This Week In Springfield witnessed record-breaking attendance at Business Day 2015 and a noteworthy, but not unexpected, ruling by the Illinois Supreme Court.
BUSINESS DAY 2015 SETS RECORD
Business Day 2015 drew its largest crowd yet of employers as over 400 employers came to Springfield to meet with legislators and tell share with them the challenges and rewards of owning a business in this state. At a time when the Assembly is looking to cut budgets, increase revenue and restructure pensions, employers are concerned about how all of it will affect the success of their businesses and their workforce.
The event actually started Tuesday night with a combined dinner of IRMA and IMA’s respective Boards of Directors. Governor Bruce Rauner stopped in to mix with the crowd and welcome them to Springfield. The Governor echoed his consistent theme that he is focused on achieving structural reforms (e.g. tort, workers’ compensation, property tax, etc.) prior to any discussion of new tax revenues.
Wednesday’s event began with a luncheon where a standing-room-only crowd heard directly from two people who are heavily involved in determining the outcome of budget discussions, Senate President John Cullerton (D-Chicago) and House Republican Leader Jim Durkin (R-Burr Ridge). After hearing about Illinois’ current financial condition and diametrically opposing viewpoints for how to address that financial condition, the crowd had the added bonus of hearing from Congressman Adam Kinzinger (R-16th District) as he was home to tend to the matters of his district.
Sen. Cullerton focused his remarks on the importance of passing a state budget and criticized the Governor’s proposed budget as being substantially out-of-balance particularly as it relates to his proposed pension reforms. While the Governor has set up a series of working groups to discuss various aspects of the budget, he has not yet said what he will cut, and what revenue, if any, he will raise. The Senate President believes the state’s budget problems cannot be fixed by cuts but will require additional revenues. To that end, Sen. Cullerton addressed the state’s income tax stating that Illinois’ rates were favorable when compared to the income tax structures of neighboring states, even those of Indiana and Wisconsin, both states with Republican Governors. According to the Senate President, Illinois would have an additional $5 billion in revenue if we had Indiana’s income tax structure and an additional $10 billion if we had Wisconsin’s. As the May 31st deadline looms closer, it is clear that both sides are still very far from agreement and while these issues can be considered beyond that date, it will take a super-majority to pass any initiative beyond the deadline. President Cullerton noted that the Senate Democrats would not pass a budget all on their own – that significant votes from Republican legislators would be required. The final solution, according to Sen. Cullerton, would need to be bipartisan and would, ultimately, need to raise revenue.
Illinois House Minority Leader Jim Durkin urged business to keep their faith in the State and General Assembly. He thanked the employers present for remaining in Illinois and keeping the residents of Illinois’ employed while facing high costs and cumbersome regulations. Despite the combative tone being set at the Capitol, Leader Durkin expressed optimism in the Governor and the ability to reach a bi-partisan consensus on the budget negotiations. Although the State’s revenue is projected to be the same as in 2011, Durkin made it clear that raising taxes is not a viable solution and stated that Republicans are trying to repair 12 years of Democratic mismanagement. He explained that history has shown a tax increase has not worked by pointing to continued unemployment and $9 billion in unpaid bills despite an additional $31 billion in revenue. He believes the General Assembly has an opportunity for the Assembly to truly balance the budget and this does not require a wholesale increase in taxes but a fundamental change in how the State spends revenue.
Subsequent to Leader Durkin’s presentation, Congressman Adam Kinzinger addressed attendees. He provided an overview of the environment in Washington D.C. and commented that the new Republican controlled House and Senate has accomplished more in the new term than the previous years combined. He stated the Illinois has advantages that other states do not have such as, infrastructure; transportation hubs that include airports, and river access; diverse industries that include manufacturing, agriculture, and a booming tech industry; one of the top cities in the nation; and a diverse population that is highly educated, skilled and motivated.
After lunch, over 400 employers made their way to the Capitol to touch base with their representatives to talk about the issues that are important to them and Illinois. During their visit to the Capitol, IRMA’s Board heard from Speaker of the House Michael J. Madigan who spoke about pension reform and the need for a bi-partisan solution to the state’s fiscal situation. He also stated that while he would listen to ideas on workers’ compensation reform, he believes the 2011 reforms were a significant step forward. Additionally, he noted there were not yet the votes in his caucus to pass minimum wage.
Senate Republican Leader Radogno stated that the Senate Republican Caucus is able and willing to make the tough votes that will be required as the price for once again being a part of the process as a result of the election of a Republican governor. Leader Radogno also noted that the financial needs of the City of Chicago will also play into the budget debates that will soon ensue.
Finally, Senator Cullerton welcomed the IRMA Board to his offices for more intimate discussions where he reiterated the need for additional revenues to meet the service needs of Illinois.
The day concluded with the not-to-be-missed Party Under the Tent where expectations were once again exceeded and attendees and policy makers had the opportunity to mingle in a relaxed and fun atmosphere.
IRMA would like to thank the following Co-Hosts, Sponsors, and Reception Caterers for their generous support. Without their participation, Business Day would not be the success that it has become.
ILLINOIS PENSION REFORM UNANIMOUSLY RULED UNCONSTITUTIONAL
Efforts to address the financial situations of both the state and City of Chicago hit a significant but not unexpected speed bump Friday morning when the Illinois Supreme Court (“Court”), in Heaton vs. Quinn, unanimously struck down Public Act 98-599 that sought to address Illinois’ pension crisis. The seven justices unanimously declared the law violates the state constitution because it would leave pension contracts “diminished or impaired.” This ruling was predictable after the Illinois Supreme Court struck down an attempt in Kaverva vs. Weems to force government retirees to pay more for their subsidized state health insurance. Although the case only focused on retiree healthcare subsidies, the opinion made it clear that any changes to pension benefits will face a tough time passing constitutional review.
Similar to Kanerva vs. Weems, three issues were presented for their review: (1) does a reduction of retirement annuity benefits owed to members of retirement systems violate the pension protection clause; (2) if so, can the law’s reduction of those benefits nevertheless be upheld as a proper exercise of the State’s police power; and (3) if not, are the invalid provisions severable from the remainder of the statute?
As to the first issue regarding reducing benefits, the Court clearly stated that there is no wiggle room to the clause that provides that “[m]embership in any pension or retirement system of the State shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” Specifically, they stated:
“…the new legislation directly reduces the value of retirement annuities for those members in no fewer than five different ways. While we presume statutes to be constitutional and must construe enactments by the legislature so as to uphold their validity whenever it is reasonably proper to do so there is simply no way that the annuity reduction provisions in Public Act 98-599 can be reconciled with the rights and protections established by the people of Illinois when they ratified the Illinois Constitution of 1970 and its pension protection clause. Those provisions contravene the clear requirements of article XIII, section 5, as set forth in the provision’s plain and unambiguous language and construed by the legion of cases we have just discussed. In enacting the provisions, the General Assembly overstepped the scope of its legislative power.”
After the Court decided that Public Act 98-599 improperly impaired and diminished pension benefits, it took aim at the State’s argument that the reduction in retirement annuity benefits under Public Act 98-599 is a valid exercise of police power because it is necessary and reasonable to secure the State’s fiscal health and the well-being of its citizens. It pointed out that the circumstances presented by this case are not unique as economic conditions are cyclical and expected, and fiscal difficulties have confronted the State before. In the midst of previous downturns, the State has attempted to reduce or eliminate expenditures protected by the Illinois Constitution. Whenever those efforts have been challenged in court, the Court has clearly and consistently found them to be improper. The Court stated:
Throughout the past century, market forces have periodically placed significant pressures on public pension systems. The repercussions of underfunding those pension systems in such an environment have been well-documented and were well-known when the General Assembly enacted the provisions of the Pension Code which Public Act 98-599 now seeks to change. The General Assembly had available to it all the information it needed to estimate the long-term costs of those provisions, including the costs of annual annuity increases, and the provisions have operated as designed. The General Assembly understood that the provisions would be subject to the pension protection clause. In addition, the law was clear that the promised benefits would therefore have to be paid, and that the responsibility for providing the State’s share of the necessary funding fell squarely on the legislature’s shoulders. Accordingly, the funding problems which developed were entirely foreseeable. The General Assembly may find itself in crisis, but it is a crisis for which the General Assembly itself is largely responsible.
The court reasoned that to allow such authority on the legislature through judicial fiat would require the Court to ignore the plain language of the constitution. Accepting the State’s position that reducing retirement benefits is justified by economic circumstances would require the Court allow the legislature to do the very thing the pension protection clause was designed to prevent it from doing.
The Court summarily rejected the severability issue. The Court argued that the reduction provisions in Public Act 98-599 are the very reason for its construction. Without the reduction provisions, the legislature would not have enacted the legislation. The Court reasoned that it would make no sense to allow the legislation to stand once the very heart of the language was stripped away along with the legislature’s intent.
This leaves very few options for Governor Rauner the General Assembly, and the City of Chicago as they seek to address both the state and city’s substantial pension obligations. Realistically, many believe severe cuts to services, raising taxes significantly, amending the Illinois Constitution, or a combination of all these are the only options available. As we have seen this last week, House Democrats are reluctant to vote for additional cuts to human services and Governor Rauner has stated that no additional revenue will be considered until his “Turnaround Agenda” is considered. This leaves Illinois in a precarious predicament with no clear path in sight.
In a surprise move Wednesday afternoon Speaker Madigan introduced and moved to the floor for immediate consideration legislation containing Governor Rauner’s budget for human services and other programs that would cut close to $2 billion in Medicaid and other social services for Fiscal Year 2016. Additionally, sixteen amendments were offered restoring the cuts to certain human service programs while remaining under the target revenue estimate of $32 billion for FY 2016.
As a way of signaling their displeasure with the lack of notice and reflect their contention that the process was not authentic, the House Republicans all voted ‘present’ on the proposals. Conversely, the Democrats voted ‘no’ on the Governor’s proposal and ‘yes’ on the restoration amendments thereby signaling to the Rauner Administration that they are not prepared to make these cuts.
This action by the House Democrats establishes negotiation markers as budget discussions begin in earnest.
This week, the House met as a Committee of the Whole to discuss the current state of Illinois’ Workers Compensation system. With Illinois having one of the most expensive workers compensation systems in the nation, changes were made to provide some relief to the employer community in 2011. While the relief provided in 2011 was important and a significant step forward, it was also emphasized to be a starting point by the employer community. Prior to the 2011 reforms, Illinois had the third most expensive workers’ compensation system in the country and only fell to seventh upon implementation of the reforms. Governor Rauner has made addressing the causation standard one of the cornerstones of his tenure and expects that such reforms will be made as part of a larger budget package. In addition, he has tied any discussion of raising revenue to these types of changes.
During the Committee of the Whole, the House heard from witnesses that had been hurt on the job, employers and members of the medical community. A series of nine panels of guests were invited with seven of the nine featuring workers from Illinois and Indiana who had been hurt on the job. The workers and their attorneys cautioned against using Indiana as a model for workers compensation reform alleging that they could never be fully compensated for the injuries they sustained under a system that, according to them, was unfair to employees. The business community, represented by the Illinois Manufacturers’ Association, noted that although much of the day’s testimony centered on whether employees were fairly compensated for their losses, no one was talking about reducing employee benefits and the goal of employers was to achieve savings in other areas of workers compensation. Namely, savings could accrue from attacking fraud in the system, reducing fees to medical providers, and strengthening the use of American Medical Association standards to gauge impairment.
No votes were taken during the committee as no bill was being considered and the purpose of the meeting was to hear from affected parties in order to later determine whether more reform is actually needed and what reform can be achieved. IRMA expects more discussion to come.
TORT REFORM & RIGHT TO WORK
Friday afternoon, Speaker of the House Michael J. Madigan announced a Committee of the Whole to explore the topic of tort reform. Reforms to Illinois’ tort system are one of the oft-mentioned priorities of the Rauner Administration. This Committee of the Whole will convene at noon on Tuesday, May 12th.
Additionally, the Speaker announced his intent to put before the House for a vote Right to Work legislation. TWIS readers will recall that Governor Rauner’s Turnaround Agenda prominently features the creation of ‘empowerment zones’. These zones would allow local units of government that choose to do so to become right to work zones. The Turnaround Agenda also envisions eliminating ‘fair share’ requirements for state employees. Fair share requires employees who work in a unionized work setting but are not members of the union to pay fees from the paychecks for the portion of the union’s efforts that benefit those employees.