County has $6.3 billion of unfunded pension liabilities and a funded ratio of 67.2% with the latest results expected to lift it to over 70%.

The overhaul incorporates changes to the pensionable salary cap that raise benefits for employees hired beginning in 2011 who fall under a Tier 2 level of benefits. The changes are designed to avoid triggering the Social Security Administration’s Safe Harbor provision that requires public employees who don’t pay into Social Security receive at least the same benefit level.

The changes will add $3 million to the county’s annual payment tab and $99 million in present value terms over the 30-year amortization period.

“This is a financially prudent step toward confronting our pension challenges,” said county board President Toni Preckwinkle. The county dropped its effort to enact governance changes on the pension fund board.

The legislation also allows the county to use any funding source for payments — it was previously required to use property tax revenue.

Comprehensive pension proposals for the state are the aim of state Rep. Stephanie Kifowit, D-Oswego, who chairs the House Personnel and Pension Committee, in HB 4098.

“It is time to stop talking about fixing our system; it is time for action,” Kifowit said. She will pursue negotiations over the summer with hopes of acting in the fall veto session.

The bill calls for the discontinuation of lawmakers and judges’ pension funds with future members offered enrollment into the existing State Employees’ Retirement System. It would establish a statewide Deferred Retirement Option Program and expand existing buy-out programs and call for meeting the safe harbor provision over eight years.

The bill would overhaul the current amortization schedule that aims for a 90% funded ratio in 2045 shifting to a 100% funded ratio by 2050 or earlier while identifying $1 billion in higher state funding from retiring bonds.  

Transportation
Lawmakers signed off on a series of measures that will benefit the Chicago-area Regional Transportation Authority with the most notable being a continuation of a waiver from a rule that 50% operating revenues come from fares in order to qualify for state aid.

The state had granted relief from the 50% farebox recovery ratio requirement in December 2021 in the wake of the COVID-19 pandemic.

The waiver now in place was set to expire at the end of the year but it now will continue through 2025 as part of the transit omnibus HB 1342 that lawmakers approved and Pritzker is expected to sign.

The agency, which provides fiscal oversight of the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service, will seek permanent changes in the ratio as part of an expected legislative package in the works to manage the $730 million gap looming in 2026 after the service boards exhaust federal pandemic relief aid.

“While relief from the requirement is critical, this step alone does not address the Chicago region’s current operating funding crisis,” RTA Executive Director Leanne Redden wrote in a blog post.

Lawmakers also authorized the Illinois Department of Transportation to explore public-private partnerships for two potential projects: the state’s first implementation of managed lanes and construction of a south suburban airport for cargo purposes.

“The department will be reviewing and evaluating both measures now that they have passed and determining next steps,” said IDOT spokesman Guy Tridgell. “Regarding the airport itself, IDOT continues to evaluate needs and potential uses of the project going forward.”

House Joint Resolution 23 gives IDOT authority to take the next steps by issuing a request for ideas, information, or proposals to gage interest in a P3 to build managed lanes with tolling on Interstate 55.

IDOT first began studying the idea during the administration of former Gov. Bruce Rauner as a means to relieve traffic without burdening the state’s balance sheet. The project in 2018 was projected to cost $800 million. It’s now estimated potentially to cost $2 billion to $2.5 billion.

While the project has the support of labor and some local officials, it’s run up against a wall of local public and environmental opposition with 133 opponents filing their objections and just six proponents in support of during a recent legislative hearing.

“Study after study has shown that building more lanes will generate more traffic which will cause more emissions that cause climate change and harm public health,” John Amdor, representing the Clean Jobs Coalition, testified.

Backers countered that the project would provide much needed congestion relief and is supported by the Chicago Metropolitan Agency for Planning.

HJR 23 cleared a Senate committee vote after Senate President Don Harmon, D-Chicago, noted that the resolution only allows IDOT to further explore the P3 and that future steps would require legislative review.

HB 2878 is an omnibus bill that includes language related to public-private infrastructure partnerships expanding P3 powers from a transportation agency to include a “responsible public entity” which covers IDOT, the Illinois State Toll Highway Authority, and any county, municipality, or other unit of local government. It also adds “design” and “construction” to prior language allowing for the development, financing, or operation of a P3 and also allows for unsolicited proposals.

The separate HB2531 adds cargo uses to prior legislation authorizing the state to explore a P3 to build a third airport in Peotone. The state began acquiring land there several decades ago to build a potential third airport in the Chicago region but it never gained traction. The bill also requires that IDOT commence the prequalification process within six months of enactiment.

Healthcare
The state’s hospitals will benefit from a 10% hike in Medicaid base rates beginning in January. Hospitals had pursued a 20% hike, but the scaled-down increase was still welcomed by the sector struggling under cost pressures.  

“This legislative action will help preserve access to care for all Illinois residents — particularly our most vulnerable populations — and protect the long-term viability of Illinois hospitals,” Illinois Hospital Association President AJ Wilhelmi said in an email.

The Medicaid rate increase is the state’s first in 28 years. Hospitals warned that without more help some would be forced to close units, limit services and in some cases shut down.

Unfinished business
Two pension proposals that would have raised Chicago’s contributions to its firefighter pension fund by more than $3 billion over the next several decades were held at new Mayor Brandon Johnson’s request. The measures would raise benefits for Tier 2 employees.

Sen. Robert Martwick, D-Chicago, who heads the Senate’s pension committee and sponsored SB 1629 and SB 1630, said the matching fix was promised to firefighters for their backing of the state’s 2019 consolidation of suburban and downstate firefighter and police assets into a single fire and a single police fund.

Johnson agreed to establish a “working group” that includes his finance team, Martwick, and other state legislative and labor representatives charged with finding long-term funding fixes to ease the city’s pension funding woes. Chicago’s $33.7 billion of pension liabilities remain a huge burden on the city’s balance sheet and budget despite progress in recent years.

Another measure left on the table came from state Comptroller Susana Mendoza. House Bill 2515 would have established automatic triggers for deposits into the state’s rainy day and pension stabilization fund based on the health of state revenues and accounts payable outstanding.

“It remains my goal to codify automatic savings when the state can afford it, so that responsible fiscal stewardship is baked into the budget,” Mendoza said last month after making a planned $150 million deposit into the rainy day fund that brought it up to a peak of $1.73 billion.

The fund held just $48,000 in 2018 and is on track to exceed $2 billion by the close of the fiscal 2024. Mendoza will again pursue the legislation next year.

The Illinois Sports Facilities Authority also did not score a five-year extension to repay the remaining $400 million of Soldier Field renovation bonds sold in 2003.

Hotel taxes that serve as the primary repayment source will fall $9 million short of what’s needed for debt service this year, leaving the city on the hook for a second year to cover the gap as tax receipts continue to lag pre-COVID-19 pandemic levels.

A current refunding is expected next year using existing authority to push out the final maturity by one year to 2033, which would ease some of the pressure on city coffers, but new authority is needed to further push off the debt which would ensure that Chicago’s pledge is triggered.

The Chicago Park District-owned stadium is home to the National Football League’s Chicago Bears. The team is working on a move to suburban Arlington Heights where it spent nearly $200 million to purchase land that housed a horse racing complex.

HB 610 would establish rules not just for a new Bears stadium but also “megaprojects.” It received committee hearings but stalled with negotiations planned over the summer.

The legislation being led by Rep. Marty Moylan, D-Des Plaines would impose a 3% surcharge on online sports betting at the stadium complex and divert some sales, liquor and hotel taxes to fund infrastructure improvements in the region. A $3 per-ticket surcharge would go to repay Chicago for the subsidies it’s provided to repay the Soldier Field debt.

The Bears stirred the pot further in recent days by talking to another suburb. Naperville, about relocating there because it is worried about a hike in the valuation of the Arlington Heights property and sticking points in negotiations with schools over taxes.

Johnson has said he’d like to negotiate with the Bears in an effort to keep the team in the city and potential talks were helped by the team’s recent comments that it’s no longer solely in discussion with Arlington Heights. That was a restriction it was under while negotiating on its land purchase which has since closed.

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