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Springfield Highlights

Springfield Highlights – May 19, 2017

Two Weeks Left In Session, Grand Bargain Discussions Continue

The House of Representatives and Senate adjourned this week with less than two weeks remaining the spring legislative session. Democrats and Republicans in the Senate continued their months-long effort to hammer out a final “grand bargain” that could help finally end the nearly two-year budget impasse. Illinois continues to see its bond rating decrease and debt pile up while residents and business continue to flee the state.

The Senate’s “grand bargain” is a combination of budget cuts, revenue enhancements, and economic development reforms designed to truly balance the state’s budget, restore fiscal integrity, and make Illinois more attractive to job creators. Several components of the package passed the Senate weeks ago while a few more were approved this week. However, the key components that remain unresolved are workers’ compensation reform, tax revenue, education funding formula, leadership term limits, and property tax relief.

On the budget side, lawmakers are looking to pair nearly $5.7 billion in new tax revenue with $3.8 billion in budget cuts to balance the budget and eliminate the nearly $14 billion backlog of bills. Once the debt is eliminated over the next few years, the income tax increase would be rolled back to current levels and spending will decrease.

Lawmakers are discussing increasing the state’s income tax to 4.95 percent for individuals (now 3.75 percent) and 7.0 percent for corporations (now 5.25 percent). Additionally, the state’s 6.25 percent sales tax would be imposed on a number of consumer services including storage units (not warehouses), landscaping, cable/satellite TV, pest control, and personal care services like hair, nails, and tanning. All business-to-business transactions are exempt as are the big three services of accounting, legal, and health care. Manufacturers would see a permanent and modernized Research & Development tax credit while the Manufacturers Purchase Credit and Graphic Arts exemption would be melded into the current Manufacturers Machinery and Equipment program.

Pension reform is paramount and it passed the Senate this week on a vote of 31-21-0. SB 16 would create a third tier hybrid pension system requested by Governor Rauner that combines both a defined benefit and defined contribution program together. This is the first time that a 401-k style system would be implemented for new state workers. Additionally, it imposes a “consideration model” so that current employees can move to a cheaper pension system while continuing to get pensionable raises. Employees who do not matriculate to the cheaper pension system would stop receiving raises that boost their pensions. While it will be challenged in court, these pension changes could save Illinois more than $2 billion annually according to actuarial studies. As part of the agreement, Illinois would pick up the employer’s share of the cost for the Chicago Public School’s pension payment for two years.

The Governor is continuing to call for a four-year property tax freeze to provide help for businesses and residents who face the highest property taxes in the United States. Senate Republicans were able to narrowly defeat a limited two-year freeze offered by Democrats this week in SB 478 arguing that it contained exemptions for pensions and debt service while not being long enough. Discussions are continuing to reach consensus.

The IMA is the sole representative of the business community that has been asked to engage in the workers’ compensation reform negotiation and a potential resolution is on the horizon in the Senate. Changes in the law including significant medical cost reductions and reforms in indemnity could result in savings of well over $100 million annually for employers. There are still two outstanding issues that remain but SB 198 or SB 12 could move next week if agreement is reached.

There are many moving components to this package that also contained increased gaming, bonding to pay off state’s debt at a lower interest rate, education funding reform, and a significant procurement reform bill. If the Senate is able to reach agreement on a “grand bargain” it will become subject to negotiations in House of Representatives and with the Governor’s Office.

The IMA continues to work with all sides to reach a conclusion to this budget impasse that will actually solve the budget problem, restore fiscal discipline, and make the state more attractive for job creators.


House Democrats Unveil Tax Package

Rep. Mike Zalewski (D-Chicago), chairman of the House Revenue & Finance Committee, unveiled the House Democrat tax package under the guise of trying to reform Illinois’ tax code to make it more business friendly. The 400-page amendment was filed on Wednesday morning and approved less than six hours later by a vote of 9-1-0 in committee.

The Illinois Manufacturers’ Association testified in opposition to the legislation that does not represent comprehensive reform. HB 160 would impose a new $5,000 “business occupation assessment” on every corporation in Illinois to make sure that “every business is paying taxes.” The IMA noted that the structure imposes the same fee on every company regardless of size or profitability.

Additionally, Democrats failed to extend critical manufacturing tax incentives that include extensions of the Research & Development tax credit, Manufacturers Purchase Credit, and the Graphic Arts sales tax exemption. This bill largely ignores the manufacturing sector that employs 570,000 workers and contributes the single largest share of the Gross State Product while further incenting the film and live theatre industry.

The legislation also includes the “Keep Illinois Business Act” that requires a company receiving any type of tax incentive (including Enterprise Zone benefits) to repay the entire incentive if they ever move a single job out of state even for a development opportunity. There is no time limit so a company receiving a tax benefit today would have to repay 100 percent of the incentive 50 years later. It does not link specific tax incentives to jobs while the incentive clawback provisions contained in the legislation conflict with current law.

HB 160 does contain some positive components including a reduction of the corporate income tax, elimination of the franchise tax that has been an IMA priority for many years, a new credit for apprenticeships, and extension of the coal, aggregate, and mining sales tax exemption. It also reforms and extends the current EDGE tax program but removes a critical component aiding job retention.

Rep. David Harris (R-Mt. Prospect) noted that this legislation could blow a $1.5 billion hole in the state’s finances at a time when Illinois does not have a balanced budget and is mired in debt. Chairman Zalewski noted that this effort was an attempt to highlight Democrat priorities to be included in the larger budget and tax reform debate.


Illinois EPA Offers Guidance on Steel and Iron Slag Regulation

For the past two years the IMA’s Manufacturers’ Environmental Group has been working to bring clarity to the regulation of steel and iron slag. These particular slag products have great economic value and are commonly used in road construction, concrete, agriculture, glass production and as a filter for storm water runoff. However, slag has been considered a waste product because of ambiguous Illinois statutes so the IMA began seeking changes so that manufacturers would not need a beneficial use determination for this valuable product from the Illinois Environmental Protection Agency (IEPA).

The IMA sought statutory clarification that these slags are valuable co-products of production and not a waste product. IMA worked with Rep. Jerry Costello (D-Red Bud) on legislation (HB 3679) making that clarification but the legislation stalled in the House Environment Committee.

At the same time, the IMA reached out to the Illinois Environmental Protection Agency asking for guidance on how steel and iron are regulated under Illinois law. After months of working with the Agency, the Director issued a letter of guidance explicitly stating that steel and iron slag products are not considered waste provided they are not discarded. This guidance will bring relief to regulatory concerns while efforts continue to work on a statutory clarification.

The IMA would like to thank Illinois EPA Director Alec Messina and his staff for providing this valuable guidance for steel and iron producers.


Expatriate Legislation Advances to Senate Floor

The Senate Executive Committee approved a legislative initiative of State Treasurer Mike Frerichs that ties a state procurement ban on inverted companies to the current federal law. As originally introduced HB 3419 (Andrade/Martinez) imposed an extremely controversial “tax haven” list that sought to blacklist companies. It also sought to impose a separate state regulatory framework banning inverted companies from state procurement. The IMA met with Treasurer Frerichs and top staff over several occasions and successfully won a concession that eliminated the “tax haven” list while creating consistency with federal procurement regulations.

The IMA worked with dozens of global companies and national trade associations in finalizing the language in HB 3419. The IMA appreciates Treasurer Mike Frerichs and Rep. Jamie Andrade (D-Chicago) for addressing the business community’s concerns.


Senate Committee Approves Paid Sick Leave Legislation

Democrat legislators continue advancing a paid sick leave mandate and it’s close to reaching the Governor’s desk following approval by the Senate Labor Committee. HB 2771 (C. Mitchell/Hutchinson) requires all employers in Illinois to provide five paid days of leave to every employee. The IMA and business community strongly oppose this costly mandate that imposes a one-size-fits-all mandate on every business.

Under the terms of HB 2771, employees will be able to accrue one hour of paid sick time for every forty hours worked. Employees can earn and use up to 40 hours of time every twelve months calculated from the date of hire or subsequent anniversary date. Paid leave can be used for healthcare for self or family, child care, or issues related to domestic violence.

More than ninety percent of manufacturers provide paid time off as a benefit to attract and retain employees. However, the decision to offer this employee benefit should be made by individual employers based on their unique circumstances.

The IMA met with both Rep. Christian Mitchell (D-Chicago) and Sen. Toi Hutchinson (D-Chicago Heights) to talk about our opposition to the bill. The legislators plan to amend the bill to clarify that federally regulated industries like railroads and airlines will not have to conform to state law but the IMA will continue to vociferously fight to stop this legislation.

IMA members who oppose this costly mandate should call their State Senators as soon as possible because a vote is likely next week.