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Springfield Highlights

Springfield Highlights – February 16, 2018

Governor Rauner Gives FY19 Budget Address
On Wednesday, Governor Bruce Rauner addressed a joint gathering of the General Assembly to provide his proposed FY19 budget at a time when the state continues to face a nearly eight billion dollar backlog of bills despite the massive income tax increase enacted last year. Last year’s budget that was enacted over the Governor’s veto was out of balance by nearly two billion dollars despite the infusion of more than four billion dollars from the tax hike.

Key points of Governor Rauner’s budget include significant pension reform that will be used to reduce the state’s individual income tax by 0.25 percent providing $900 million in tax relief. The Governor also called for a reduction in state employee health care costs, continued reduction of local government’s share of the income tax, sale of the James R. Thompson Center in Chicago, and shifting costs for employee pensions and health care back to school districts and universities.

Governor Rauner parroted the IMA’s talking points by noting that manufacturing job growth is lagging in Illinois compared to neighboring states. “Manufacturing jobs, many of which go to union workers, are up 110,000 in Indiana over the last eight years, while manufacturing jobs in Illinois are up only 8,000 during that same time period.” As the IMA has repeatedly pointed out to lawmakers, since the recession ended in June 2009, Illinois’ neighboring states have added an average of 68,800 manufacturing jobs compared to an increase of 8,300 manufacturing jobs in Illinois.

The Governor used a conciliatory tone asking lawmakers to work with him to pass a balanced budget but Democrats pounced after the speech. They accused the Governor of submitting a budget based on gimmicks and proposals that will not pass the General Assembly. The Governor and lawmakers will now start the budget discussions with a goal of enacting a spending plan before the end of May.

This year’s budget proposal totals $75 billion with state general funds (income and sales tax revenue primarily) comprising nearly half of the budget. Federal funds total $8.5 billion with other state funds accounting for $29.2 billion. The budget includes total revenue increases of nearly $1.2 billion attributable largely to economic growth (personal income tax and sales tax) from federal tax reform.

The Governor’s budget proposal spends $37.6 billion on revenues of $37.9 billion leaving a surplus of slightly more than $350 million. Included in the spending is $34.4 billion in appropriated money for state agencies with $2 billion for debt service and an additional $782 million for debt service on borrowing to pay down the backlog of bills.

Income taxes ($20.1 billion) account for more than half of state revenue while the sales tax generates another $8.1 billion. Federal sources ($3.7 billion) along with other state taxes and fees ($3.6 billion) are two other significant sources of general funds revenue. This year, the Governor plans to borrow or “sweep” another $600 million from special state funds while asking lawmakers to “forgive” the borrowing from special funds made in previous years.

Governor Rauner is again calling for significant pension changes using the “consideration model” and points out the impact of pension costs on state government. According to budget documents, Illinois’ economy has grown by 88 percent while pension costs have risen by 847 percent since 1997.

Since 2000, general funds spending for pensions increased by 663 percent while revenue allocated for employee health insurance grew by 215 percent. In comparison, spending for K-12 education rose only 65 percent and total spending increased by only 63 percent.

The Governor’s budget notes that the “consideration model” for pension reform will result in savings of $900 million allowing for a 0.25 percent reduction in the individual income tax rate only. Its does not include a decrease in the corporate income tax rate.

In terms of the FY19 spending proposal ($ in billions):

 

Category FY18 FY19 Change
Education $9,716 $10,272 $556
Economic Development $79 $60 ($19)
Public Safety $1,759 $1,729 ($30)
Human Services $6,073 $5,781 ($292)
Healthcare $7,119 $7,875 $756
Environment and Culture $57 $55 ($2)
Government Services $3,189 $2,319 ($870)
Pensions $7,002 $7,212 $210)

Governor Rauner is proposing to reform pension and health care benefits to save nearly $1.3 billion in FY19. Among the major savings proposed are:

  • $490 million savings for the Teachers Retirement System through cost shifts to school districts (25 percent) and Chicago teachers pension system.
  • $101 million savings for the State Universities Retirement System through a 25 percent cost shift.
  • $470 million savings by removing group health insurance from the collective bargaining table and implementing the Governor’s best and final offer to AFSCME.
  • $105 million savings by cost shifting group health insurance costs to universities.
  • $129 million in savings by discontinuing retired teachers and community colleges retirement subsidy.

Local governments will see the continued ten percent reduction of their share of state income tax revenue and there will continue to be a pro-rated share of Corporate Personal Property Tax receipts allocated to cities.

Governor Rauner’s speech highlighted progress on the early childhood education and K-12 education funding. According to the Governor, funding for early childhood education will increase by $10 million in this budget. Since FY15, K-12 education has seen funding increase by 22 percent, or $1.4 billion. This year, an additional $350 million will be put into K-12 education through the new evidence-based model. The Administration is also focusing on workforce development and committing millions of dollars for job training programs.

Higher education is funded at the FY18 level with no increase. However, the budget plan allocates $205 million to help offset the first year cost of phasing in the health care and pension cost shift.

Human services programs will fund childcare at 185 percent of the federal poverty level and include a 50-cent hourly increase for providers of services to the developmentally disabled. The Medicaid liability is estimated to be relatively flat growth (0.5 percent) with a 4 percent across the board rate reduction for health care providers.

The proposed budget includes $16.8 billion in new and re-appropriated capital infrastructure spending. Nearly half of the capital is new spending with prime beneficiaries including the Department of Transportation ($2.7 billion), Capital Development Board ($1.8 billion), Department of Commerce & Economic Opportunity ($1.3 billion), and Illinois Environmental Protection Agency ($1.1 billion).

The annual Road Program is maintained at the $2.2 billion level while significant investments are included for new rail programs such as high speed rail ($50 million), grade crossing protection ($39 million), CREATE ($13 million), and statewide projects ($139 million).

Following the speech, the IMA offered the following statement:

“Illinois needs a balanced budget to create stability and predictability for job creators in the state. Our continued budget challenges are predicated in part by the state’s anemic job growth compared to the rest of the nation. Manufacturers in Illinois have added only 8,300 jobs since the end of the recession in 2009 while our neighboring states have added an average of 68,600 good, high-paying manufacturing jobs. This disparity is largely due to the failed policies of higher taxes and more regulations. 

We applaud the governor’s call for pension reform and his continued focus on education and workforce development in the budget. Manufacturers need stability and it’s time for the governor and state lawmakers to end the partisan bickering and craft a budget that will incent job creation.”

IMA Education & Workforce Agenda Introduced
One of the greatest challenges facing the manufacturing sector is the need for qualified workers. For more than a decade, the IMA Education Foundation has been working with K-12 schools, community colleges, and universities to help build a pipeline that will deliver qualified applicants to employers. With nearly 300,000 workers set to retire in the next decade, Illinois manufacturers will need to find nearly 20,000 production workers and 3,000 engineers annually to remain level. It’s an immense challenge and one that the IMA is leading the effort to address.

 

The IMA and IMA Education Foundation met with Governor Bruce Rauner and his top staff this week to discuss education and workforce development.

Over the past several years, the number of graduates in STEM (Science, Technology, Engineering and Mathematics) and Vocational Education disciplines being produced by Illinois colleges and universities has greatly declined. One of the major reasons for the decline in graduates is due to a lack of qualified educators in Illinois schools and universities that focus on these studies. The lack of qualified graduates has brought added pressure for school districts and community colleges to rely on adjunct faculty that may have a lack of knowledge in the issue that they are presenting to students.

Recognizing the need to produce more STEM and vocational education teachers, Representative Bob Pritchard (R- Sycamore) and Senator Andy Manar (D-Bunker Hill) took the bipartisan step of introducing an IMA Education Foundation initiative underHB 4859and SB 3047.

The identical bills, being dubbed the Grow Your Own STEM Teacher initiative, waive tuition, fees, and housing costs for students who attend a public university if the student studies STEM or vocation studies and agrees to teach at least 3 years at an Illinois high school or at least 5 years at an Illinois public institution of higher education.

The legislation acknowledges Illinois’ need for a different and bold approach to ensuring that there are an adequate numbers of qualified vocational education teachers in the state. The proposed legislation shows that the State of Illinois is ready to invest resources to commit to education in an area that employers see as lacking.

Many companies are looking at the use of apprenticeships. The IMA and German-American Chamber of Commerce are leading the Industry Consortium for Advanced Technical Training (ICATT) program in Illinois. It is the leading program in the Midwest for high-tech manufacturers and only program fully benchmarked on the German Dual Education System that combines company-specific knowledge, theory, and hand-on learning through apprenticeships.

In order to grow the use of apprenticeships, the IMA has offered legislation (HB 5133, SB 2501) sponsored respectively by Rep. Mike Zalewski (D-Chicago) and Senator Jennifer Bertino-Tarrant (D-Plainfield) providing an income tax credit for educational expenses incurred by employers on behalf of apprentices. Additionally, the IMA is pushing new legislation (HB 5247, SB 3226) that will allow students in the 10th grade (age 16) to participate in registered apprenticeship programs.

The IMA will also soon be unveiling a new legislative proposal creating the Manufacturing Promise Scholarship Program that would provide tuition scholarships to any Illinois resident with a high school diploma or GED who is enrolled in a manufacturing or industrial arts program. Students would be required to maintain a certain grade point average and could be enrolled in a course of study for durable or non-durable manufacturing, manufacturing-related quality control, or manufacturing logistics.

Finally, SB 3033 (Weaver, R-Peoria) and HB 4858 (Pritchard, R-Sycamore) amend the current Industrial Development Assistance Law to allow local school districts and community colleges to receive grants for the acquisition of land, construction of facilities, or purchase of equipment dedicated solely to the instruction of manufacturing occupations.

For more information about the IMA Education Foundation, participating in the ICATT apprenticeship program, or this legislative package, please contact Jim Nelson.

New Mandatory Scheduling Bill
In a move that limits Illinois employers’ ability to choose what best business practices work for their business, Representative Chris Welch (D-Westchester) introduced HB 5046 that requires employers to provide work schedules to employees at least 72 hours in advance of the employee’s work shift. Taking the measure a step further, the bill also requires employers to compensate employees if their schedule is changed within 72 hours of their shift and fewer working hours are provided. Finally, an employee may file a claim with Department of Labor to recover wages and attorney fees while the employer could face fines of between $250 and $3,000 for violations.

This is another example of lawmakers trying to impose excessive regulations on job creators. Manufacturers, retailers, and all businesses must have the flexibility to manage their employees to meet the market demands.

New Challenges to Environmental Permits
Lawmakers in the House of Representatives and Senate are pushing new legislation seeking to give new legal standing to individuals to sue over air pollution, contaminated groundwater, odors, and more. Initiated by environmental activists who are always seeking to delay or block projects, the new legislation would vastly expand who has “standing” in the cases which are currently limited only to affected parties.

In a wide-sweeping political move that is directed at adding politics to every day decisions being made by Governor Rauner’s Administration, Senator Kwame Raoul (D-Chicago) and retiring State Representative Steve Andersson (R-Geneva) have introduced SB 3005 and HB 5119. The two identical bills give any resident in the state the right to judicial review over any administrative decisions as long as the individual feels they are “suffering a legal wrong […] or adversely affected or aggrieved” by the administrative decision. While the bills could be directed in countless ways, Senator Raoul has made it clear that it is his intent to circumvent any decisions being made by the State and the Illinois EPA surrounding environmental permits.

If either bill were to become law, a resident in any part of the state could ask for a judicial review of any environmental permit issued by the Illinois EPA. It would undermine the current judicial review process by disregarding where an individual making the permit complaint lives and where the facility requesting the permit is located.

The bills represent a deliberate attempt to slow down the environmental permitting process in the state while also taking permit decisions away from the appropriate governing body and placing them with the courts. Manufacturers reliant on permits issued by the Agency could find their every day operations in jeopardy if either bill moves forward. The IMA is strongly opposed to this legislation.

New Health Care Assessment Tax
For the second year in a row, Democrat Greg Harris (D-Chicago) is proposing a new 1 percent assessment on all health care claims paid by an insurance company or third party administration. The IMA is opposed to this new tax that would add hundreds of millions of dollars in new health care costs on Illinois employers and could result in changes to health care policies impacting workers. It would increase the cost of every medical claim ranging from surgery to pharmaceutical prescriptions.

The IMA has spoken to Rep. Harris in previous years where he indicated that the bill (HB 4166) is based on laws enacted in Michigan, California, and Oregon. Revenue from the new tax would be used to try and bring matching federal dollars into Illinois to be spent on Medicaid programs. The proposal is supported by many in the health care community include the safety net hospitals.

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