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Springfield Highlights

Springfield Highlights – March 17, 2017

Minimum Wage Hearing in House Labor Committee

Members of the House Labor & Commerce Committee conducted a subject matter-only hearing this week to debate raising the state’s minimum wage from the current $8.25 to $15 per hour. This 82 percent increase in the state’s mandated wage would give Illinois the dubious distinction of having the highest wage in the nation along with California that is phasing in their increase through 2022.

The Illinois Manufacturers’ Association strongly opposes this government mandate that will significantly increase employee costs in a one-size fits all approach. Businesses located near a state border will be forced to compete with our neighboring states that all match the federal minimum wage of $7.25 with the exception of Missouri ($7.70). It will result in pressure to hike the pay of all employees forcing many employers to further automate resulting in fewer jobs or less hours to offset the increased cost.

Committee Chairman Jay Hoffman (D-Collinsville) pledged at the conclusion of the hearing that they plan to pass an increase in the minimum wage in the House of Representatives. A committee vote could be held as early as next week. He noted that there are five issues that will be finalized including (1) the final wage level, (2) whether the increase will be phased in or take effect immediately, (3) if it will be tiered to include a tip credit or training wage, (4) whether it will pre-empt local governments from imposing their own wage levels beyond the state law, and (5) if it will include a tax credit for small employers with less than 50 employees to help offset the increased cost.

When previous minimum wage hikes have passed, the legislature has phased in the increases while including a tip/training credit. Pre-emption of local governments is generally more difficult as it takes a supermajority vote rather than a simple majority.

Four Democrat legislators who are each sponsoring minimum wage increase bills (Rep. Will Guzzardi (D-Chicago), Rep. Mary Flowers (D-Chicago), Rep. Sonya Harper (D-Chicago), and Rep. Litesa Wallace (D-Rockford) testified in support of the legislation along with other advocates. During her testimony, Rep. Flowers expressed support for an immediate $17.50 per hour minimum wage that would take effect immediately and increase annually based on the CPI. Other Democrats chastised businesses for failing to pay a “fair wage that requires employees to be on public aid.”

Freshman Republican Steve Reick (R-Woodstock) invoked the law of elasticity – increased costs will lower demand. He chastised Democrats who believe that increased taxes result in reduced smoking but then fail to recognize that mandated wage hikes will affect the labor market in the same fashion.

The IMA strongly opposes government-forced increases in the minimum wage. We urge IMA members to contact respective members of the House of Representatives to urge opposition.

 

IMA Leads Opposition to “Expatriate Corporation” Legislation

State Treasurer Mike Frerichs (D) initiated two identical bills (HB 3419 and SB 1798) in the legislature this spring that seek to impose antiquated and flawed public tax policy in Illinois. His proposals seek to define publicly traded companies as “expatriate” if they operate in certain “tax haven” countries while seeking to ban them from bidding on state contracts. The Treasurer’s initiative is purely political and attempts to demonize the business community while discouraging foreign direct investment in the U.S.

A similar bill (HB 4194) was originally filed by former Comptroller Dan Hynes in 2004 after the Organization for Economic Cooperation and Development (OECD) released a list of more than three dozen countries to try and force them to increase transparency and information sharing. Today, fifteen years after releasing the list of countries, the OECD no longer uses that list because all of the countries are in compliance. Further, in 2015, the OECD recommended a new approach on taxation that was adopted by the G-20 including the United States. It does not include this “tax haven” approach and no country in the world has adopted this approach.

In 2004, rather than passing HB 4194, the Governor and General Assembly approved legislation adding a related party add-back requirement in Department of Revenue regulations to address tax evasion concerns. Taxpayers must add back any related-party intangible, interest, and insurance premium expenses to their taxable income to prevent income and profit shifting.

The legislation arbitrarily identifies more than three-dozen countries as “tax havens” without any specific definition or requirement while allowing the Department of Revenue to unilaterally add countries to the list. The current or any future Administration could add countries like Ireland, Germany, Mexico, or any other to the list and essentially build a wall with an ally of the United States.

Several years ago, the United Kingdom approved legislation that would allow the UK Treasury to penalize multinational corporations with operations in any U.S. state that employed a worldwide unitary combination tax system. This legislation imposes a worldwide combination approach with dozens of countries and could result in retaliation.

The IMA testified in opposition to the measure but Democrat members of the Senate Executive Committee passed SB 1798 on a partisan vote (11-4-0) following similar action in the House of Representatives last week. Another meeting with the Treasurer is scheduled and the IMA plans to continue educating members of the legislature.

 

IMA Apprenticeship Tax Credit Discussed in Committee

The IMA Education Foundation this week provided testimony in support of HB 3109 sponsored by Rep. Brian Stewart (R-Freeport). The legislation that would establish a $3,500 income tax credit for manufacturers who pay college tuition for their apprentices participating in registered apprenticeships.  The IMA’s Jim Nelson appeared before the House Revenue Committee to advocate for the tax credit that provides benefits for apprentices and community colleges as well as employers.  Under the legislation, apprenticeships that are registered with the federal Labor Department would trigger the credit that could be claimed by their employer if that employer paid the community college tuition on behalf of their apprentice.  The credit would offset a part of the investment made by the employer who engages apprentices.  The credit can be applied for multiple apprentices and could be taken every year the employer has apprentices.  Although the bill was held for now in committee, there appears to be bipartisan support for the idea.  IMA will keep members abreast of further developments.  More information on Registered Apprenticeships can be found at IMA’s newest Website:  www.apprenticeship-il.com.

 

IMA Champions EDGE Tax Credit in Committee Hearing

The Illinois Manufacturers’ Association championed passage of an economic development program that will allow Illinois officials to attract and retain jobs. Testifying at the request of House Revenue Committee Chairman Mike Zalewski (D-Chicago), the IMA first noted that while tax incentives and tax climate play a key role when businesses make a decision on where to locate jobs or capital, it is rarely the sole factor. Rather, businesses look at many factors including stability and predictability, proximity to customers or suppliers, transportation, workforce, intrinsic costs like workers’ compensation, and tax policy.

The best tax systems are broad-based with low rates to encourage all companies to invest and grow. However, Illinois cannot afford to unilaterally disarm which would occur if the Illinois EDGE tax credit expires. Economic development officials from other states are targeting companies every single day and Illinois has to protect its job base before growing. Originally scheduled to sunset in December 2016, lawmakers extended the EDGE credit until the end of April.

The current EDGE program provides a tax credit for companies making a capital investment and adding jobs. While previous administrations have allowed a smaller credit for retaining jobs, the Rauner Administration has prohibited the use of the credit to keep jobs in Illinois.

The Administration has introduced legislation (SB 2071 and HB 3556) sponsored by Sen. Pam Althoff (R-McHenry) and Rep. Keith Wheeler (R-North Aurora) respectively. Deemed THRIVE, these bills are problematic because they only apply to new jobs and are not designed to help retain jobs that are already in Illinois.

In testimony, the IMA provides guidance for principals that should be included in a new credit. All companies should be able to utilize the program – it should not be limited to select companies – and it should apply to both new and retained jobs. Job retention could be subject to stricter standards such as a smaller credit, wage threshold, or make it apply to vital industries such as manufacturing. The credit should apply to a project-by-project baseline and should be refundable or transferrable. Clawback provisions will ensure that companies meet their negotiated goals but it should be graduated rather than an “all or nothing” approach.

The IMA appreciates Chairman Zalewski and other members of the House Revenue & Finance Committee who are debating how best to reform Illinois’ program so that it benefits companies while being measured.

 

Self-Reporting Environmental Violations

The Senate Environment Committee unanimously approved a measure to make it easier for small companies to self-report potential environmental violations to the Illinois Environmental Protection Agency. SB 1433, introduced by Sen. Paul Schimpf (R-Murphysboro), is an initiative by the Department of Commerce and Economic Opportunity’s (DCEO) Small Business Environmental Assistance Program. The measure strengthens Illinois’ self-disclosure law by expanding the definition of small entities and removing a requirement that potential violations must have been discovered as part of a formal audit or compliance management system.

Small businesses may be caught off guard by changing environmental regulations at the state or federal level. Allowing companies to self-report potential violations without the risk of extreme penalties will expedite the environmental compliance process that is the ultimate goal.

Illinois law currently penalized businesses by doubling the permit fee for violators. The IMA offered an amendment to Sen. Schimpf, DCEO and the IEPA that will reduce penalties for self-reporters to further improve the legislation.

 

Coal Tar Sealant Ban

An effort to ban the use of coal tar based pavement sealers stalled in the House Consumer Protection Committee this week. Sponsored by Rep. Laura Fine (D-Glenview), HB 2958 is an initiative of environmental groups and has been introduced for four years in a row.

Testifying before the committee, environmentalists claimed that coal tar sealants pose a health risk because they are a potential source of Polycyclic Aromatic Hydrocarbons (PAH). Industry experts noted that coal tar is a safe product that is commonly used in a wide variety of products including dandruff shampoo, medications and as a sealant in drinking water systems. Alternatives to coal tar sealants are generally more expensive and less effective. Banning coal tar sealants would increase maintenance costs and decrease the lifespan of large paved surfaces like roads and parking lots.

A large coalition led by the Chemical Industry Council of Illinois (CICI), IMA, unions, contractors and retailers oppose the legislation because the product is both safe and the industry employs hundreds of jobs in Illinois. Despite an hour of testimony, the sponsor was forced to pull the bill from the record when it became apparent that it lacked support to pass the Committee. However, Rep. Fine intends to continue lobbying her colleagues with the intent of passing the bill this spring so the IMA and our coalition will remain vigilant.

 

Combined Heat and Power Legislation Approved

Members of the Senate Energy and Public Utilities Committee unanimously approved IMA-initiated legislation (SB 1455) this week that reinstates the Combined Heat and Power (CHP) credit that was removed last fall in the comprehensive energy bill (SB 2814).

Combined heat and power (or co-generation) is an environmentally-friendly process where heat that is normally wasted in conventional power generation is recovered as useful energy. CHP can be 80 percent efficient compared to conventional power generation that is 45 percent efficient. It also reduces air pollutants and uses less fuel.

Illinois ranks 3rd nationally in combined heat and power (CHP) development but a 2015 Department of Energy report lists “the lack of financial value for the potential emissions benefits” as a regulatory barrier. SB 2814 removed existing RPS credits for CHP depriving CHP owners of a pre-existing value stream and making CHP development in Illinois less likely.

The bill faces an uncertain future because the coalition that successfully championed the comprehensive energy bill have agreed to uniformly oppose all measures that seek to amend or roll back changes that were negotiated last year. Many lawmakers are also reticent to open up the law after the long battle last year.

 

No Action on Digital Right to Repair Bill

For the second week in a row, the Digital Right to Repair Act was not called for a vote in the House Cybersecurity, Data Analytics, and IT Committee following intense opposition from the Illinois Manufacturers’ Association and manufacturing community.

Sponsored by Rep. David Harris (R-Mt. Prospect), HB 3030 mandates that original equipment manufacturers shall provide diagnostic and repair information including embedded software to independent repair providers. This places confidential and proprietary information at risk. Further, independent shops that may not meet certain company-imposed standards could jeopardize a product’s performance (increase emissions for example) by changing a few lines of computer code.

 

Telecommunications Modernization Passes Senate Committee

Members of the Senate Telecommunications and Information Technology Committee unanimously approved legislation (SB 1381) this week that modernizes Illinois’ telecommunications law. The IMA supports and testified in favor of the legislation in a subject matter-only hearing last week because manufacturers need a modern and high-speed telecommunications infrastructure to communicate with customers, suppliers, and machines that often use remote sensors. In today’s global economy, it’s as important to invest in our telecommunications infrastructure as it is in transportation and energy infrastructure.

AT&T and proponents continue to meet with stakeholders to address specific concerns that have been raised including the ability of utilities to communicate in certain emergency situations.

 

IMA Opposes Keep Illinois Business Act

While the name sounds innocuous, the IMA opposed the Keep Illinois Business Act this week because of the detrimental impact that it could have on manufacturers and other businesses. Sponsored by freshman Rep. Mike Halpin (D-Rock Island), the legislation (HB 3538) requires any business that receives economic development assistance to repay the assistance and be disqualified from receiving any future assistance if they move “all or part of its business operations and jobs” out of state.

The IMA testified in opposition to the overly broad legislation that demonizes employers. HB 3538 applies to a host of incentives including enterprise zones, High Impact Businesses, tax credits, Treasurers Economic Development Program, Industrial Training programs, IDOT Economic Development programs, and any other economic incentive, assistance, benefit, credit, loan, or grant.

It contains no time limitation meaning that a business receiving an Enterprise Zone benefits in 2017 could be forced to repay that incentive in twenty years solely because it moved one employee out of state. It does not differentiate between jobs directly linked to an economic development incentive meaning that an employer with 200 employees that receives a loan or grant to help add 20 jobs would be penalized if any of those jobs left the state (as opposed to only the 20 linked to the incentive). Repayment is not graduated so an employer that added 1,000 jobs would have to repay the entire amount even if 995 of the new jobs remain. A company moving an employee out of state or overseas for a development opportunity or to help another division of the company would be in violation of the proposed law.

The Illinois Manufacturers’ Association worked with legislators more than a decade ago to craft a thoughtful Corporate Accountability for Tax Expenditures Act that was signed into law in 2003. In 2010, Illinois’ law was ranked first in the nation for transparency and the Department of Commerce & Economic Opportunity has initiated 108 recapture efforts since 2004.

The IMA has spoken to Rep. Halpin and personally expressed our concerns that were also outlined in the House Revenue & Finance Committee. He has not yet committed to holding or amending the legislation that passed on a partisan roll call vote of 8-3-0.

 

Dress and Grooming Codes and Religious Exclusion

The Senate Labor Committee approved legislation (SB 1697) unanimously this week after Rep. Jacqueline Collins (D-Chicago) accepted an IMA amendment that protects an employer’s ability to impose a dress or grooming code, especially as it applies to workplace safety or food sanitation.

As introduced, the legislations mirrors U.S. Equal Employment Opportunity Commission (EEOC) rulings and court decisions that make it a violation for an employer to impose a dress or grooming requirement that requires a person to violate a sincerely held practice of his or her religion. However, employers should have the right to ensure workplace safety for its employees and protect food sanitation.

The IMA appreciates Sen. Collins for accepting the IMA amendment to improve the legislation.

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