Senate Democrats Pass Tax & Spend Package
On a partisan vote, Senate President John Cullerton and the Senate Democrat caucus rammed through a $37.3 billion state budget fueled by $5.4 billion in new taxes on Illinois residents and businesses without incorporating any economic development reforms that would attempt to make Illinois more attractive to job creators. It does not bonding to pay down old state bills totaling nearly $14 billion, instead creating a mechanism so that any revenue exceeding 2.4 percent growth would be used to pay down the backlog of bills.
The Illinois Manufacturers’ Association opposed this tax and spend package. After many months of negotiations, it was disappointing that Democrat legislators walked away from bipartisan discussions designed to finally end the two-year budget impasse.
The $37.3 billion budget (SB 6, SB 42) includes a 10 percent cut for state universities and community colleges while fully funding the MAP grant program. State agencies would see a five percent reduction in spending with the exception of the General Assembly and Democratic constitutional officers that would maintain the same budget level. The Democrat budget, however, cuts spending in the Governor and Lt. Governor’s offices by 15 percent. K-12 education funding would receive a $330 million increase including money for early childhood education while a hold harmless provision would ensure that no school receives less money than last year.
The final budget from the Democrats removed $405 million in budget cuts for the Medicaid program and also kept the full share of money allocated through the Local Government Distributive Fund.
After initially agreeing in principle to a four-year temporary income tax increase, the Democrats reversed course and passed a permanent increase in the state’s individual (3.75 to 4.95 percent) and corporate income tax (5.25 to 7.0 percent) rates. In addition, SB 9 contains an expansion of the state sales tax onto a limited number of consumer services including storage, tattoos, tanning, private detective and alarm service, and pest control. Business-to-business transactions are exempt from the sales tax on services but the bill allows local cities and counties to also add their own local tax to these services. Finally, the bill adds a new five percent tax on satellite television and a one percent tax on cable television and streaming entertainment (Hulu, Netflix, Amazon, etc.).
The tax package did include some positive changes including making the Research & Development tax credit permanent and merging the Manufacturers Purchase Credit and Graphic Arts sales tax exemption into the Manufacturing Machinery & Equipment exemption. Local units of government would be prohibited from taxing items based on weight or volume while the False Claims Act would fall solely under the state’s purview to eliminate local lawsuits.
With regard to current tax law, SB 9 decouples Illinois from the federal Qualified Production Activities Deduction while eliminating both the “outer continental shelf” exclusion and the non-combination rule. It also implements a “means test” on three personal tax incentives by imposing eligibility criteria of $250,000 (individual) or $500,000 (couple) to receive the standard exemption, property tax credit, or education expense tax credit.
SB 9 increases the Earned Income Tax Credit from 10 to 15 percent to help low-income residents while creating a new $250 tax credit for instructional materials and supplies.
The Senate’s tax and budget package moves to the House of Representatives where it will not advance in its current form but will be subject to their revisions.
House Democrats Consider Tax Proposals
As the IMA reported last week, the House Democrats released a tax proposal (HB 160) creating a new $5,000 fee on every corporation for the privilege of doing business in Illinois while also reducing the corporate income tax rate and extending other tax incentives. It does not currently extend the Research & Development tax credit, Manufacturers Purchase Credit, or the Graphic Arts credit.
Late this week, Speaker Michael J. Madigan and the House Democrat Caucus twice met privately to discuss potential tax and spend budget packages. The Democrat budget discussed internally would spent nearly $39.4 billion aided by more than $7 billion in new tax revenue according to several lawmakers.
On the tax side, a number of proposals are on the table and individual Democrat lawmakers are being asked whether they can support these ideas. Caucus members were polled on Friday and the roll call fell far short of the 60 votes that would be needed to pass but lawmakers will be tweaking the list over the weekend. The list of ideas that are on and off the table at this time include:
- Increase in the income tax rates for individuals (3.75 to 4.95%) and corporations (5.25 to 7.0%)
- Expand the sales tax to services (not including food and medicine)
- Eliminate the foreign and domestic dividend deduction
- Eliminate or reduce the retailer’s discount
- Impose a new 1 percent assessment on all health insurance claims (HICA) similar to a Michigan law and HB 5750 from the 99th General Assembly.
- Tax on retirement income for persons between the ages of 55 and 65 years
- Decouple from Qualified Production Activities Deduction
- Eliminate the outer continental shelf exclusion
- Eliminate the non-combination rule
- Eliminate the “carried interest” provision
- No change to the current Manufacturers Machinery & Equipment exemption
- No change to the Single Sales Factor
- No tax on soda/sugary beverages
- No satellite or cable TV tax
- No change to the E-10 tax incentive
Many of these proposals are harmful to the manufacturing sector and are strongly opposed by the IMA. Member companies are encouraged to reach out to lawmakers over the weekend and early next week to express opposition.
Senate Passes Workers’ Compensation Bills, Not Real Reform
After months of negotiations, Democrats and Republicans were literally down to one sentence in reaching an agreement that would reform workers’ compensation resulting in savings to employers of more than $120 million annually. Illinois has the 8th highest cost of workers’ compensation and it’s a major impediment to manufacturing job growth and investment.
At the end of last week, Senate Democrat negotiators stopped all negotiations when agreement was in sight. Rather than moving forward with a real change in workers’ compensation and helping Illinois’ economy, Democrat lawmakers sided with trial lawyers, labor unions, doctors, and hospitals that all benefit immensely from the current system.
Democrats, on partisan roll call votes, then proceeded to pass two bills out of the Senate under the guise of workers’ compensation reform that will not save money and could actually increase costs.
The first bill, HB 2525 (Hoffman/Raoul) codifies the “a cause” standard from the Sisbro court case into law taking Illinois further away from any meaningful causation standard. Additionally, the bill creates a mandatory rate review provision for insurance companies and continues to make the last employer responsible for all costs in the event of repetitive motion injuries even if an employee has only been on the job for a brief period of time. Under the legislation, the last employer could technically try and subrogate the workers’ comp claims against previous employers, a costly and litigious process. Finally, it imposes new and costly penalties on employers for vexatious delays in treatment or payment.
HB 2525 has some very limited changes that are positive including rectifying the Will County Forest Preserve case to make sure that the shoulder is considered part of the arm and hip part of the leg. It also provides credits for some spinal injuries.
Despite agreeing on many reforms in the negotiation, Democrats backed away and failed to include items like a reduction in the Medical Fee Schedule, increased use of American Medical Association standards, PPD wage freeze, or increase in the length of time before TTD benefits take effect. Despite being used in pure form in nearly three-dozen states, Senator Kwame Raoul (D-Chicago) vociferously opposed changes in the use of AMA standards to protect a small sector of trial lawyers.
The second bill (HB 2622) would take $10 million of employer money at the Illinois Workers’ Compensation Commission and use it to start a new State WC Fund to compete with the private sector. In states that have state funds, there are generally only a small handful of private insurers so competition may be needed. According to the Department of Insurance, Illinois has a competitive insurance marketplace with more than 325 companies selling workers’ compensation insurance. HB 2626 is an attempt to deflect from the real cost drivers by trying to install blame on the insurance sector.
HB 2622 was approved on a vote of 32-20-1 and moves to the Governor’s desk while HB 2525 returns to the House of Representatives for a concurrence vote.
Minimum Wage Bill Unveiled, Vote Scheduled Monday
After many hearings, the final minimum wage proposal was filed as an amendment to SB 81 (Guzzardi, D-Chicago) and will be considered in the House Labor Committee on Monday afternoon. The new proposal creates a dual minimum wage system for employees based on age with different wage levels. Employees who are who 18 years of age and older will get a $15 per hour minimum wage phased on over five years while younger employers who have worked less than 650 hours will see their wages increase to $12 per hour over the same time period.
Illinois’ current minimum wage is $8.25 and this increase, when fully phased in, would represent an 82 percent increase and make Illinois’ wage the highest in the nation.
The schedules are as follows:
|18 years or older or 18 years and younger with more than 650 hours of work||Younger than 18 years with less than 650 hours of work|
|January 1, 2018||$9.00||$8.00|
|January 1, 2019||$10.00||$8.50|
|January 1, 2020||$11.25||$9.25|
|January 1, 2021||$13.00||$10.50|
|January 1, 2022||$15.00||$12.00|
For the first time, legislators recognized publicly that an increased minimum wage is a costly mandate for employers and created a tax credit for small employers with less than 50 employees. The decreasing credit starts at 25 percent and slowly phases out over the same five-year period of time. An employer is not eligible for the credit unless the average wage paid by the employer per employee for all employees making less than $55,000 during the reporting period is greater than the average wage paid by the employer per employee for all employees making less than $55,000 during the same reporting period of the previous year. In essence, an employer who is forced to reduce hours because of the increased payroll cost will likely not be able to claim the tax credit.
The IMA strongly opposes this government imposed wage mandate. The House will seek to pass the measure following committee and it will head to the Senate for concurrence. IMA companies are encouraged to call their legislators to express opposition to SB 81.
Reduced Fines for Self-Reported Environmental Violations
The House Environment Committee unanimously (15-0-0) approved an initiative to reduce fines for small companies who discover that they are not in full environmental compliance and self report to the Illinois Environmental Protection Agency. SB 1433, sponsored by Rep. Mike Fortner (R-West Chicago), provides that a company that voluntarily self-discloses non-compliance to the Agency, of which the Agency had been unaware, is entitled to a 100 percent reduction in the portion of the penalty that is not based on the economic benefit of non-compliance. The bill applies to small entities as defined by the federal Small Business Regulatory Enforcement Fairness Act of 1996.
The Senate unanimously passed SB 1433 under the leadership of Sen. Paul Schimpf (R-Murphysboro) and is one step from the Governor’s desk. Supported by the IMA, SB 1433 is an initiative of the Illinois Department of Commerce and Economic Opportunity’s Small Business Environmental Assistance Program.
Electronic Waste Recycling Bill Passes Senate
An IMA-led initiative to re-write Illinois’ faltering electronic waste (e-waste) collection and recycling law passed the Senate unanimously this week and moves to the House of Representatives. Sponsored by Sen. Pam Althoff (R-McHenry), SB 1417 moves Illinois away from weight-based collection goals and to a new convenience standard with no limits on the amount of electronics that can be collected. The program establishes a clearinghouse run by manufacturers to oversee the e-waste collection program. A study of e-waste collections in Illinois has shown that private collection programs operate significantly more efficiently than public collection sites. An industry analysis of the program shows that moving control to the private sector will allow more e-waste to be recycled each year at a reduced costs for electronics manufacturers.
The legislation is the culmination of 3 years of negotiations between manufacturers, retailers, recyclers, collectors, waste haulers, Illinois Environmental Protection Agency (IEPA), and environmental groups. There are some smaller outstanding issues for manufacturers and the Illinois EPA that will be addressed in a trailer bill in the fall.
The IMA appreciates Sen. Althoff’s leadership in shepherding this initiative through the Senate.
Paid Leave Mandate Advances
Legislation creating a paid family leave program continues to move forward in the General Assembly over the objections of the Illinois Manufacturers’ Association and business community.
Sponsored by Sen. Toi Hutchinson (D-Chicago Heights), HB 2771 provides that all workers accrue one hour of paid sick time for every forty hours of work. 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 by workers to deal with (1) health care for themselves or their family, (2) child care when school or day care has been closed due to weather, or (3) issues associated with domestic violence. An employer may require certification of an illness when an employee is out for more than three consecutive days.
Employees begin accruing time on their first day of work but must wait at least six months before leave can be used. Unused pay shall carry over annually but employees cannot use more than five days in a twelve-month period. Businesses are not required to pay workers for unused days when they separate from the company.
This week, Senator Hutchinson successfully attached an amendment to the bill exempting specific industries including railroads and airlines from the bill because of federal laws that pre-empt state laws. While the IMA appreciates the effort to bring the proposal into compliance with federal law, it did not alleviate strong opposition from the manufacturing sector.
The legislation previously passed the House 66-51-0 and must be approved by the full Senate before returning for concurrence. The Governor has not yet opined on whether he would sign or veto the legislation.
“Right to Know” Legislation Creates New Data Reporting Mandate
After narrowly passing the Senate on a 31-21-1 vote, the House is now considering a new data collection-reporting mandate. Sponsored by Rep. Art Turner (D-Chicago), SB 1502 requires all businesses to tell consumers upon request what personal information has been collected and shared with whom. Businesses collect data for a variety of reasons including website visits, loyalty awards, and credit programs. This mandate would create a new cottage lawsuit industry.
The business community including the IMA and Illinois Retail Merchants Association remain opposed to this legislation. SB 1502 was narrowly approved by the House Consumer Protection Committee on a 3-2 vote and now awaits consideration by the full House.
Ban on Local Laws Regulating Autonomous Driving
The General Assembly unanimously approved legislation (HB 791) this week that ensures that the State of Illinois has the sole responsible of setting regulations for autonomous vehicles by banning local governments from prohibiting autonomous cars.
As manufacturers and technology companies continue to develop autonomous vehicles and driving systems, it is important to have consistent rules and regulations across the state rather than a patchwork. If signed into law, local governments are barred from enacting ordinances prohibiting the use of automated driving system equipped vehicles on its roadways.
The IMA and other stakeholders will continue meeting over the summer to finalize the autonomous driving legislation (HB 2747) because its imperative that Illinois allow this new technology to grow and thrive in Illinois without burdensome rules and regulations.
The IMA appreciates Sen. Karen McConnaughay (R-West Dundee), Rep. Tom Demmer (R-Rochelle), and Rep. Mike Zalewski (D-Chicago) for their leadership in protecting this emerging industry.
New Regulations for Expatriate Corporations Clear Both Chambers
After weeks of negotiations between the IMA, business community and Treasurer Mike Frerichs, a compromise on regulations for expatriate corporations is headed to the Governor’s desk for his signature after passing the Senate on a strong bipartisan vote.
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) and Senator Iris Martinez (D-Chicago) for addressing the business community’s concerns.