Fitch Ratings issued a detailed comparison during the week of the three states with the lowest credit ratings: Illinois, California and New Jersey.
In other action, two changes to the state constitution were approved, and oil extraction companies are one step closer to beginning the hydraulic fracturing (“fracking”) process for oil and natural gas in Illinois.
Fitch Ratings: Where does Illinois stack up?
On November 3, Fitch Ratings issued an extensive comparison of the three states with the lowest credit ratings: Illinois, California and New Jersey. These are the only three states rated below the “AA” category by Fitch.
The report noted that at this time “Fitch judges California to have the strongest credit profile and Illinois the weakest.” In fact, according to Fitch, Illinois’ credit rating remains the worst in the nation at A-/Negative, with California ranked A/Stable and New Jersey ranked A/Negative. The Negative outlook reflects “the direction the rating is likely to move over a one- to two-year period,” as compared to California, which Fitch noted is in a “relatively strong” position as a reflection of “a combination of cyclical recovery and institutional changes.”
Fitch compared the three states in four areas, including the states’ debt and liabilities, the economy, finances and management.
The rating agency noted that “Illinois’ ‘A-’ rating with a Negative Rating Outlook” reflects the state’s record of unwillingness to address numerous financial challenges, which have steadily increased in magnitude as a result. Fitch stressed that “Waiting until the last minute to resolve critical issues has long been endemic to management in Illinois.” Specifically at issue, according to Fitch, is the failure to prepare for and address the pending expiration of the temporary income tax increase, noting, “As a result, the state is now facing a hole in the current-year budget that grows significantly in the following fiscal year.”
Fitch applauded the state’s 2013 passage of pension reform as a way to address Illinois’ unfunded pension liability burden, which is well above that of California and New Jersey. They also noted that Illinois’ “actual annual pension funding is not as far below actuarially sustainable levels as in those states, and more manageable.” That said, even if the pension reform enacted in 2013 survives the current legal challenge, Fitch says the state’s unfunded pension liabilities are “exceptionally high and are expected to remain so,” in addition to the state’s “above average” debt burden, which increased during the recession as a result of Democrat lawmakers’ reliance on “deficit financing.”
While Democrats have continued to blame the state’s lagging economy on the recession, Fitch says “Illinois was not as negatively affected by the recession as some neighboring Midwestern states…its recovery continues to be weaker.” It also noted that the state’s population continues to steadily decline when compared to the national rate, and criticized the structural issues in Illinois saying, “Although it has the power to do so, the legislature in Illinois has a long record of failing to address key challenges in a timely fashion.”
Fracking rules approved
The bipartisan, bicameral Joint Committee on Administrative Rules (JCAR) approved rules governing the fracking process on Nov. 6, as part of their consent agenda, which meant no debate on the issue took place during the meeting.
Once the fracking rules are adopted by the Illinois Department of Natural Resources in the coming weeks, the Department will then make public the forms, fee requirements and materials that those seeking permits will need to file as part of the permitting process established by the rules.
However, before fracking can begin in Illinois, a significant permitting process, including public hearings, landowner notifications, and other procedural requirements, must be undertaken. Fracking supporters noted that while it will still be some time before hydraulic fracturing operations begin in Illinois, adoption of the rules is a significant step forward.
The Administrative Rules committee was facing a Nov. 15 deadline to adopt rules. With no rules in place, some raised concerns that a court could order that hydraulic fracturing begin in a virtually unregulated environment.
Fracking, which is shorthand for high volume horizontal hydraulic fracturing, is a process that injects water, sand, and chemicals into oil wells to help release additional oil deposits for extraction. Supporters of the idea say fracking could lead to a new energy boom in Illinois, and lead to massive economic growth for Southern Illinois, similar to what has already happened in North Dakota. But opponents argue that the process isn’t well understood and could lead to significant environmental problems.
Constitutional amendments approved by voters
Two new amendments to the Illinois Constitution, which were placed on the ballot by the General Assembly, were approved by voters on Nov. 4. These amendments are effective once the election results are certified.
1. Victims’ Rights Amendment (HJR CA 1): Known as Marsy’s Law, this amendment seeks to expand the rights of Illinois crime victims, giving them greater ability to enforce their rights in a court of law. The Crime Victims’ Bill of Rights would ensure crime victims are provided with information about hearings and plea negotiations, access to restitution and protections against alleged perpetrators. It would also allow victims the right to speak on their own behalf during a post-arraignment release decision, plea or sentencing, and would require the courts to taken into account the safety of a victim and his/her family when determining bail or a defendant’s release.
2. Voters’ Rights Amendment (HJR CA 52): This amendment prohibits any law that would disproportionately affect Illinois residents’ rights to vote based on race, color, ethnicity, national origin, religion, sex, orientation, status as a member of a language minority, or income. The Senate sponsor of the proposed amendment indicated the intent was to prohibit adoption of voter identification laws in Illinois, such as requiring photo identification to cast a ballot.
During the spring legislative session, three advisory referendums were also placed on the ballot. Since these measures were purely advisory, it is possible that legislation to address these issues may be introduced in the near future.
1) Minimum Wage: This advisory question, which was placed on the ballot by P.A. 98-691/HB 105, asked if Illinois’ minimum wage should be raised to $10 an hour by January 2015. Though proposals to increase the minimum wage have been introduced in previous years, a vote on this controversial issue was deferred until after the fall general election. The latest legislation to call for an increase in the minimum wage is Senate Bill 68, which would incrementally increase the minimum wage in Illinois to $10.65 by 2016.
2) Contraception Mandate: This advisory question, which was placed on the ballot by P.A. 98-696/HB 5755, asked if prescription contraceptives should be covered under health insurance plans that cover prescription medication. This question was introduced in response to the U.S. Supreme Court’s decision in the Hobby Lobby case. The Supreme Court ruled some employers do not have to provide contraception coverage as part of their employees’ health insurance plan if such coverage violates the employers’ religious beliefs. However, Illinois law has already required contraceptive coverage since 2003.
3) Millionaires Tax: This advisory question, which was placed on the ballot by P.A. 98-794/HB 3816, asked voters if the state constitution should be amended to impose an additional 3% income tax on incomes greater than $1 million for the purpose of directing that additional funding to Illinois school districts.