This Week in Springfield, the Governor delivered his annual State of the State address and the Senate held subject matter hearings on their compromise budget framework while discussions on potential changes continues.
SENATE BUDGET COMPROMISE
TWIS readers are aware that prior to the expiration of the 99th General Assembly, the Senate leaders had reported that they had reached a tentative bi-partisan agreement on a budget package framework. Although the package was filed in the last days of the 99th General Assembly, the 99th General Assembly adjourned Sine Die and the leaders promised that they would take the package up for consideration the first week of the 100th General Assembly. Immediately after convening the 100th General Assembly on Wednesday, January 11th, the framework package was introduced in 13 separately filed bills.
The Senate package includes: a tax package (SB 9), minimum wage increase (SB 2), six new casinos and slots at race tracks (SB 7), a temporary two-year property tax freeze on the school portion of the tax bill (SB 13), workers’ compensation reform (SB 12) bonding to pay off $7 billion of the current $11 billion backlog (SB 4), pension reform (SB 11) procurement reform (SB 8), limited consolidation of local governments (SB 3), and a K-12 education funding reform (SB 1). Currently, the K-12 education funding reform has no details. Each bill is contingent on the other twelve passing before that bill can become law.
As promised, the bills were sent to the substantive committees to be considered. With the exception of the education funding reform bill and the minimum wage bill, broad discussions were held on the rest of the package and were sent to the Senate floor to be held for further discussions. Immediately prior to the meeting of the Senate Revenue Committee, an amendment was filed that drastically changed the scope of the tax package. The controversial sugar-sweetened beverage tax was removed. To replace this revenue within the tax package the creation of an excise tax of 5% on an array of services and a “Business Opportunity Tax” based on payroll range were included. The excise tax on services is modeled on the current structure in Wisconsin. As currently envisioned, the services to be included would be landscaping services, laundry and dry cleaning services, amusements, and repair and maintenance services. There would also be a 7% excise tax on cable television and direct broadcast satellite services. The implementation of the excise taxes rather than an expansion of the sales tax base to include these was in response to a constitutional case based on the Illinois’ constitution prior to the 1970’s Constitutional Convention. It is IRMA’s view that the excise tax approach is unnecessarily complicated and the constitutional issue does not exist. The “Business Opportunity Tax” replaces the franchise tax and includes five different tax brackets which would require employers to pay between $225 and $15,000 in taxes on payroll for a taxable year.
Also included in the package is an increase in the corporate income tax rate from 4% to 7% and the personal income tax to 4.99%. Additionally, it eliminates the unitary business non-combination rule and decouples from the domestic production activities deduction. It also redefines the graphic arts production and the manufacturing machinery and equipment exemption. Finally, the package closes the loophole that allows private individuals/entities to bring lawsuits as realtors in instances where they believe a fraud of some kind has occurred. Income tax is exempt from the False Claims Act. Through an oversight, sales tax is not. As a result, Illinois businesses are facing inventive lawsuits from one particular contingency fee attorney who alleges the improper collection of sales tax on shipping/delivery charges even though the businesses are following the laws, regulations,and guidance of the state and the Illinois Department of Revenue.
It is important to understand that the package is a living document and is completely fluid as leaders, lawmakers and advocates continue to negotiate. In its current form, it is a Senate effort. The process will ultimately need to include the House and Governor Bruce Rauner. As always, IRMA has worked and will continue to work with all sides in reaching a compromise that addresses the problems the state faces while including reforms employers believe are needed to deliver the restraint that will lead to long-term stability.
STATE OF THE STATE ADDRESS
Illinois Governor Bruce Rauner delivered an optimistic State of the State address on Wednesday. He acknowledged that although change has not come as quickly as he hoped, Senate lawmakers were starting to come together in negotiating a solution to the impasse. The Governor pleaded with and encouraged the lawmakers to continue to discuss and negotiate.During the address, the Governor touched upon his administration’s accomplishments in his first year in office which included education funding, government efficiency, creating jobs and strengthening ethical standards. He noted that Illinois schools are receiving $700 million more per year from the state than two years ago, including an extra $100 million for early childhood education. He highlighted saving taxpayer’s money by solidifying 20 contracts with unions that included overtime after 40 hours rather than 37.5 hours; updating state application processes for professional licenses that reduced processing times by 70%; reducing local government bureaucracy; reducing the juvenile justice prison population by 49%; and saving jobs in the Quad cities by passing a comprehensive energy bill.Although the Governor spent the bulk of his speech recounting accomplishments, he acknowledged “significant challenges” still facing the state, including not having a permanent budget for nearly two fiscal years, an $11 billion backlog of unpaid bills that grows by the day and a $130 billion pension debt. He once again highlighted his belief that years of taxing, borrowing, and spending has caused employers to leave or hesitant to locate in Illinois. The only way to reverse this trend included a combination of systematic changes with pro-growth initiatives. During this part of the address, he went off-script to encourage the Senate to continue its push for a budget compromise and thanked them for their efforts.He also addressed the violence problem in Chicago and while he believes a temporary solution includes more law enforcement presence he contends the only viable long term solution for violence is creating jobs for Chicago residents. The Governor noted that in order to improve the quality of life for all residents, Illinois needs to increase the economic opportunity for all individuals. This requires excellent education and vocational training combined with multiple career opportunities made available by companies competing to hire workers.As is always the case, immediately after the State of the State, Democratic leaders addressed the media to provide a rebuttal. House Deputy Majority Leader Lou Lang said House Democrats would push an economic plan that cuts corporate income taxes while insuring all businesses pay some taxes. It would also include raising the minimum wage and ensuring other “protections for middle class families”. Finally, the House Democrat plan included House Speaker Michael Madigan’s idea of a surcharge tax on incomes over $1 million.<
STATE EMPLOYEES PAY
Despite the absence of a state budget, since mid-2015 state employees have been receiving regular pay checks under a court order. Late Thursday afternoon, Illinois Attorney General Lisa Madigan announced her office had filed a motion seeking to reverse the court order by February 28th. Should the court grant the motion, state employees would no longer be paid after February 28th. Unless state employees choose to work without pay that would lead, essentially, to a government shut-down. This could become a major catalyst for the Senate’s efforts to reach a compromise. Overlaying all of this is the fact that the American Federation of State, County, and Municipal Employees (AFSCME), the union representing the largest segment of state employees, has been in a contentious contract negotiation with the Rauner Administration. The process has largely not gone AFSCME’s way and they are holding a strike authorization vote next week. If successful, this would give the union leadership the authority to call a strike. Interestingly, if an employee goes out on strike, they are not eligible for unemployment insurance benefits. If an employee is not paid for at least ten days past the last due date, they can decline to work and would receive unemployment insurance benefits. Lots of moving parts to the Attorney General’s action if successful.