Government Strategy Associates PO Box 242 Oak Lawn IL 60453 January 2019 Report In this month’s report, GSA will examine the minimum wage debate that occurred this week in Springfield and likely legislation to raise the current $8.25 per hour in 2019. Next, we also examine two recent proposals affecting municipal and State pension systems that offer one roadmap to reducing massive unfunded liabilities for Chicago and for the five State retirement systems covering most Illinois public employees. If Chicago and Illinois do make these adjustments (that we outline below), both systems might close the gap on their unfunded pension liabilities by 2045 (The statutory requirement to achieve a 90% funding ratio). But first, we look at what the General Assembly did this week to fulfill its Constitutional responsibilities. HOUSE RULE 59/SENATE RULE 101 http://www.ilga.gov/legislation/101/HR/PDF/10100HR0059lv.pdf http://www.ilga.gov/legislation/101/SR/PDF/10100SR0002lv.pdf The Illinois Constitution requires the General Assembly to convene, for a period of two years, a legislative session. 2019 marks the start of the 101st General Assembly, meaning that Illinois has had a State Assembly for the last 202 years. In order to set the ground rules for that assembly, the Illinois Constitution requires the House and Senate to adopt procedural rules. This week in Springfield, the House and Senate adopted HR 59 and SR 101 as their ‘Roberts Rules of Order’ that any of us would be familiar if we served, for example, on a local school board or non-profit foundation. I believe SR 101 is an exact duplicate of the rules the Senate used in 2018- 2019. Perhaps that is why the Senate this week adopted their rules unanimously. HR 59, however, contained new changes for the House. One of those changes allowed for a mechanism to change floor leaders in that chamber. Last year, one of the Democratic leaders had to temporarily resign his ‘Assistant Majority Leader’ position during an investigation, without having the benefit of a house rule to guide the process. So in 2019, the Illinois House has added a rule to deal with that situation. In addition, both chambers reduced the number of standing committees to deal with hearing and passing bills. For example, the House eliminated its Environment Committee for 2019-2020 (as well as many other…see for example pp. 18-22 here http://www.ilga.gov/legislation/101/HR/PDF/10100HR0059lv.pdf) . The best explanation for the reduction is likely both chambers had too many committees and the structure from the 100th General Assembly was simply too unwieldy to transfer over to the 101st. Finally, if you are a Roberts Rules aficionado, click on the above links for more details on how the Illinois legislature moves bills through their respective chambers, via HR 59 and SR 101. RAISING ILLINOIS’ MINIMUM WAGE Illinois’ current unemployment rate is 4.4%. Earlier in January, IDES (Illinois Department of Employment Security) released unemployment data that shows some of the complexities connected to raising the minimum wage. Here is a link to the data along with these policy observations: http://www.ides.illinois.gov/LMI/Local%20Area%20Unemployment%20Stati stics%20LAUS/countymap.pdf First, the top five Illinois counties with high unemployment (ranging from 8.3% to 7.7 in Johnson, Hardin, Pulaski, Scott, Alexander, respectively) are all in deep, Southern, Illinois. Indeed, this region has recovered little from the Great Recession of 2007-2008 (where unemployment reached 10-12% levels). According to IDES, the State has a systemic unemployment problem in Southern Illinois. Second, the data clearly shows a rural-urban divide for work force participation, where urban and suburban centers seem to be having high rates of employment participation in Northern Illinois (with unemployment ranging from 2.9% to 3.5%, in DuPage, Washington, Brown, Kendall, McHenry, respectively. IDES data clearly shows wide disparities in employment participation between Illinois counties. Third, is a political calculation that is not shown in the IDES data. That is, how will legislators find the votes to deal with State unemployment? What sort of policies will Illinois adopt in 2019? One example, is a change to the State’s minimum wage, and that seems to be the one policy Democrats decided to move this week in Springfield. But that policy decision raises additional questions, and we can think of a few. Will Republicans representing areas with high rural unemployment, be persuaded to vote to raise the minimum wage? Will Democrats from urban/suburban legislative districts side with business interests—in areas where the economy is relatively strong—and vote against the legislation? (In fact, there is an argument that raising the minimum wage will also raise Illinois’ unemployment rate in the end, and a ‘do nothing’ approach is the best course of action). While we think a minimum wage bill will pass in 2019, we are offering no predictions on what the bi-partisan coalition needed to pass this bill will look like. Or which policies ultimately the legislature will adopt. Only that there could be a strange coalition formed of downstate R’s and Liberal D’s to deal with chronic State unemployment. In any case, the Senate Labor Committee took the first steps toward minimum wage legislation on January 30, with Democratic Senator/Majority Leader Kimberly Lightford, proposing the following: ---Phasing in the current $8.25 minimum to $15.00 per hour by January 1, 2025. ---Exempting or partially exempting workers under 18 years of age from this system. ---Excluding or partially excluding some wages from the bill for hospitality workers/workers who rely on tips. ---Adopting regional wages rates similar to legislation adopted in the States of New York and Washington. ---Considering exceptions for workers under the age of 18 who work for local park districts. There is no introduced legislation at this time, and we look forward to updating you on this issue as it evolves over the coming months. PRACTICAL CHICAGO/ILLINOIS PENSION REFORM Paul Vallas, candidate for Mayor of Chicago, and Illinois Representative Rob Martwick (D) have made headlines in January with 2 common-sense proposals that might significantly reduce long term unfunded pension liabilities for Chicago and Illinois. Vallas outlined his proposal in a Google Document 10 days ago, while meeting with several media outlets related to his political campaign in the Chicago Mayoral Race. Here is a link to that proposal: https://drive.google.com/file/d/1d_D50XtBQrdp3GYR0- x1HkQiyJKq8Oqm/view Vallas wants to create a new citywide TIF District (Tax Increment Financing) to capture the revenue from expiring TIFs, the revenues of which could be dedicated to pension funding. The City would have the flexibility of using the revenues to immediately finance bonds to boost asset levels (for Chicago pension systems), or dedicating these TIF revenues, over the next 20 years, to reducing long-term unfunded liabilities It is estimated this could produce $1 billion per year in funding for Chicago’s pension systems to address the $28 billion asset shortfall. Meanwhile, Rep. Rob Martwick, the House Pension Committee Chairman, is proposing similar legislation to capture $1 billion dollars per year in State payments earmarked for “Illinois Go” Bonds set to expire in 2019. While slightly different from the ‘Vallas Plan,’ Martwick wants expenditures relating to bond interest and principal payments dedicated to the State’s estimated $133 billion asset shortfall. Here is a link explaining Martwick’s plan- https://www.civicfed.org/iifs/blog/state-pledges-additional-pension-funding- under-new-law In short, two simple tweaks, of using expired TIF District dollars (Chicago), and using 2019 bond monies to reduce State liabilities, could bring in $70 billion for Illinois pension systems. These common--sense approaches-- that do not require tax increases--are the right choices for Illinois. NEW POLICY MAKERS IN 2019 Dr. Ngozi Ezike will serve as Director of the Illinois Department of Public Health (IDPH). Dr. Ezike is a board-certified internist and pediatrician who comes to IDPH from Cook County Health, where she has served for more than 15 years. She currently serves as medical director at the Juvenile Detention Center, the largest juvenile detention facility in the country. Rep. Greg Harris (D) has been named the new Majority Leader for the Illinois House of Representatives, replacing longtime Leader Barbara Currie (D) of Chicago. Illinois Senate Changes as of 1-31-19 District 8 Ram Villivalam (D) Chicago 9 Laura Fine (D) Glenview 13 Robert Peters (D) Chicago (Raoul vacancy) 17 Elgie Sims, Jr. (D) Chicago 21 Laura Ellman (D) Naperville 24 Suzy Glowiak (D) Western Springs 27 Ann Gillespie (D) Arlington Heights 32 Craig Wilcox (R) McHenry 33 Donald DeWitte (R) St. Charles 41 John R. Curran (R) Downers Grove 45 Brian Stewart (R) Freeport 50 Steve McClure (R) Springfield 54 Jason Plummer (R) Edwardsville 56 Rachelle Aud Crowe (D)Glen Carbon 57 Christopher Belt (D) Cahokia Illinois House Changes as of 1-31-19 District 1 Aaron Ortiz (D) Chicago 4 Delia Ramirez (D) Chicago 5 Lamont Robinson (D) Chicago 16 Yehiel Kalish (D) Chicago (Lang vacancy) 17 Jennifer Gong-Gershowitz (D) Glenview 21 Celina Villanueva (D) Chicago 25 Curtis Tarver (D) Chicago 26 Kambium Buckner (D) Chicago (Mitchell vacancy) 34 Nicholas “Nick” Smith (D) Chicago 38 Debbie Meyers-Martin (D) Olympia Fields 42 Amy Grant (R) Wheaton 45 Diane Pappas (D) Itasca 47 Deanne Mazzochi (R) Elmhurst