IN THIS ISSUE:
GOVERNOR PRITZKER DELIVERS BUDGET ADDRESS
On Wednesday at Noon, Governor JB Pritzker delivered his first Budget Address in which he laid out his priorities for the Illinois Fiscal Year 2020 budget. While claiming ‘austerity’, there was nothing austere about it as there is plenty of new spending was proposed.
The Administration is assuming a General Revenue Funds (GRF) budget of $38.75 billion on GRF revenues of $38.9 billion. If all sources are included (e.g. Federal funds) the size of the proposed budget is $77 billion. The GRF proposal is a 4% increase over the current fiscal year budget.
New spending totaling at least $4.6 billion is proposed for early childhood programs ($140.8 million), K-12 education ($382.25 million), higher education ($161.4 million), health and human service programs ($437.85 million), criminal justice reforms ($10 million), public safety ($108.8) and infrastructure ($3.37 billion).
Governor Pritzker proposed over $1.1 billion in new revenues and claimed that if these revenues were not approved GRF spending would have to be cut 4% excluding employee healthcare, pensions, and debt service costs. The proposed revenue increases include:
- Capping the Retail Discount/Vendor Collection Allowance at $1,000. This is a significant hit to retailers and shifts even more of the cost of administering the sales tax on behalf of state and local government onto the backs of retailers. ($70 million estimated)
- Taxing e-cigarettes at 36% ($10 million estimated)
- Increasing the cigarette tax by $0.32 per pack/$3.20 per carton ($55 million estimated). This would push Illinois’s cigarette tax to $2.30 per pack/$23.00 per carton, the City of Chicago’s to $3.48/$34.80 per carton, and Cook County’s to $5.30 per pack/$53.00 per carton. The chart below highlights how Illinois, Cook County, and the city of Chicago would compare on a per pack basis. To calculate the per carton cost, simply multiply by ten.
Imposing a plastic bag tax. At this writing, it is unclear if this would add to Chicago’s plastic bag tax of $0.07 or Chicago would be exempt. If it does not contain an allowance for retailers, it would be the first bag tax of its kind to ignore the extra costs imposed on retailers. ($20 million estimated)
- Placing an assessment on Managed Care Organizations ($390 million estimated).
- Creating a progressive tax structure for video gaming ($89 million estimated).
- Decouple from the Federal Tax Credit for Repatriated Corporate Income ($94 million estimated).
- Enacting sports wagering ($212 million estimated).
- Enacting recreational cannabis ($170 million estimated).
- Tax amnesty ($175 million estimated)
On the pension front, the most serious financial crisis confronting Illinois, the Governor proposed extending the current ramp by an additional seven year, to 2052, thereby avoiding an $878 billion pension payment. Additionally, the proposal includes an additional $2 billion in new pension bonds as well as extending the current buyout program.
In terms of infrastructure, the Governor is proposing over $2 billion including a pay-as-you-go program for roads.
This begins the budget discussions in earnest expected to result in a budget on or before May 31st. At this writing, the budget may be balanced but does not address the bill backlog.
GOVERNOR SIGNS $15
Tuesday, Governor Pritzker signed SB 1 (Sen. Kimberly Lightford, D- Westchester/Rep. Will Guzzardi, D- Chicago) into law as Public Act 101-001 setting Illinois on a rapid rise to a $15 starting wage. Here are the details:
|18 years and older||Under 18 years of age*|
Tax credit: First, it is important to note that unless the language of the new law is changes, NO ONE qualifies for the tax credit. That is because as it was enacted, an employee has to work 90-consecutive days. Even if that is repaired before January 1, 2020, the following employer are NOT considered eligible for the tax credit:
- Any employer with more than 50 full-time equivalent employees in their entire operation is not eligible. Many employers including call and IT centers, a restaurant, grocery store, movie theater or other entertainment option, dry cleaner, etc. can easily have more than 50 at a single location. They would not be eligible for the tax credit.
- Any employer who has more than one franchised store or files taxes as part of a unitary group is not eligible. This demonstrates a fundamental lack of understanding between a franchisee and a franchisor.
- Any employer who pays more than the minimum wage at the time is not eligible. For example, if an employee is currently paid $9.50 per hour, and the wage increases January 1, 2020 from $8.25 to $9.25, that employer is not eligible.
- Any employer whose average wage is less in the current quarter vs the quarter the year before is not eligible. If an employer has to lay people off, close a store, or reduce hours, he/she would not be eligible for the credit.
- An employer cannot claim credit for more employees than the number of employees making less than the minimum or reduced wage for the current calendar year during the last reporting period of the preceding year. If an employer employees 100 people and 10 were making less than the minimum or reduced wage (i.e. teens) during the last reporting period of the preceding year (October – December), then the employer can only claim the credit for 10 employees.
- The effort to really help small employers by extending the credit an extra two years helps almost no one. IDOR is claiming 48% of all employers have fewer than 5 employees. In fact, that includes employers who work for themselves and are the only employee. They account for nearly 80% of all employers with fewer than 5 employees. IDES reports that in the City of Chicago 6.6% of all employers fit this category. When reduced by 80%, only 1.4% of all small employers would be eligible for the credit.
If an employer somehow manages to escape all of those disqualifications, then the following credit applies to employers with 50 or fewer employees:
- Credit against withholding payments beginning on or after January 1, 2020 and ending on or before December 31, 2027.
- The credit cannot exceed employer’s payroll withholding for that period.
- Maximum credit allowed for reporting periods beginning on or after and ending on or before the following dates:
- January 1, 2020 – December 31, 2020 = 25%
- January 1, 2021 – December 31, 2021 = 21%
- January 1, 2022 – December 31, 2022 = 17%
- January 1, 2023 – December 31, 2023 = 13%
- January 1, 2024 – December 31, 2024 = 9%
- January 1, 2025 – December 31, 2025 = 5%
For employers with more 5 employees, these credits can continue to be claimed for reporting periods beginning on or after January 1, 2026 and ending on or before December 31, 2026.
For employers with fewer than 5 employees, these credits can continue to be claimed for reporting periods beginning or after January 1, 2026 and ending on or before December 31, 2027.
Tip credit remains at 60%/40%; training wage remains at $0.50 per hour lower than starting wage for first 90-days of employment; and penalties are increased substantially for wage-theft.
PAY HISTORY COMPROMISE IGNORED
For a third straight year compromise has been ignored and HB 834 (Rep. Anna Moeller, D-Elgin) or the “Pay History” legislation passed the committee stage on a partisan roll call.
Two years ago, IRMA stated it would support a proposal prohibiting an employer from asking an employee about previous wage, salary, and other compensation. We proposed the model that was adopted in Massachusetts and supported by the advocates in partnership with the Massachusetts business community. Since that time, Delaware, Oregon, and Puerto Rico have also adopted the Massachusetts model. Last year, IRMA stated it would support the legislation if it would just prohibit the question. Unfortunately, political considerations governed last year and a different proposal was passed which then-Governor Rauner vetoed. With those considerations behind us, and the stated desire of everyone to seek compromise this year, the opportunity for compromise is once again before the General Assembly. Unfortunately, as it sits before you, HB 834 does not contain either avenue for compromise.
While HB 834 prohibits an employer from asking an employee about previous wage, salary and other compensation, it also unjustifiably erodes the current statutory defenses for Illinois employers while expanding the statutory penalties. The facts do not justify this approach.
According to Illinois Department of Labor statistics (“DOL”), in the past 13 years (excluding 2010 and 2011 where there is no available data), under the current limited defenses and exorbitant penalties, there have been only 51 recorded violations of the Equal Pay Act. In that same time period, approximately 707 investigations were conducted by DOL. Less than 7.5% of all claims in the last 13 years have resulted in a violation. Moreover, according to the U.S. Small Business Administration there are over 1.2 million businesses in Illinois. Assuming that a different company was responsible for each violation only .0000425% of Illinois businesses have been responsible for an Equal Pay Act violation in 13 years. This is a 99.9999575% compliance rate.
The reason is found in the fact that unlike other states, Illinois employers only have four defenses to an unequal wage claim. Those four defenses are: (1) seniority system; (2) merit system; (3) a system that measures earnings by quantity or quality of production; and (4) a differential based on a business necessity that does not include sex or race. If an Illinois employer is found in violation of an equal pay claim, the employer is liable for damages under no less than seven state and federal statutes. Unlike most states, Illinois does not prohibit a claimant from ‘double-dipping’ in state and federal court. These statutes include the: (1) Illinois Equal Pay Act of 2003, (2) Illinois Humans Rights Act, (3) Illinois Wages of Women and Minors Act, (4) Illinois Equal Wage Act, (5) U.S. Equal Pay Act of 1963, (6) Title VII of the U.S. Civil Rights Act of 1964, and most recently (7) the Lily Ledbetter Fair Pay Act of 2009.
Given the facts noted above, it is safe to conclude that the current state and federal statutory penalty scheme has served as a more than sufficient deterrent to pay discrimination.
Since the facts do not support the need for the extreme measures proposed in HB 834, IRMA remains opposed to arbitrarily restricting Illinois’ employer’s current limited defenses and increasing current statutory penalties. IRMA does, however, stand behind its pledge to support legislation to prohibit an employer from asking about previous wage, salary, or other compensation.
For these reasons, IRMA stands opposed to HB 834 but stands ready to support HB 834 if genuine, fact-driven compromise is desired.