In This Issue:
The General Assembly convened this week and much of the attention centered on Governor Rauner’s State of the State address. After he delivered his speech, which included an outline to increase the minimum wage, the Senate passed their own minimum wage increase.
STATE OF THE STATE
This week, Gov. Rauner delivered his first State of the State address to the General Assembly. The much anticipated speech laid out the issues that Gov. Rauner wants to tackle during his term. He will focus on growing the economy and attracting jobs, ensuring that children in all income levels receive a quality education, reform the way taxes are used and structured, and change the way government operates and interacts with citizens. But he cautioned listeners that returning Illinois to its rightful place as one of the best places to live and work in the country is a long-term goal. Gov. Rauner stated that his focus will not be on the next election, but on doing what’s best for the state. Citing competitiveness as his watchword and opportunity and compassion as his goals, Gov. Rauner laid out a tough and ambitious agenda.
Of particular interest to the retail community, he laid out a specific plan for the minimum wage by supporting an increase of 25 cents per year for the next 7 years. He tied his support for a minimum wage increase to reforms in the workers’ compensation and unemployment insurance systems.
As he did during the campaign, the Governor will make Worker’s Compensation reform a priority. He claimed Attorney General Lisa Madigan as an ally based on her past expressions of support for addressing how causation is interpreted. Additionally, he also expressed a desire to make the unemployment insurance system work better for both employers and employees. It remains to be seen how potential reforms to the unemployment system will be addressed. The system is currently under an ‘agreed bill’ process which was negotiated by representatives of employers and labor. The current agreement has returned Illinois Unemployment Insurance Trust Fund to solvency ahead of schedule. However, it also contains ‘speed bumps’ (aka benefit cuts for laid off workers and tax increases for employers). These ‘speed bumps’ are designed to force both parties back to the negotiating table to review the agreement and ensure it is having its desired effect. These speed bumps must be addressed this year or the aforementioned benefit cuts and tax increases will take effect.
Governor Rauner put a good deal of emphasis on education reform – a topic that is near and dear to his heart and a subject area in which he has long been involved. In order to have a highly trained and educated workforce, his administration will focus on ensuring that each child in Illinois has access to a quality education form an early age. Since not every child will want or have the means to attend a four-year university, Gov. Rauner stressed that community colleges should be better equipped with technical and vocational training so that everyone has a real shot at the middle-class. Gov. Rauner mentioned that he wanted to eliminate unnecessary testing so that teachers have more time to teach, and he wants to create incentives to attract the best and brightest teachers to Illinois.
As part of the reforms he wants to achieve, the Governor suggested giving local citizens greater power over the collective bargaining processes of their local governments and school districts including the right to create by referendum local empowerment zones. As described by the Governor, employees in these zones would have the right to decide whether or not to join a union. Additionally, the Governor stated that Lt. Gov. Evelyn Sanguinetti would be directly involved in finding ways to consolidate government and rid itself of unfunded mandates.
During his speech, the Governor made passing reference to the need to reform ‘our out-of-date tax code’ pointing out that the ‘base it too narrow, and that makes us uncompetitive.’ While the speech itself contained no other details, his staff distributed additional details after the speech. As it relates to taxes, those details included:
- Modernizing the sales tax to include service taxes;
- Increasing the Earned Income Tax Credit;
- Make income taxes low and competitive with other states;
- Restructure the motor fuel tax to appropriately invest in infrastructure.
Governor Rauner has laid out an ambitious plan for the state. As always, IRMA will engage with all parties in the days to come on those issues of interest to retail. Everyone now awaits the Governor’s budget address on February 18th.
The first bill heard in the Senate Executive Committee of the 99th General Assembly was a proposal by Sen. Kimberly Lightford (D-Westchester) to increase the minimum wage. Sen. Lightford, who has been the champion for this issue, introduced a bill that addresses minimum wage in light of recent changes in Chicago and concerns about how a mandated increase would affect small businesses. SB 11 proposes to raise the current minimum wage from $8.25 to $11.00 over a four-year period – a 25% increase in employers largest or second largest expense item. In addition, it would preempt home rule units from imposing their own minimum wage with the exception of the recently enacted ordinance in the City of Chicago. In the case of Chicago, they would be allowed to increase their minimum wage to the $13 per hour called for in their ordinance but would be preempted from raising it beyond $13. Lastly, in recognition of the fact an increase would have negative financial implications on employers, this proposal would establish a limited tax credit for businesses with 50 employees or less. This is a significant development as it is an admission that minimum wage increases negatively impact employers and discourage employment – something the proponents have long denied.
IRMA President & CEO Rob Karr testified in opposition noting that no employer can afford a 25% increase in costs as no employer, certainly in the retail space, is experiencing sales and profit increases of 25%. Moreover, these increases are just on labor and do not include or take into account the ever-increasing costs of inputs, property taxes, etc. IRMA noted that the day before a noted and popular bookstore in San Francisco, CA, whose owner was among the leading advocates when San Francisco enacted their minimum wage which currently stands at $11.05, is closing this year citing the unsustainable minimum wage.
SB 11 does nothing to change the economic perception of Illinois. It does nothing to create jobs and grow the economy – something every economist agrees is the only prescription for significantly lowering unemployment and raising wages. Further, it continues to economically disenfranchise young workers who are experiencing unemployment over 50% in Illinois and over 90% in large portions of the City of Chicago.
After a short debate, the measure passed out of committee on a party-line vote of 11-5-0 and was sent to the Senate floor for additional consideration. Wednesday, Senate Bill 11 passed the full Senate by a vote of 36-18-0.
POTENTIAL INFRASTRUCTURE TAX?
The Transportation for Illinois Coalition (TFIC), a coalition co-chaired by the Illinois Chamber of Commerce and the Illinois AFL-CIO, has been trying for several years to garner support for additional taxes to fund a new capital infrastructure campaign. The State’s largest infrastructure program in history of $30 billion expired two years ago and was plugged last year by a $1.1 billion program.
The coalition is trying to raise at least $1.8 billion in annual revenues – $1.5 billion would be used for a Pay-As-You-Go (PAYGo) program and another $300 million to finance $3 billion in bonds.
Presently, the TFIC is laying out four funding scenarios. TWIS readers can view those scenarios here. The current centerpieces of their tax proposals are:
- Increase the Motor Fuel Tax by 13-cents. This would give Illinois the fourth highest state imposed motor fuel tax in the nation. (estimated to raise $780 million)
- Increase the state sales tax by .1%. (estimated to raise $154-$198 million)
- Double the sales tax on food from the current 1% to 2%. (estimated to raise $329 million)
Other proposed revenue sources to be paired with one or more of the above include increases in vehicle registrations, certificates of titles, driver’s licenses, and various fund transfers.
It is important to note that Governor Rauner’s administration, via Capitol Fax, a highly-read political blog focused on Illinois government and politics, is denying any connection stating: “The administration has not launched behind-the-scenes talks with legislators to raise the gas tax, or any other taxes or fees to fund a capital program. What’s being circulated by some advocacy groups is not the governor’s plan and does not have his blessing.”
IRMA will continue to monitor the discussion.
Last year, an IRMA initiative to return fairness to the refunding of sales tax on bad debt passed both chamber of the Assembly unanimously. Former Governor Pat Quinn decided to use the bill as a vehicle for meaningless political posturing in literally his final moments in office effectively killing the bill. The initiative has been reintroduced in the form of HB 498 (Rep. Anthony DeLuca, D- Chicago Heights) and has already attracted 13 co-sponsors. The proposal has no known opponents. As a refresher, if a consumer does not pay for the merchandise they purchase on credit, and efforts to collect fail, a bad debt is declared and sales tax is refunded to the retailer. This happens because in the eyes of the law, a sale is deemed not to have occurred.
Several years ago, the Illinois Department of Revenue (IDOR) issued a controversial opinion that this did not apply to private label credit cards (PLCC’S). PLCC’s are cards emblazoned with the logo of a store and can only be used at that store unlike multipurpose cards (e.g. cards that may carry a logo but can be used anywhere) or general use cards (e.g. VISA, MasterCard, etc.). Over the course of last year, IRMA worked with IDOR to address their procedural concerns to ensure proper documentation would be available and lines of accountability would be clear.