Governor and Leaders Meet but Still No Budget Deal
With only ten days remaining in the scheduled spring legislative session, the clock is ticking toward adjournment and no immediate budget resolution is in sight. For only the second time this year, Governor Bruce Rauner and the four legislative leaders sat down to discuss a state budget after receiving a budget blueprint from a bipartisan working group of rank and file lawmakers last week.
The budget framework couples $5.4 billion in new tax revenue, $2.6 billion in budget cuts, and borrowing $5 billion to help pay down the backlog of bills totaling more than $10 billion according to the Comptroller. Revenue would be generated through a permanent increase in the income tax (4.85 percent for individual rate and 7 percent for corporate rate), imposition of a sales tax on services similar to the Wisconsin law, a new one cent per ounce tax on soda and sugary beverages, elimination of various tax incentive including the qualified production activities deduction, non-combination rule, and outer continental shelf. The working group recommended extensions of the Research & Development tax credit, Manufacturers Purchase Credit, Graphic Arts exemption along with eliminating the corporate franchise tax and coupling the Illinois estate tax with the federal law that would increase the exemption from $4 million to $5.3 million.
Governor Rauner and Republicans continue to insist that real structural reforms are necessary before any agreement can be reached on increasing taxes. The IMA supports many of these reforms and has been engaged in discussions on reforming Workers’ Compensation to reduce costs for employers that are significantly higher than other states. Key reform ideas include primary causation standard, strengthening AMA guidelines, and making further reductions in the Medical Fee Schedule. Other reforms supported by the Administration include property tax relief and changes to collective bargaining.
The Governor and leaders, including Speaker Michael J. Madigan, agreed to assign staff and legislators to working groups to delve into these issues. While the Speaker reportedly agreed in the meeting to negotiate on a property tax freeze, pension reform, and workers’ compensation, his office released a statement following the meeting expressing opposition to these elements of the Governor’s Turnaround Agenda. In an even more ominous note, top Madigan lieutenant Representative Lou Lang (D-Skokie) told an assembled crowd at an organized labor rally outside the capitol this week “We might not have a budget during the term of Bruce Rauner.”
According to reports, House Democrats on working groups are insisting on specific actions before negotiating these reforms. For example, they have requested that an AFSCME contract must be negotiated and signed by the Administration before they will discuss changes in collective bargaining.
Illinois has gone an unprecedented eleven months without a state budget. Despite the lack of a budget, the state is on pace to spend nearly $38 billion this year because of court orders, consent decrees, and the K-12 education budget that was signed into law so schools opened on time in 2015. With revenue of only $32 billion this year, Illinois’ backlog of bills is skyrocketing and will total more tan $10 billion at the end of June.
Senate Hearing on Proposed Energy Plan
Members of the Senate Energy Committee heard more than three hours of testimony this week on the future of Illinois’ energy infrastructure including nuclear plants as they debate a proposal from Exelon and Commonwealth Edison that would create the Next Generation Energy Plan anchored by a Zero Emission Standard. Nine panels of proponents and opponents representing energy companies, employers, labor unions, environmental advocates, and public interest groups testified on various components of the plan including a new demand rate, higher electricity costs, and the impact on Illinois jobs if two nuclear plants in Clinton and the Quad Cities are closed.
Sponsored by Sen. Donne Trotter (D-Chicago), amendment #1 to SB 1585 requires the Illinois Power Authority (IPA) to purchase 16 percent of its load from Zero Emission Sources, or nuclear power, to help stabilize “distressed plants.” Energy efficiency programs are doubled under the auspices of the two transmission companies removing oversight from the Department of Commerce & Economic Opportunity and more than $1 billion in funding is provided through low-income assistance. The proposal would provide more than $140 million per year in funding for solar development and $250 million for five new micro-grids would be created in the Chicago metropolitan area. One major change is the reduction of the fixed customer charge by 50 percent while creating a demand rate.
Lawmakers and stakeholders including the IMA are reviewing this comprehensive proposal that would make major changes in the Illinois energy marketplace. In 1997, Illinois deregulated its market and introduced competition that has resulted in consumers and businesses saving more than $40 billion according to a study conducted in 2014. Manufacturers rely on a safe, efficient and low cost source of energy that integrates an “all of the above” approach.
Financial statements show that Exelon is losing significant money on these two nuclear plants and that this new proposal is needed to keep them operating. According to various estimates, SB 1585 would cost consumers between $250 and $300 million annually with a capped increase of 2.015 percent averaged over four years. However, the company also notes that the closure of two nuclear plants would reduce electric generation and force the IPA to buy more expensive power on the market that would also increase rates for Illinois consumers while resulting in the loss of 2,200 jobs.
The potential closures would also have a significant impact on Illinois’ ability to comply with the proposed federal Clean Power Plan (CPP) that is currently tied up in federal court. SB 1585 has a hard sunset date for the Zero Emissions Standard as the earlier of June 1, 2023 or two years after Illinois has adopted and implemented the CPP.
Many opponents including residential and business customers, environmental groups, the Citizens Utility Board and the Illinois Attorney General’s office noted the financial impact the proposal would have on utility rates.
The IMA continues to advocate on behalf of manufacturers by reminding lawmakers that energy is a leading cost driver in the manufacturing process. Maintaining a competitive balance is a key to maintaining reliable and cost efficient energy markets that have been a great benefit to the manufacturing sector.
Enterprise Zone Scoring and Application Changes Proposed
In a hearing before the House Revenue & Finance Committee, officials from the Illinois Department of Commerce and Economic Opportunity (DCEO) outlined a series of six changes they are proposing to the application and scoring process for enterprise zones. In 2012, the IMA championed legislation that extended the enterprise zone program for an additional 25 years. The new law required all current enterprise zones and well as those seeking to establish new zones to file applications with DCEO.
Changes sought by DCEO include modifying the existing scoring system so that rankings are based on a percentage of total possible points to help to level the playing field for smaller communities who have difficulty in some categories based on population. Applicants could be awarded points on a sliding scale based on an enterprise zone’s ability to meet the threshold of 1,000 jobs created and $100 million in investment. DCEO is also requesting clarification for how they can use information they receive after the application process is completed to evaluate the application. For instance, can a letter of support be considered if it is received after the deadlines have passed?
DCEO would like to extend the application period to as long as five years (now two years) before a current zone is set to expire. Under current law, a municipality or county can apply two years in advance so that they have time to update ordinances if approved for an zone extension or have time to wind down if they are not selected for a new zone. The Department and zones would like more time to provide predictability when trying to attract economic development. DCEO is proposing modifications to enterprise zone and high impact business reporting that would allow the Department to suspend the benefits of the program if a minimum threshold of reporting is not provided to the Illinois Department of Revenue. The IMA believes that it is unfair to punish a company that is in compliance because of the actions of other companies in the same zones.
Enterprise zones are a successful economic development tool in which the state and local units of government work in partnership. The IMA continues to engage in discussions to make sure this important program is not impeded.
Legislature Considers Allowing Longer Trucks on Non-State Highways
The House Transportation Committee heard testimony on a proposal to extend the allowable length of trucks in combination with a tractor-trailer from 55 to 65 feet. This would only apply to non-state and federal highways. The proposal would allow counties, townships and municipalities to post restrictions for roadways and intersections that would not be able to handle the longer trucks. HB 5688 (Beiser, D-Alton) was introduced in response to a trend by truck manufacturers who are building longer and more efficient trailers mainly used to transport grain and commodities in rural areas.
Every state surrounding Illinois already allows longer trailers including Iowa which currently has no size limit on trucks. County road commissioners expressed opposition that longer trucks may not be safe on smaller rural roads because they need more space to turn and destroying road signs while putting other drivers using the roads at increased risk.
The truck length legislation was not called for a vote and discussions are ongoing. The IMA continues meeting with IDOT and the Governor’s Office to discuss increasing truck weights limits.
Labor Representatives Mandated on NFP Boards
A proposal from the Illinois AFL-CIO could have major ramifications for the Illinois Manufacturers’ Association and other non-for-profit organizations that “promote the development, establishment, or expansion of industries.” As amended, SB 2531 would require an “economic development corporation” that receives public money such as the IMA to have no less than two members of a labor council and two members representing minorities on their Board of Directors.
As defined, a labor council can be any organization representing multiple entities that are monitoring or attentive to compliance with workers’ safety laws, wage and hour requirements, or other statutory requirements making or maintaining collective bargaining agreements. Labor councils represent employees in the construction trades and employees in the public and private sector. Despite being a membership organization, no membership fees, dues, or assessments shall be required of these labor councils or minority groups who shall have the full rights and privileges of other members.
The IMA and other business groups are opposed to this language requiring unions to be on their boards of directors. The AFL-CIO did not intend for this language to affect trade associations and are amenable to a solution. However, they continue to push for mandated requirements that labor unions be represented on all economic development commissions that receive public money without having to join or pay dues.
The AFL-CIO is also pushing SB 2600 (Delgado, D-Chicago) that would require commissions created under the Economic Development Area Tax Increment Allocation Act (TIF) or by counties or municipalities to include two representatives of a labor council and minority groups.
IMA Introduces Captive Insurance Legislation
In 2014, Governor Pat Quinn signed legislation penalizing companies that use captive insurers to help manage their risk by imposing a new tax over objections from the business community. Last year, the IMA initiated legislation (SB 1573) that repealed the captive insurance tax and it passed the Senate but was held without a vote in the House of Representatives.
With dim prospects of a straight repeal of the captive insurance tax, the IMA worked with member companies to develop a comprehensive re-write of the Illinois captive insurance law to try and make it more attractive for companies that use them to manage risk. The amendment was filed this week by Senator Bill Haine (D-Alton) to SB 465 and will be the subject of ongoing negotiations with the Department of Insurance and other stakeholders over the next two weeks and possibly over the summer.
The legislation seeks to roll back taxes as well as provide additional protections for self- insured companies domiciled in Illinois. The IMA appreciates Senator Haine and House Republican Leader Jim Durkin (D-Burr Ridge) who have championed easing this tax and regulatory scheme for Illinois employers.