Wednesday, March 28, 2007

Corruption, power and money

I'm actually talking about my computer's hard drive, which has "major corruption." While my laptop is in the shop, I apologize if my blogging is rather light this week. I'm still crawling at a snail's pace, but enough sob stories. On to some news:

The newest twist to the already dynamic electricity rate debate: House Speaker Michael Madigan's brand new proposal to create the Illinois Power Authority, which would create a five-member state board to control power procurement, generation and distribution, as well as the creation of new power plants. More details and reaction later (I hope soon).

Deanese Williams-Harris contributed this observation of a committee hearing this morning
Several House committee members repeated a new slogan — GRT is DOA — coined by Rep. Roger Eddy, a Hutsonville Republican. GRT is the governor’s proposed gross receipts tax, which Gov. Rod Blagojevich says would generate a net $6.3 billion a year but hasn’t gained popularity just yet. Committee members asked the governor’s budget director, Ginger Ostro, if the administration had Plan B to fund education or other initiatives if the GRT fails.

Rep. Will Davis, vice-chair of the committee, asked if property tax relief was included in the governor's proposal. Ostro said no. Davis said he felt concerned and that something needed to be done about the “racist system” of relying on property taxes to fund education.

Rep. Jerry Mitchell, a Sterling Republican, wanted to hear the Plan B for leasing the state lottery and funding the state’s pension deficit. He said the governor’s unwillingness to consider other funding proposals is a disaster waiting to happen. He asked Ostro whether the governor would consider expanding gambling as a funding source for education, pension deficit and backlogged Medicaid bills. Ostro said the governor is willing to consider other proposals, but he definitely opposes hikes in income and sales taxes (i.e. HB/SB 750 to reform the way the state pays for education). Ostro said, “We think GRT is a viable way to fund education and provide tax fairness throughout the state.”

Sen. President Emil Jones Jr. has said he wouldn’t call the HB/SB 750 (called the tax swap proposal) and that he supports the governor’s GRT plan.

Thursday, March 22, 2007

Busy day

Maneuvering inside the Statehouse was interesting today. About 1,000 people stood shoulder to shoulder on the three tiers of the Capitol rotunda and waved American flags. They were showing support measures that would grant drivers’ certificates to immigrants and earmark $25 million for expanded English classes. Roughly seven more busloads of people wearing green, pro-business T-shirts spread throughout the Capitol to show opposition for a statewide smoking ban. Meanwhile, lawmakers sat inside committee rooms and in their chambers to debate policy dealing with AT&T, electric utility bills and college loans, among many others. But the following measures could keep unfolding in the next couple of weeks:

Immigrant drivers’ certificates — Two measures, one in the House and one in the Senate, are being revised and are expected to come up soon.

Statewide smoking ban — One of the smoking ban measures is in its passage stage in the Senate.

AT&T — the telecommunications measure would allow companies to enter the video market through a statewide video franchise rather than through individual municipalities. Hours of testimony have been heard for three weeks, but no amendments have been filed, yet. It might take more time to get out of the House committee.

Electric utility bills — A Senate committee approved 11 to 1 a measure that was revised to freeze electricity rates for one year for Ameren Illinois and Commonwealth Edison customers. Watch for it on the Senate floor in the next couple of weeks.

College loans — The Illinois Student Assistance Commission is looking to sell up to 80 percent of its student loan portfolio, in line with one of Gov. Rod Blagojevich’s revenue ideas last year. Here’s legislation that would expand the existing grant program for college students from low-income families.

Tuesday, March 20, 2007

Education and electricity

Two juicy debates

In downtown Springfield, the Illinois Commerce Commission heard Ameren Illinois president Scott Cisel defend his recent decision to end some of the utility’s electricity rate relief to downstate customers. In the Capitol, Gov. Rod Blagojevich said he’d veto any proposal that would increase income and sales taxes, as stated in a press release handed out during a House committee. House Speaker Michael Madigan, on the other hand, signaled he’s willing to let the so-called tax swap proposal see the light of day by sending his general counsel to moderate debate on an education funding reform proposal.

That legislation has nine lives, but supporters and opponents of the revised version agree on two things: 1) no one at the hearing likes the governor’s revenue idea to replace the corporate income tax with a new tax on business inputs; and 2) there’s lots of room to tweak the legislation. The House committee is expected to vote on the measure when it reconvenes, which could be soon.

In general, HB/SB 750 would reform the way the state funds education by increasing income taxes, expanding sales taxes to apply to services and offering property tax relief.

Supporters of the bill include Ralph Martire of the Center for Tax and Budget Accountability. In committee, he said no schools would lose, and businesses would be “net tax winners” under the legislation.

The opposition includes J. Thomas Johnson of the Taxpayers’ Federation of Illinois, who said the legislation puts “the cart before the horse” because it talks about distributing new revenue before it spells out how the money would improve education (and stipulates that it wouldn't be diverted to other state or local operations). He added that legislators needed to have a clear understanding of the actual property tax relief offered by a tax swap. “We’ll never meet the taxpayers’ expectations,” he said. “Rhetoric will come back to haunt us.”

Johnson, along with the Civic Committee of the Commercial Club of Chicago, said the state should consider at least three ways to save $1 billion before asking taxpayers to pay more. He said Illinois could save by reforming the state’s public employee retirement benefits, such as the retirement age and cost of living adjustments, as well as by using more managed care for state employees and Medicaid enrollees.

Electricity rates
The Illinois Commerce Commission cut off discussion that was leading to Ameren Illinois’ recent proposal to return to a regulated system, where the state sets electricity rates rather than the utilities buying power on the open market. The downstate utility used doom’s day rhetoric in Tuesday’s commission hearing to explain its recent decisions.

Ameren also recently decided to suspend programs that would provide rate relief to its customers. Commissioner Erin O’Connell-Diaz chastised the utility for “not keeping customers in the loop.” Ameren has yet to inform the 7,000 customers enrolled in a deferred payment plan that it has stopped the program.

The utility blamed its decision to halt these programs on the House, which approved a measure that would provide credits to customers and a three-year rate freeze. Soon after the House measure won approval, the company’s credit rating was downgraded to junk status.

According to the company's president and CEO, Scott Cisel, if the Senate approves a separate but similar measure, Ameren Illinois may be forced to lay off employees and contractors. Furthermore, unless the legislative leaders in both chambers ensured Ameren that the General Assembly wouldn’t attempt to refreeze electricity rates, the company would go into survival mode.

“This is a who-blinks-first game,” says Illinois Commerce Commission chairman Charles Box. “Both sides do not want to give up leverage, but whose suffering? It's the citizens that are suffering, especially the elderly and the people who have gigantic bills.”

Friday, March 16, 2007

Price fixing?

The mess over electricity rates just got messier. Illinois Attorney General Lisa Madigan filed a complaint with the Federal Energy Regulatory Commission to allege that 15 power companies manipulated a power auction last September. The auction set electricity prices for Ameren Illinois and Commonwealth Edison, which buy power and distribute it to homes and businesses. Madigan’s office says the auction set unfair prices that cost Illinois consumers an extra $4.3 billion.

The complaint cites evidence, some of which is blacked out for the public. For instance, it says ComEd’s parent company, Exelon Generation, won 97 percent of the 41-month ComEd contracts.

Madigan, along with Lt. Gov. Pat Quinn, has opposed the so-called reverse power auction from the beginning, saying it violates the intent of the 1997 state law that set the stage for today’s “deregulation” process.

Today also marks the day that Ameren Illinois has to answer the first batch of questions from the Illinois Commerce Commission, but spokeswoman Beth Bosch says the commission will have to review the answers before deciding whether they’ll be public. She adds that the commission is scheduled to meet at 1:30 p.m. Tuesday and 10:30 a.m. Wednesday in Springfield. Ameren’s invited to the Tuesday meeting. We’ll see if we can hear some of those answers.

Wednesday, March 14, 2007

ICC calls Ameren to account

This just in: The Illinois Commerce Commission asked Ameren in a letter to explain all the threats they’re making about how a negative credit rating (see the March 13 blog below) would lead to drastic measures and hurt customer service. Specifically, the commission demands explanation of why the company would resort to laying off between 700 and 800 workers and delaying projects and connections when the higher 2007 rates should cover those costs (the commission allowed the downstate utility to collect $96.7 million from customers to cover operating costs and to get a fair return on investments). And the commission points out that the Ameren Illinois utilities paid millions that padded the pockets of shareholders of the parent company, Ameren Corp.

The commission set deadlines for Ameren to answer some questions by March 16 and the rest by March 28.

Hell freezing over in the Senate?
The Senate previously rejected the idea to freeze electricity rates again. Committee action today could potentially shift the winds, but the coast still isn’t clear.

Seven Senate Democrats approved legislation that led Moody’s Investors Service to give a negative outlook for Ameren Illinois’ credit rating (see the March 13 blog below for the story).

After starting an hour late, the Senate Environment and Energy Committee took a break to gather enough votes to approve Sen. Gary Forby’s legislation (see amendment 2). It would roll back Ameren's electricity rates to the December 2006 level and freeze them for a year, which Froby said would buy time so lawmakers could figure out a more permanent solution to skyrocketing electric bills in downstate Illinois. The four Republicans present voted no.

Forby, a Benton Democrat, said his legislation focuses on Ameren customers and that lawmakers who want to address Commonwealth Edison customers in northern Illinois should introduce a separate measure. He added that he’s got a feeling Senate President Emil Jones Jr., who opposes a rate freeze, would call his bill for Senate floor debate. “I’m pretty convinced, not 100 percent convinced, but I’m pretty convinced that he’s going to let my bill run,” Forby said.

Jones’ spokeswoman, Cindy Davidsmeyer, said, “[Jones’] personal position on a freeze has not changed, but he certainly realizes that the situation with Ameren is very serious.”

As with every other rate freeze proposal, Ameren opposes the measure and threatens financial hardship. But one shoe has already dropped. Ameren spokesman Leigh Morris sent this e-mail Tuesday night in response to the Moody’s credit rating announcement:

“The Ameren Illinois utilities are continuing to evaluate the impact of yesterday’s decision by Moody’s Investors Services to downgrade the issuer credits of the three Ameren Illinois utilities (AmerenCILCO, AmerenCIPS and AmerenIP) to non-investment grade (junk) status. The utilities are carefully evaluating our next steps. It must be noted this credit rating action already has triggered cash collateral demands from several of our natural gas suppliers including banks with which we have financial hedging positions. In addition, the Ameren Illinois utilities believe our ability to acquire long term gas supply will be effected very shortly, which could ultimately drive up costs to our customers and potentially impact system reliability.”

Downstairs in a House committee, Rep. Bill Black moved a bill that would freeze electricity rates just for Ameren’s all-electric customers, who were particularly shocked by higher bills after their discount ended along with the state’s 10-year rate freeze. Black, a Danville Republican, says the year would give the homeowners and businesses time to find an alternative power source or to rewire their homes so they wouldn’t be all-electric anymore.

Black promised the committee that he would amend the bill to remove ComEd from the legislation, although some Chicago lawmakers wanted their all-electric customers to be included in the one-year freeze.

Tuesday, March 13, 2007

Reconsidering rebate

Shortly after the Illinois Commerce Commission approved a plan Monday to reimburse some Ameren Illinois customers for high electricity bills, the utility began reconsidering that proposal because Moody’s Investor Service downgraded the utility’s credit rating to junk status. That makes it more expensive for Ameren to borrow money, says spokesman Leigh Morris. “But it creates tremendous problems for the company and it puts at risk all of the programs we have in play.”

Currently at risk is Ameren’s latest plan to spend $20 million (using $10 million of its own money and borrowing the other $10 million) to reimburse customers who use a lot of electricity, mainly residents who use only electricity to heat their homes. The plan also would stop charging interest on the customers who have chosen to phase in their rate increases over three years. As of Tuesday morning, Morris says Ameren still hasn’t declared whether it would take the plan off the table.

But in its March 7 filing with the Illinois Commerce Commission, Ameren warns the $20 million plan would end if its credit rating status were downgraded to junk.

The utility, which serves 1.2 million electric customers downstate, and the Illinois Commerce Commission have been under scrutiny for increases in electricity rates since a 10-year rate freeze expired in January. Ameren’s all-electric customers have gotten bills that have increased an average of 90 percent to 150 percent over last year’s rates. Lawmakers are still trying to move legislation to return all electricity rates to their 2006 level, when rates were frozen. The pending legislation was a factor in Moody’s decision to downgrade the utility’s credit rating.

Wednesday, March 07, 2007

Budget reaction

Gov. Rod Blagojevich’s budget proposal for the next fiscal year now goes to the General Assembly. Many Democratic and some Republican lawmakers applauded parts of his plan, but there’s a lot of negotiating to be done before the spring session’s constitutional deadline of May 31. (I’m not holding my breath that they’ll adjourn by then.) Deanese Williams-Harris and I gathered some reaction from lawmakers on Budget Day:
See highlights of the governor’s budget proposal in the “governor’s moral imperative” blog entry below.

Senate President Emil Jones Jr.
He says he supports the governor’s entire plan and doesn’t have anything he wants to change right now. While he supports the tax on business’ gross receipts (because it would be fairer than the current tax on corporate income), he leaves the door open to other revenue ideas.

Specifically — and significantly — Jones says four new casinos in the Chicago area are still on the table. And that could possibly be linked to a capital plan for school and road construction. He also says senators are talking with utilities and that a tax on power generators is something to consider for easing electricity rates, although he’s not revealing his stance on the subject, yet. He flat out opposes another regulatory freeze on electricity rates because he says it would “only delay the inevitable.”

Rep. Lou Lang, a Skokie Democrat
He introduced gaming legislation to create four new casinos in the Chicago area, which he expects could generate $2.3 billion to $3.5 billion this year. The governor didn’t mention gaming in his budget address.

“I think that to ignore the obvious economic development and revenue that we could get by making some changes in gaming laws is short-sighted. I did notice that while he didn’t mention it, his budget plan includes new taxes on casinos. And so it’s a tremendous source of revenue for our state, and to make it more difficult for them to do their work, to make it more difficult for them to create jobs or build things all over the state of Illinois, I think he’s putting a road block in front of a business that simply wants to invest in Illinois. I think we need to do more in that area.”

“I think my plan regarding gaming and his plan might find a way to mesh. And we need to sit down and talk about balance. I’ve got a bill that would generate $2 or $3 billion. I don’t think we should ignore that. And I’d do it without a tax increase. The governor’s proposal today will raise several billion dollars, but it’s taxes. No matter what he calls it, it’s taxes.”

House Minority Leader Tom Cross of Oswego
About the gross receipts tax: “Call this what you want. It’s a tax on consumers. What’s interesting about today and the speech is that everything is connected. The concern you would have about lottery is that you’re giving up $620 million in annual revenue. And the governor would say, I suppose, that if you do GRT it wouldn’t matter.”

“I’m not embracing [the idea to lease the lottery], but I’m not outright dismissing it. The thing about the lottery is, ‘What would be the conditions of the lease? What would the company that comes in and gives us money demand?’ Might be some good, might be some bad.”

About education: “No one is talking today about how to ensure a quality education. I don’t know if everybody accepts the premise that if you throw $1.5 billion into schools, then all of a sudden you’re going to end up with a perfect product. We need to focus our attention on how we can end up with a quality education and a quality product at the end of the day and not just have a discussion about money.”

Sen. Minority Leader Watson of Greenville
About the governor’s spending plans: “This is the largest spending increase in the history of the state, the largest tax increase in the history of the state,” he says. “Another $16 billion in borrowing, and what troubles me greatly is to see the debt being piled upon debt.”

About universal health care: “Fifteen percent of people in Illinois do not have health care insurance, and I feel bad for them. But is it the government’s responsibility to take care of them from birth to the grave?”

About electricity rates: “The issue of the day is what’s happening with people getting their power? To not even spend four sentences on the power rate issue and then have the audacity to say I’ll sign whatever bill you agree to, that’s not leadership.”

About the gross receipts tax: “The consumer is who pays taxes in Illinois, and for him to stand there and say that this isn’t going to be an increase on taxes to the consumer is totally misleading to the public. There’s a certain amount of class warfare that’s being developed by these kinds of policies. It’s a hidden tax and those are the worse kind.”

Sen. James Meeks, a Chicago Democrat
He’s sponsoring the education reform proposal in Senate Bill 750, which we explain in our “Moneymakers” blog entry February 9, 2007.
“Generating new dollars for education is great, but true education reform is going to have to deal with property tax relief.” Under the governor's plan, Meeks says, “Those who are paying property taxes that are too high now, there is no room for relief for them.”

Sen. Christine Radogno, a Lemont Republican
She’s the Senate GOP budget negotiator and last year’s Republican candidate for treasurer.
About the gross receipts tax: “The consumers will be paying that. The assertion that he made in the speech over and over again — it’s corporate, not people — is just baloney. Corporations don’t have bank accounts and checkbooks the way a family does. There’s really no such entity. It’s a legal entity. There’s no question a $6 billion tax increase is going to be paid by people. If it was not going to be paid by people, why would he exempt food and drugs? Because he knows it’s going to apply to people. It is a sales tax that is embedded throughout the system, and people will pay it. They won’t be able to see it, but they will pay it, there’s no question.”

About pension bonding: “There are ways to do it that could be positive. The question is what are the details of his plan, and that’s oftentimes the problem with this administration: We don’t see the details. We’ll have to see how the bonds are structured, whether he’s going to take some of that bond money out to use as cash for budget relief today instead of putting it all in [pensions]. I would take a look at that, for sure.”

The governor's "moral imperative"

Gov. Rod Blagojevich proposed levying new taxes and floating bonds pay for his spending plans, particularly “universal health care,” education and pension obligations. Here’s the breakdown. Reaction from legislators and groups from around the state will come in the next blog.

Governor: “This will ease the burden on the middle class and force big corporations to start paying their fair share.”

Businesses aren’t so excited about the new taxes, one of which — the gross receipts tax — would tax every Illinois-based business input as it goes through the distribution chain. Think of it in terms of two key factors — how many steps are in the supply chain and how many of those steps happen in Illinois — says Tom Johnson, president of the Taxpayers’ Federation of Illinois. (See his highlights of the budget here.) While the governor says five other states tax business’ gross receipts, Johnson says the governor’s plan as it would be applied could make Illinois unique and, therefore, at risk of losing a competitive edge.

The governor’s tax idea, expected to net of $6 billion a year, would eliminate the corporate income tax and phase in a tax on business’ gross receipts. That’s an alternative to expanding the state sales tax to such services as haircuts and car repairs. Some lawmakers and education groups prefer the sales tax expansion as a way to reform education funding and to relieve the burden on property taxpayers.

John Filan, the former budget director and current chief executive officer for the state, said Tuesday night that a gross receipts tax would be “less onerous” than an expanded sales tax because it’s broad-based and low-rate. However, Johnson says the gross receipts tax is not as low-rate as it seems on the surface, and there’s a risk that businesses would move part of their supply chains out of state to avoid the tax. “Companies that don’t make a profit would have a liability they didn’t have before,” he said last week at a Statehouse press briefing.

The other tax that’s likely to raise opposition, particularly among small businesses, is a 3 percent tax if employers don’t offer comprehensive health benefits to employees. The so-called payroll tax is expected to generate $1 billion a year, which the governor would use to help fund his new $2.1 billion health care program.

Health care
Governor: “First, we will cover the 1.4 million uninsured adults in Illinois. Second, we will help provide assistance to middle-class families so they can get, keep and afford the health care they need. Third, we will help small businesses pay for health insurance for their workers.”

Illinois Covered offers three types of plans. One gives state subsidies to help people pay for their private insurance plans if they don’t get medical benefits through their employers. Another offers rebates to help individuals or families pay their monthly insurance premiums if they have employer-based plans. And a third expands the public aid program FamilyCare for single adults who have children or for families with incomes at 400 percent of the federal poverty level ($80,000 a year for a family of four).

And businesses that have more than 10 employees and that don’t pay for at least 70 percent of employees’ health benefits will be assessed a 3 percent tax on their total payroll.

Governor: “Ten billion new dollars [over four years] will help relieve the pressure on local property taxes and finally bring an end to the savage inequality in how we fund our schools.”

For fiscal year 2008 that starts July 1, he proposes spending $1.5 billion on education. Some of that money would increase the state minimum spent per student by $686, bringing the minimum to $6,020. Students would have more options for after-school tutoring, and the school year and school day would be extended.

He also would increase the reimbursement rate for special education teachers for the first time in 20 years.

Early childhood education would get $70 million to expand state-sponsored preschool for children of low- and middle-income families and $10 million for all-day kindergarten.

Teachers would have access to statewide mentoring programs and have incentives to work in schools with limited resources and poor test scores. The governor proposes working with teachers’ unions to develop “merit-based pay,” which would reward teachers whose students meet federal testing standards.

But perhaps most important to hundreds of districts that have been on a waiting for state capital funds to build new schools or do maintenance projects, the governor proposes $1.5 billion over three years for school construction.

Governor: “Our plan will free up an asset like the [Illinois] Lottery, lease it, generate $10 to $12 billion and put that toward our pension obligation. That, along with another pension bond refinancing, will put an infusion of $26 billion into the system and bring down our liability from $41 billion to $15 billion.”

He wants to float $16 billion in pension obligation bonds and rely on $10 billion from leasing the Illinois Lottery. Filan says paying down the pension debt from $41 billion to $15 billion would require less drastic increases in the state’s annual pension contributions. He says increased investment returns would help pay off the debt.

Ginger Ostro, the governor’s budget director, adds private operators could run the lottery more efficiently because they’re more nimble and can respond better to the market.

Watch list
What wasn’t on the governor’s list of revenue ideas was an expansion of gaming. Instead, his administration is proposing a new renewal fee on gaming licenses. Meanwhile, state Rep. Lou Lang, a Skokie Democrat, has sponsored legislation to create four new casinos in the Chicago area. See more reaction in the next blog.

Watch for legislation that would consolidate some of the state’s 621 special funds dedicated for such services as youth alcoholism and substance abuse and veterans’ rehabilitation. As with other governors, Blagojevich has swept some surpluses of the funds to pad the state’s main checkbook called the general revenue fund. Some of those funds could be merged into the general revenue fund to shore up the state’s “rainy day” fund.

Budget highlights

Tom Johnson, tax expert and president of the Taxpayers' Federation of Illinois, breaks down Gov. Rod Blagojevich's budget proposal for the next fiscal year with these highlights. The governor will give his annual budget address and combined State of the State to the General Assembly at noon today. We'll provide updates and reaction as much as we can throughout the day. And, as always, see Illinois Issues magazine for more in-depth coverage in the issue that publishes April 1.