IN THIS ISSUE:
STATE BUDGET & REFORMS
As reported in TWIS in early January, Senate President John Cullerton (D- Chicago), Senate Republican Leader Christine Radogno (R- Lemont) and some members of their respective leadership teams, have been attempting to craft a bi-partisan budgetary framework with the goal of trying to end the nearly two-year old budget impasse. Every day that passes, Illinois adds at least another $11 million in debt. If nothing is done by the end of 2018, the deficit would exceed $20 billion. IRMA and one other business group have been in constant communication with the leaders and their top staff. The engagement is designed to ensure that whatever is ultimately put forth truly solves the decades-old fiscal problems of the state and provides stability going forward while providing the reforms necessary to ensure employers of all sizes can prosper in Illinois. From the perspective of IRMA members, reforms must include restraint of local governments’ ability to continue to layer on seemingly endless and costly mandates in addition to never-ending tax and fee increases. Without this restraint, local governments can easily undo any positive action that may come out of Springfield.
To date, the leaders have been unable to reach a final agreement on the most critical components – revenues and reforms. In particular, of the reforms retail is seeking, none of which impose costs on state or local governments, preemption of the ability of local governments to regulate labor is outstanding. The other reforms are closing a tax loophole, ending false claims lawsuits, and protecting the State’s Medicaid matching dollars. Additionally, worker’s compensation reform is not yet in a form that would generate sufficient savings. While the revenue components are constantly changing, it is important to note that some of the key proposals impact retail and the revenues do not benefit retail through tax credits or deductions. Hence the importance of the aforementioned reforms.
Despite the unresolved issues, the Senate passed three components of the framework – government consolidation, procurement reform, and allowing local governments to assign or otherwise transfer tax receipts. A pension reform bill based on the “consideration model” (i.e. the state must offer something in consideration for reduced benefits) failed to pass in the face of significant union opposition. On all of the bills Republicans voted ‘no’ or ‘present’ citing the fact that these are part of a package and the package is not complete.
Discussions in the Senate continue so we can expect changes. For example, under the initial proposal which was eventually dropped, Illinois would have become the first state to tax sugar sweetened beverages. Despite the extraordinarily negative reaction the recently enacted ordinance in Philadelphia is receiving, proponents continue to try and push that proposal here.
TWIS readers must also remember that these discussions are occurring in the Senate. The House is co-equal chamber and must eventually be included as well as Governor Bruce Rauner. One thing is for certain: the longer a solution is put-off, the harder and more expensive the solution will be.
The first year of every General Assembly produces a greater amount of legislation that contains new ideas, recycled ideas and campaign promises. This year is no exception and the filed legislation reflects the demarcation line that has clearly been drawn as a result of national and state politics. Due to the expansive scope of retail, a great many of the introduced bills impact retail in some form or fashion. As of this writing the following are a sample of bills that present a greater concern for Illinois retailers and their communities.
Retail Theft Threshold—HB 3337 (Rep. Elgie Sims, D-Chicago) raises the retail theft threshold from $300 to $2000. It would also require a person to have been convicted of a previous felony and steal more than $2000 to be convicted of felony for retail theft. As such, if a person had no previous felony on their record they could steal $1,999 worth of goods repeatedly and only be convicted of a misdemeanor. Chicago alone accounts for more theft related crimes than 20 individual states and Illinois as whole ranks 7th in the nation for theft related crimes. The current state of theft in Illinois has resulted in a minimum of $2 billion in lost goods and $125 million in lost sales tax revenue a year. In a time when the FBI Uniform Crime Statistics show that shoplifting has increased 16.8 percent in the last five years while the value of items stolen increased 30 percent, Illinois and local communities cannot afford a criminal open season on retail.
Minimum Wage Mandate—SB 1738 (Sen. Kim Lightford, D-Chicago) raises the minimum wage to $15 by 2022. Every year after, any increase will be tied to the Consumer Price Index for All Urban Consumers most recently published by the Bureau of Labor Statistics of the United States Department of Labor, or 2.5%, whichever is lower. The increase shall be rounded up to the nearest multiple of $.05. When the Seattle City Council passed its $15 minimum wage ordinance they required a non-partisan study to be completed by the University of Washington to determine the impact on workers’ wages as a result of the ordinance. The study was conducted a year later when the wage had only reached $11. The study concluded that despite a booming Seattle economy any benefits of the current $11 wage were offset by fewer hours worked and less overall low wage employment.
Dark Store Tax Assessment—SB 1791, SB 1972, SB 1973 and SB 1974 (Sen. Steve Stadelman, D-Rockford). Local property assessors have been attempting to pass legislation that would narrow the options of evaluating retail space for tax assessment purposes. This prohibits the ability of fair appraisal and assessment of retail property and infringes on the rights of property owners who include legal deed restrictions on the sale of their property. State legislation that undermines uniform standards of traditional appraisal practices make it difficult for businesses to seek relief when their property is valued by the assessor greater than its market value. One such proposal commonly known as ‘Dark stores’ legislation attempts to circumvent the appraisal of real estate by removing an aspect of market conditions which drives the changing valuations of commercial properties. Such legislation deviates from industry standards for how property values should be determined in order to increase property tax assessment. Dark stores legislation penalizes property owners by limiting their appeal options. Removing a sales comparison approach, or arbitrarily limiting what is a comparable, is counter to appraisal principles. Additionally this type of legislation presents constitutional issues because Illinois law requires the use of fair cash value when assessing property.
Retailer Protected Tax Info Disclosure Mandate—HB 2717 (Rep. Chris Welch, D-Chicago) would allow municipalities to share private and protected business tax information with third party for profit auditors. IRMA opposes any attempt at requiring the Illinois Department of Revenue (IDOR) to disclose tax information of businesses located within municipalities directly to independent third-parties hired by such municipalities. Currently, home rule units of government and municipalities that impose their own sales tax, receive certain information from IDOR in order to receive those taxes. This information is protected by strict confidentiality agreements and requirements imposed by IDOR. IDOR is the administrator of Illinois tax policy including the distribution of taxes earmarked by law for municipalities. These distributions are made pursuant to formulas established in law. Allowing municipalities to employ for-profit third-party contingent-fee consultants to challenge these determinations would thwart the ability of IDOR to carry out this responsibility efficiently. Additionally, taxpayers subject to audit by IDOR receive protections and IDOR notifies taxpayers if they missed deductions, credits, refund claims, etc. Third-party contingency fee firms have no such incentive to protect taxpayers as that is counter to their business plan and how they get paid. Moreover, having an impartial government agency uniformly enforcing tax law ensures consistency of interpretation and application. Enabling private firms or individuals motivated by profit will lead to self-serving interpretations and applications costing employers unnecessary legal and accounting expenses to correct the claims of the contingency-fee firms. Contingency-fee audit arrangements are opposed by every reputable neutral policy entity including the American Institute of CPA’s, Council on State Taxation, Tax Executives Institute, National Conference of State Legislators, and 48 states. There is no reason local governments need access to this type of information. IDOR provides assistance to local governments, free of charge, to help them ensure they are receiving the correct tax.
Pharmacy Prescription Limits Mandate—HB 2392 (Rep. Mary Flowers, D-Chicago) would require (1) at least one registered pharmacy technician be on duty whenever the practice of pharmacy is conducted; (2) pharmacies fill no more than 10 prescriptions per hour; (3) 10 pharmacy technician hours per 100 prescriptions filled; (4) prohibits pharmacies from requiring pharmacists to participate in advertising or soliciting activities that may jeopardize patient health, safety, or welfare and any activities or external factors that interfere with the pharmacist’s ability to provide appropriate professional services; (5) a pharmacist shall receive specified break periods; (6) a pharmacy may not require a pharmacist to work during a break period, shall make available a break room meeting specified requirements, shall keep a complete and accurate record of the break periods and may not require a pharmacist to work more than 8 hours a workday; (7) provides whistleblower protections for an employee of a pharmacy if the pharmacy retaliates against the employee for certain actions; and (8) requires pharmacies to maintain a record of any errors in the receiving, filling, or dispensing of prescriptions.
Paid Sick Leave Mandate—HB 2771 (Rep. Christian Mitchell, D-Chicago) and SB 1296 (Sen. Toi Hutchinson, D-Chicago) would mandate employers provide 7 paid sick days to their employees. Each individual employer should be allowed to design and implement a leave policy that supports employees and employers alike. IRMA opposes a state-mandated leave policy on private employers. Studies have shown that a paid sick leave mandate could cost Illinois’ employers anywhere from $208-$589 million annually due to wages, benefits, and administrative costs. As a result of this burdensome mandate, employers will be forced to reduce other benefits, increase layoffs, and further restrict hiring. Studies of these enacted leave laws have found that nearly 30% of the lowest-wage employees reported layoffs or reduced hours at their place of work. In the same report, up to 20% of some industries reported reducing raises and bonuses and converting vacation to flex days. Also some industries reported that up to 25% of employers experienced reduced profits as a direct result of the mandated paid sick leave ordinance. Illinois’ employers and workers cannot afford a proposal that has forced businesses in other states to suspend hiring, increase layoffs, and reduce benefits.
Scheduling Mandate—HB 2364 (Rep. Elizabeth Hernandez, D-Cicero) provides that when an employee who is scheduled to work 3 or more hours reports for duty at the time set by the employer, and that employee is not provided with the expected hours of work, the employee shall be paid for at least 4 hours on such day at no less than the employee’s regular rate of compensation.
Government intervention in the scheduling of employees through a one-size-fits-all approach intrudes on the employer-employee relationship and creates unnecessary mandates on how a business should operate. Every retailer has unique business processes and needs and every employee has unique work preferences. Retailers need flexibility to adapt to changing conditions, and they do not need the government telling them how to do what they do best – run their businesses. The flexibility retail offers is one of the things that attract people to the industry. In fact, two-thirds of current retail employees have taken advantage of the unique scheduling flexibility of a job in retail to help them balance important priorities in their lives, such as going to school, working another job or raising a family. And 40 percent of retail workers say they have been at their job longer than they had anticipated because the scheduling flexibility suits their lifestyle and needs. Scheduling mandates would also have an impact on customer service – resulting in not enough employees being scheduled, longer wait times and less personal attention.
Compostable Bags Mandate—SB 1597 (Sen. Terry Link, D-Gurnee) prohibits a retailer from providing green or brown tinted bags to consumers unless it is biodegradable. The biodegradable bags they must be green or brown and shall be clearly labeled “COMPOSTABLE”, including language following the Federal Trade Commission’s “Green Guides”.
Consumer Bottle Tax Mandate—HB 3389 (Rep. Jehan Gordon-Booth, D-Peoria) creates the Beverage Container Deposit Act and would implement a 5 cent consumer tax on every bottle sold in the state. Illinois is largely a curbside recycling state. Certain items in the waste stream are profitable while others are not. This is what makes curbside recycling work. The profitability of certain categories of items can vary over time depending on market conditions. Curbside recycling works best when many different kinds of materials can be counted. Therefore, most items should not be set apart and designated for recycling by other means.
Non-Home Rule Sales Tax—HB 3187 (Rep. Charlie Meier, R-Higland) allows non-home rule municipality to increase their sales tax and removes a restriction requiring the taxes to be imposed in .25% increments.
Overtime Threshold Mandate—HB 2749 (Rep. Will Guzzardi, D-Chicago) would implement President Obama’s overhaul to the overtime rule required employers to pay time-and-a-half to their employees who worked more than 40 hours in a given week and earned less than $47,476 a year. The rule was prohibited by a federal court ruling.
Retailer Disclosure Mandate—HB 3057 (Rep. Robert Pritchard, R-Sycamore) requires retailers that have more than $100,000 in gross sales to Illinois purchasers in the previous year and do not collect the tax under the Act must do the following: (1) provide a notice to each Illinois purchaser that the tax under the Act is due on purchases that are not tax exempt and that the State requires the Illinois purchaser to file a return under the Act; (2) provide a notice to each Illinois purchaser who purchases more than $500 worth of goods in a year containing specific information about purchases that may result in Illinois use tax liability; and (3) file an annual report with the Department of Revenue showing the total amount paid for purchases by those Illinois purchasers during the preceding calendar year. Sets forth penalties for failure to submit those notices and reports. Provides that the term “Illinois purchaser” means a purchaser (i) with a billing address in this State or (ii) who makes a purchase for delivery to an address in this State.
BUSINESS DAY 2017
The State’s largest gathering of employers will occur Wednesday, April 26th. The annual event, co-hosted by IRMA and the IMA, brings together employers of all types and sizes from around the state to interact with policy makers. Given the challenges facing employers, such interaction has never been more important. Make your plans now to attend.