March 20, 2009

Quinn Budget Gouges Business Community; Tax Research Group Suggests Budget Would Severely Erode Illinois’ Business Tax Climate

Although his anti-business rhetoric is not as brazen as that of his predecessor, Governor Quinn rolled out a budget Wednesday that could have just as easily represented a page right out of Blagojevich’s playbook.  Quinn’s proposed budget, enacting a 50% increase in the state’s corporate income tax and seeking nearly $300 million in so-called corporate tax loophole closures, would effectively continue the trend started by Blagojevich of making Illinois a state unfriendly to business.

Overall, the tax code changes coupled with the income tax hike would cost Illinois businesses over $800 million.  This figure, however, grows even larger when considering the small businesses that file taxes under the individual income tax rate.

Quinn attempted to soften the blow of a proposed income tax increase by offering to carve out millions of lower income individuals and families from the state’s tax base.  Quinn, however, failed to offer any similar olive branch to Illinois businesses, suggesting instead that the business community fails to pay its fair share. 

This rhetoric runs counter to the sentiments of other governors in high unemployment states where, like Illinois, businesses are already struggling to survive in the lagging economy.  Governor Bev Perdue of North Carolina, for example, proposed small business tax relief and more economic development funding for small to medium-sized communities.  Governor Jon Corzine of New Jersey also reformed the state’s tax code to make it friendlier to businesses, including a provision that allows businesses to carry forward tax loss benefits up to 20 years.

The Tax Foundation in Washington D.C. was quick to point out that Quinn’s proposed budget would in fact place Illinois at a severe disadvantage for attracting and retaining business.  In addition to making Illinois’ corporate income tax rates the 4th highest in the nation (Wednesday’s Special Update misreported this as the 5th highest), a Tax Foundation analysis shows that Illinois would move from the top half to the bottom half of the nation in terms of “business-friendliness.”

Not only does the proposed increase in the state’s corporate income tax contribute to Illinois’ decline in business friendliness, but so do the proposed corporate tax loophole closures, many of which were resurrected from the Blagojevich years.  These proposed loophole closures, or “reforms” as portrayed by Quinn, include the elimination of the Manufacturers’ Purchasing Credit (MPC) and decoupling from crucial federal tax stimulus provisions, both under the 2004 law and the most recent stimulus package.

Governor Quinn’s proposed budget also targets new tax code changes that would further harm businesses, including limiting the credits a corporation can take to 50% of their tax owed and scaling the retailers’ discount back by 1% (from 1.75% to 0.75%). 

The Chamber maintains that the Governor’s budget completely fails to recognize the needs of the business community and the economic realities that surround our state and our nation.  His proposed operating budget not only does nothing to promote more job creation in the face of record-breaking state unemployment numbers, it would also increase the cost of doing business and creating more jobs in this state. 

For a full summary of the Governor’s proposed budget, please click here.

Chamber Tax Institute’s Take on the Budget

The Chamber’s Tax Institute provides a full rundown of the tax provisions included in the governor’s proposed budget in this week’s newsletter.  Click here to read the newsletter.

Governor’s Infrastructure Plan Not as Generous as it Sounds

At first glance, the Governor’s proposed capital budget appeared to offer an ambitious comprehensive plan totaling $26 billion over the next five years.  Upon further inspection, however, Quinn’s proposal only offers a paltry $4.5 billion for transportation thinned out over the next six years.

The decade-long absence of a state capital budget has left transportation needs in dire straights.  Over two years ago, the Transportation for Illinois Coalition (TFIC) estimated that the total cost to update the state’s transportation system, including making reasonable progress towards modernizing and expanding those systems hovered around $42 billion over the next five years.  Given the current levels of state investment, this means that the state would need to kick in an extra $23 billion to meet those needs.

TFIC claims that the absolute minimum amount needed to even make an adequate beginning effort towards meeting the state’s outstanding transportation infrastructure needs is $13.5 billion over the next five years.  The governor’s proposal offers only one-third of that minimum level and further extends the transportation infrastructure funding plan out to six years.

TFIC also notes that the governor’s proposal lacks any sound revenue source, merely suggesting that driver’s license, plate renewal, and other fees be increased to help support the capital program for roads and bridges.  Although the governor’s staff has suggested certain targeted fee increases, those proposed increases were left open-ended in his proposed budget. 

Furthermore, a portion of Quinn’s capital plan is built on the assumption that the General Assembly would 1) sign off on an income tax increase and 2) authorize the diversion of the local government’s share of these new revenues to go towards supporting capital projects.  Both are risky and controversial proposals that are not only drawing intense opposition, but would also blow a sizeable hole in the Quinn’s revenue assumptions for a new capital plan.

Click here for TFIC's analysis.

House Committee Takes Up Proposed State Cap and Trade Program

The House Executive Committee quickly adopted a Union of Concerned Scientists (USC) supported amendment to HB 3668 (Nekritz) this week that would require the Environmental Protection Agency to implement a state cap and trade program by January 1, 2012.  The Climate Action and Clean Energy Investment Act of 2009 also requires a graduated reduction in greenhouse gas emissions to at least 80% below 2005 levels by 2050. 

The Chamber helped build a large coalition of businesses and utilities to combat a state-only cap and trade program, or carbon tax, threatened by the governor last year.  This is the first time, however, any legislative committee has taken action on provisions that would essentially cost Illinois businesses and consumers billions of dollars.  Although the committee allowed the amendment to be adopted, the legislation still remains in the House Executive Committee.

Incidentally, the Tax Foundation released a report on the same day the committee adopted the amendment claiming that a cap and trade system could cost American households nearly $145 billion annually.  The report also claims that this system would also have a disproportionate effect on low-income households, costing the bottom 20% of income earners over 6% of their annual income.  Click here to view this report.

Abusive Work Environment Legislation to Carve Out Private Employers

Representative Art Turner, the main sponsor of legislation that would make Illinois employers even more vulnerable to costly litigation, has introduced an amendment, as promised, that would remove private employers from the provisions.  The proposed amendment to HB 374 limits the Abusive Work Environment Prevention Act to all public employers, including state and local government entities, State universities, and community colleges.  

The Chamber strongly opposes the underlying provisions of HB 374, which create a new way for disgruntled employees to legally attack an employer, and has been working closely with Representative Turner to address serious concerns with the legislation.  The bill passed out of the House Labor Committee last week on the promise that the legislation would be amended to at least remove private employers from the legislation.

The Illinois Human Rights Act already extends protections to employees who are discriminated against and/or harassed in the workplace. 

House Floor Amendment #1 has only been introduced at this point and could be adopted as early as next week.

NEXT WEEK:

Workers’ Comp Reform to Get Hearing in House

Representative David Reis, the main sponsor of HB 58 that provides crucial reforms to the state’s flawed workers’ compensation system, has been promised a hearing on the issue on Wednesday morning at 8 am.  The proposed amendment, which can be accessed here, would require the workplace to be the principle cause of injury in order to be compensable, deny benefits to workers injured by intoxication and adds that Commissioners and arbitrators must be fair and impartial.

At this time, no committee hearing has been posted as of yet, but Representative Reis and the Chamber anticipate providing testimony on this issue on that date and time.  If you are interested in testifying on how the current workers’ comp system if hurting Illinois jobs, please contact Jay Dee Shattuck.

New Prevailing Wage Amendments Surface

Several floor amendments were introduced this week in both the House and Senate that once again attempt to expand the scope of the Prevailing Wage Act.  The following amendments are all introduced on shell bills and could be posted for committee hearings next week.  These proposed amendments are highlighted below:

Senate Floor Amendment 1 (Forby) to SB 218: Expands prevailing wage to outside contractors that public utilities have contracted with on a construction project.  The amendment would also prohibit these utilities from contracting with these entities if they appear on a list of contractor or subcontractors that have not honored prevailing wage up to 4 years after that contractor or subcontractor first appeared on the list.  SFA #1 has been assigned to Senate Labor Committee.

Senate Floor Amendment 1 (Forby) to SB 223: Expands prevailing wage to all projects financed in whole or in part with State bonds, grants, loans, or other funds. 

House Floor Amendment 1 (Farnham) to HB 2104: Makes numerous changes, including increasing the civil and criminal penalties for violations of the Act and allowing a public body to recover, from the contractor or subcontractor of any tier, attorney’s fees or costs associated with defense of an action brought against the public body for noncompliance.

Other Bill Amendments of Interest

The House and Senate Committee schedule for next week is so far extremely light; however now is the time of year when floor amendments are in full force.  Here is look at some of the amendments introduced this week that are of interest to the Chamber:

Senate Floor Amendment 2 to SB 44 (Schoenberg): The underlying bill proposes a $1 a pack increase in the state tax on cigarettes.  SFA #2 proposes a 2-year phase in of that increase.  The amendment has been assigned to Senate Executive Committee.

Senate Floor Amendment 1 (Raoul) to SB 2257: Proposes campaign contribution limits of $7,500 for individuals and $20,000 for corporations, unions, and association during any election period.

House Floor Amendment 1 (Osterman) to HB 1723: Mandates health insurance coverage for lymphedema screening and treatment.

Chamber to Meet with Governor on Budget and State of the Economy

The Chamber will join with a group of other state associations to meet with Governor Quinn next Wednesday to talk jobs and creating more routes to economic recovery.  The Chamber will also discuss the impact of the governor’s proposed budget, which falls very short of creating any inroads towards turning the state’s economy around.  

Chamber to Host Second Annual Healthcare Legislative Symposium

The Chamber will be holding its second annual Healthcare Legislative  Symposium on Innovations in Medicaid Cost Control and Patient Care on Wednesday, March 25 from 8-10 am at the President Abraham Lincoln Hotel and Conference Center in Springfield.  The Symposium will feature Dr. Mary Kay Owens, an expert in Medicaid data analysis and President and Principal Pharmacy Consultant for Southeastern Consultants, Inc., and Enrique Martinez-Vidal, Vice President of AcademyHealth and Director of the Robert Wood Johnson Foundation’s State Coverage Initiatives Program.

Dr. Owens will discuss ways in which the state can create stronger inroads towards patient care coordination and other cost containment strategies within the Medicaid program while Mr. Martinez-Vidal will present on state health reform initiatives and the prospects for national reform.

Registration and a continental breakfast will be available at 7:45 am.  The Chamber encourages everyone interested in healthcare reform and strengthening the financial viability of the state’s Medicaid system to attend.  For more information and/or to RSVP for this event, please contact Laura Minzer at lminzer@ilchamber.org.