Governor Rauner Gives Budget Speech
Speaking to a joint session of the General Assembly this week, Governor Bruce Rauner offered his plans for a FY18 budget while calling on lawmakers to heed President Lincoln’s words to “think and act anew” while focusing on the future. Illinois officials have failed to pass a state budget for two years while the state’s debt has skyrocketed to more than $11 billion and manufacturing jobs have fled the state.
Governor Rauner again outlined two paths for a solution while calling on both parties to work together to “unlock the state’s unfulfilled potential.” The first and preferred option is a comprehensive plan involving budget cuts, increased tax revenue, and job creation reforms. He praised Senate President John Cullerton and Republican Leader Christine Radogno along with members of the Senate for their work on a bipartisan “grand bargain” that includes all three components.
Governor Rauner echoed IMA concerns that unbalanced budgets, crushing tax burdens, and restrictive regulations are holding back the state’s economy and harming job creators. According to the Governor, Illinois would have an additional $8.5 billion in revenue and 650,000 more jobs if the economy simply grew at the national average since the year 2000. As the IMA has repeatedly opined, Illinois lost 309,000 good, high-paying manufacturing jobs since the turn of the century while other Midwest states are gaining new manufacturing jobs.
The IMA was pleased that Governor Rauner focused specifically on the five key points in our Middle Class Manufacturing agenda including (1) fiscal responsibility and pension reform, (2) tax reform including a permanent Research & Development tax credit, (3) economic development reforms including changes to workers’ compensation, (4) education and workforce development investments, and (5) property tax relief.
The second option, an “executive management” plan, would provide enhanced power to the Governor to make unilateral budget cuts to eliminate billions of dollars in spending. This type of plan would likely require politically unpopular decisions like slashing payments to local governments and paring hundreds of thousands of low-income families off the Medicaid program.
Under the Governor’s proposed budget, Illinois would spend $37.3 billion in the coming fiscal year that would be at least $800 million less than is being spent in the current fiscal year because of court orders and consent decrees. The plan totals $32.7 billion in revenue with the Governor offering to work with lawmakers to identify additional budget cuts and increased revenue sources to balance the budget.
Democrats panned the Governor for offering an “unbalanced budget” because he did not identify specific revenue sources. The Governor acknowledged the need for more revenue and expressed openness to broadening the sales tax base onto services but he specifically ruled out new taxes on food and medicine that is currently contained in the Senate’s “grand bargain.” Governor Rauner again stated his opposition to a tax on retirement income.
The budget outlined by the Governor this week includes nearly $3 billion in spending reductions that include:
$1.3 billion reduction due to pension reform
$520 million reduction in group health insurance
$500 million in state employee pay due to a pay freeze
$340 million in procurement savings
$240 million from sale of the James R. Thompson Center in Chicago
$120 million from consolidation in the community care program
Ten percent cut in budgets for Constitutional offices and the General Assembly
Governor Rauner’s budget proposal that was transmitted to the General Assembly also called for increased spending on his priorities including:
- $213 million increase in K-12 education funding including additional funding for General State Aid ($30 million), early childhood programs ($50 million), vocational and regular transportation ($108 million), broadband improvements ($5 million) and fully fund student assessments.
- $830 million more for higher education based on passage of an FY17 supplemental appropriation bill.
- $36 million increase for the Monetary Assistance Program (MAP), a need-based program for college students.
- The Department of Corrections will have two new life skills centers (Kewanee and Murphysboro) and three mental health treatment centers.
- Two new State Police cadet classes (2017 and 2018) to add two hundred troopers.
- Increase the Child Care program eligibility rate to 185 percent (currently 162 percent) of the federal poverty level to increase participation.
- $5 million for a new Chicago Veteran’s Home
- A new $4 million Childhood Lead Initiative to test and mitigate lead levels in schools and homes.
- Illinois will have a $2.2 billion “pay as you go” capital infrastructure program including money for state building maintenance and repair ($550 million), information technology capital program ($400 million), and Corrections inpatient mental health facility ($150 million).
The IMA wholeheartedly agrees with Governor Rauner that we cannot “tax our way to prosperity.” However, as the Governor indicated, Illinois’ debt was created by years of financial mismanagement and cannot be eliminated solely though budget cuts. Economic growth, job creation, and capital investment in Illinois are needed most.
Following the speech, the IMA released the following statement and continues to be actively engaged in finding a solution to Illinois’ challenges that will get the state back on the right path.
The canaries in the coal mine are dying. Rating agencies have been warning leaders on both sides of the aisle for years about the spiraling debt and need for fiscal stability, including the most recent announcements. The IMA has continually shined a spotlight on the horrific job losses manufacturers have suffered over the last decade including nearly 11,000 good, high-paying manufacturing jobs last year alone. The manufacturing sector in Illinois cannot afford further inaction resulting in the continued loss of the middle class. Manufacturers employ 568,000 workers and contribute the single largest share of the state’s economy. When manufacturing is strong, Illinois and America are strong.
The IMA believes a final budget solution must address the root of the state’s problems with structural reforms addressing our pension obligations and debt while restoring fiscal discipline and enacting real reforms that will create a vibrant business climate by attracting jobs and investments. Illinois must address the high cost of workers’ compensation, burdensome labor regulations, and reform the tax code to encourage manufacturing production. However, as leaders consider revenue enhancements, we strongly believe that the best tax structures are broad-based with low rates and should not single out an individual sector.
We applaud Governor Rauner for introducing a balanced budget today focusing on the future and the Senate for demonstrating leadership in recent weeks. The time for action is now.
Court Upholds State Employee Pay During Budget Impasse
On Thursday afternoon, a St Clair County judge denied a request by Attorney General Lisa Madigan to stop paying state employees in the absence of a state budget. The ruling will be appealed. Last year, several labor unions successfully sought a ruling in court mandating state employee pay despite the lack of a state budget.
Later in the year, the Illinois Supreme Court ruled on another case regarding back pay owed to state workers. In that ruling, the Court found that Illinois did not have to pay these back wages promised in a collective bargaining agreement because the legislature failed to appropriate money for that purpose. The union’s contract could not be used to usurp the appropriation authority granted to the General Assembly. Attorney General Madigan took this Supreme Court ruling to the downstate judge and asked that the original ruling be changed.
If the court had agreed, it would have placed a tremendous amount of pressure on the Governor and General Assembly to reach agreement on a budget. However, Judge Robert LeChien opined that he didn’t want to “create a game of chicken.”
The Attorney General plans to appeal the ruling.
Sweetened Beverage Tax
The Illinois Manufacturers’ Association along with the Illinois Retail Merchants Association and Illinois Beverage Association are leading the fight against legislative efforts to impose a new tax on soda and sugary beverages. These proposals including HB 2914 (Gabel, D-Chicago) would add a new 1 cent per ounce tax resulting in consumers paying an additional $2.88 for a case of soda, tea, sports drinks or energy drinks. This will negative impact the entire supply chain including agricultural producers, can and bottle manufacturers, packaging companies, drink manufacturers, distributors and retailers. The beverage industry supports 100,000 Illinois workers and generates $1.3 billion in wages for these occupations.
In the House of Representatives, Rep. David McSweeney (R-Cary) introduced a resolution (HR 148) with nearly sixty co-sponsors expressing opposition to this type of regressive tax. The IMA appreciates Rep. McSweeney for his leadership on this issue.
Tax proponents continue to push for passage of this legislation whether as a stand alone bill or through a comprehensive budget package.
Cook County Proposes Overhaul of Environmental Regulations
The Cook County Environmental Department is proposing substantial changes to environmental regulations that effect manufacturers in 130 municipalities in suburban Cook County outside of Chicago city limits. Originally adopted in 1970, the county’s current ordinance pre-dates the creation of the Illinois and U.S. EPAs. It originally only focused on air pollution but over the years has grown to include a wide range of environmental programs. The re-write of the ordinance is intended to simplify and streamline regulations and in some cases reduce fees and fines.
The IMA has met with the Department and is reviewing proposed changes and seeking input from member companies. Highlights include definition changes to air pollution control equipment, fuel burning control equipment, process equipment & processes and open burning. The department will adopt IEPA regulations by reference and is asking for rule-making authority to allow flexibility in specific requirements of the ordinance. The new ordinance will also give the Department the authority to issue warnings and grace periods of payments and violations that are not included in the current ordinance.
Cook County is still seeking input to the proposed changes that will be introduced at the March 8th Cook County board meeting.
More information about this and other issues of environmental concern is available by joining the IMA’s Manufacturers Environmental Group, a free benefit of your membership. Contact Jerry Peck at email@example.com.
Repeal Registration Fees for Large Commercial Vehicles
The House of Representatives voted overwhelmingly (109-3-0) to repeal a 14.35 percent sales tax on commercial license plates known as the Commercial Distribution Fee (CDF). Elimination of the CDF will cut costs for operators of commercial vehicles over 8,000 pounds and help bring Illinois’ fee into line with other states. Illinois is currently the 5th highest cost state in the U.S. for registering a commercial truck with fees totaling more than 40-80 percent higher than surrounding states.
The IMA is a member of a large coalition led by the Illinois Trucking Association that championed this legislation (HB 386) that was sponsored by Rep. Rita Mayfield (D-Waukegan). The legislation now moves to the Senate for consideration.
Changes Proposed to Automatic IRA Law
In 2014 the General Assembly created the Illinois Secure Choice Retirement Plan. The law requires employers with 25 or more employees to automatically enroll employees in a state run IRA program funded by 3 percent payroll deductions unless the employee voluntarily opts-out. Employers who already provide retirement plans are exempt. IMA opposed the legislation because it creates a mandate on employers and could potential create a fiduciary responsibility.
The program was scheduled to be implemented over a 9-month period in 2017 but it is currently on hold because the State Treasurer’s Office has yet to find a financial manager. Treasurer Mike Frerichs (D) has introduced legislation HB 2360 (Currie, D-Chicago) to delay the implementation of the law until 2019 and phase in the program over 24 months with completion by the end of 2020. The legislation also increases the default rate of employee payroll deduction from 3 percent of wages to 6 percent. Employees are allowed to opt-out of the program or change their default rate of savings but only by directly notifying their employer of their desired changes, otherwise employers are required to automatically enroll them at the default rate.
IMA will provide updates on changes to the Secure Choice Retirement Plan and implementation dates when they are available.
New Bill Introductions
Bill filing deadline has passed in Illinois and more than 6,000 bills have been filed in the first month of the legislative session. Following are some of the key bills filed last week:
HB 2914 (Gabel, D-Chicago): Imposes a new 1 cent per ounce tax on soda and sugary beverages
HB 3076 (Hernandez, D-Chicago): Imposes a one cent per transaction fee on electronic funds transfers in Illinois.
HB 3078 (Hernandez, D-Chicago): Imposes a 1.3 percent tax on insurance policies to fund a catastrophic flood relief program.
HB 3389 (Gordon-Booth, D-Peoria): Imposes a 5 cent deposit on all beverage containers sold in Illinois.
HB 3413 (Mitchell, R-Decatur): Creates a $3,500 per manufacturing employee tax credit for new hires in areas with low long-term manufacturing job projections.
HB 3430 (Wheeler, R-North Aurora): Merges the Manufacturers Purchase Credit into the MME
HB 3433 (Wheeler, R-North Aurora: Makes the R & D credit permanent.
HB 3556 (Wheeler, R-Oswego) and SB 2071 (Althoff, R-McHenry): Creates the Transforming, Helping and Reviving Illinois’ Versatile Economy (THRIVE) job creation tax credit. This credit would potentially serve as a replacement to the EDGE tax credit.
HB 3612 (Rita, D-Blue Island): Provides a tax credit equal to 30 percent of gross wages for manufacturers who locate in high crime areas.
HB 3673 (Capello, R-Loves Park): Merges the graphic arts exemption into the Manufacturers Machinery & Equipment exemption
HB 3777 (Stratton, D-Chicago): Amends the IL Procurement Code to create a bid-incentive for Illinois-based manufacturers of between 1-2 percent of the contract base bid depending on the percent of locally manufactured goods.
HB 3812 (Manley): Taxation of non-resident employees (number of days in state versus out of state)
SB 1563 (Cunningham, D-Chicago): Prohibits companies from participating in the EDGE tax credit if the pay ratio between the CEO and median employee is more than 200:1.
SB 1970 (Aquino, D-Chicago): Imposes a tax on financial trades of $1 per contract on agricultural products and $2 per contract on other contracts.
HB 3030 (David Harris, R-Arlington Heights): Creates the Digital Fair Repair Act. Requires original equipment manufacturers to provide access to repair manuals and parts to non-authorized repair providers.
HB 3062 (Guzzardi, D-Chicago): Requires employers who discharge an employee to provide documentation to the employee explaining why they were discharged.
HB 3159 (Harper, D-Chicago): Increases the Illinois minimum wage to $15 per hour beginning on October 1, 2017.
(Andrade, D-Chicago): Creates the Business Compensation Equity Fee Act imposing a graduated annual fee on each publicly traded company if their is a pay ration of more than 100 to 1 between the CEO’s pay and the median employee pay.
SB 1296 (Hutchinson, D-Chicago Heights): Creates the Healthy Workplace Act mandating paid sick leave for all employees up to 5 days per year.
SB 1721 (Biss, D-Skokie): Creates the family leave insurance program. Creates a payroll tax to fund insurance payments for employees who use up to 12 weeks of family leave per year for the birth or adoption of a child, placement of a foster child of serious illness of themselves or a relative.
Environment & Energy
HB 3445 (Beiser, D-Alton): Clarifies the method for valuing certified “pollution control facility” as exempted from property tax exemption. Designated pollution control facilities include scrubber, bathhouses and other environmental control equipment.
HB 3679 (Costello, D-Red Bud): Provides that slag is a beneficial and intended co-product of manufacturing and not regulated by the EPA
SB 1433 (Schimpf, R- Murphysboro): Allows small entities to self-report violations to the Illinois EPA in exchange for reduced penalties.
HB 3466 (Bennett): Creates the Motor Vehicle Repair Fairness Act requiring manufacturers to provide diagnostic and repair documentation to independent providers.
SB 1432 (Sandoval, D-Cicero): Creates the Safe Autonomous Vehicle Act allowing for self driving vehicle testing zones to be established.
HB 2617 (Gabel, D-Evanston): Mandates coverage for fertility preservation treatment in all heath insurance policies.
HB 2721 (Conroy, D-Villa Park): Mandates coverage for pediatric autoimmune neuropsychiatric disorders (PANS/PANDA) in all heath insurance policies.
HB 2959 (Fine, D-Glenview): Prohibits health insurance policies from prohibiting coverage because of pre-existing conditions.
HB 3223 (Williams, D-Chicago): Mandates coverage for physical therapy for muscular sclerosis in all health insurance policies.