What’s In Store For Businesses In A Post-COVID Illinois? Legislature’s ‘Four Tops’ Weigh In
Illinois’ economy was humming along last winter, a few years removed from the state’s two-year budget impasse in which Illinois’ unpaid bill backlog climbed to nearly $17 billion, and finally experiencing the kind of growth that had eluded the state for years after the Great Recession.
But then COVID-19 hit. Gov. JB Pritzker ordered bars and restaurants closed a few days after the World Health Organization declared the virus a global pandemic, and then a broader stay-at-home order from the governor a week later shuttered dozens of other types of businesses throughout the state.
Nearly 14 months after COVID and its accompanying recession gripped Illinois, the state’s economy is recovering at a faster than expected clip, even with mandated capacity limits for businesses still in place. Illinois’ vaccination rate continues to creep upward, and new COVID metrics laid out by Gov. JB Pritzker in March indicate the state is on track for a full reopening — albeit with masks still necessary — in June, barring another surge in the virus.
But the pandemic’s long-term effects on Illinois businesses will take years to untangle and recover from — if they didn’t fold completely under COVID’s weight.
Tax Incentive Tango
On the business community’s annual day of advocacy in Springfield Wednesday, Illinois’ top business leaders called for the state’s legislative leaders and Pritzker to allow firms to recover without interference after unquestionably the most difficult year for employers in modern history.
“Doing no harm is the first step,” Illinois Retail Merchants Association President and CEO Rob Karr told NPR Illinois.
IRMA and its close ally, the Illinois Manufacturers’ Association, both of whom host “Business Day” each May, are leading on the business community’s pushback against Gov. Pritzker’s proposal to cut more than $900 million dollars of what he calls tax “loopholes” for businesses.
But the business community says those tax incentives are essential for keeping some firms afloat and giving businesses across Illinois the chance for post-pandemic growth. IMA President and CEO Mark Denzler told NPR Illinois that Pritzker’s characterization of the incentives is “hypocritical,” especially since some programs Pritzker is seeking to end or delay are those he signed into law during his first legislative session in 2019.
House Republican Leader Jim Durkin (R-Western Springs), the only of the General Assembly’s four legislative leaders still in the role since the governor entered office, can get worked up when he recalls the deal he negotiated with Pritzker and the business community in the waning days of the May 2019 legislative session.
Durkin says getting Pritzker and Democrats to include concessions for business — like certain tax credits and ending the state’s business franchise tax — in a final budget package was the key to putting Republican votes on the governor’s first budget, along with approving a doubling of the state’s motor fuel tax for the first time in three decades to fund a $45 billion infrastructure program.
The Republican said the tax incentives and other items he negotiated in 2019 were not “break-the-bank issues,” and balked at Pritzker’s proposal to take them back.
“Down here [in Springfield], is often said that, your word is everything,” Durkin told NPR Illinois. “If you give your word, you have to stick with it. It was disappointing for the governor to say that these specific programs…are too expensive for the state.”
Senate President Don Harmon (D-Oak Park), meanwhile, said Illinois’ menu of tax incentives should be looked at with a more critical eye, and said ending certain “loopholes” for businesses would create a more fair tax system overall.
“There's nothing wrong with kicking the tires and saying, ‘Does this program work the way it is supposed to work? Is it creating jobs is it putting Illinois residents to work?’” Harmon told NPR Illinois.
New House Speaker Chris Welch (D-Hillside) didn’t indicate whether he and his caucus are willing to follow Pritzker’s suggestions and craft a budget that eliminates the slew of tax credits to help balance the state’s spending. But like Harmon, Welch encouraged the business community to advocate for itself.
“It is the beginning of the budget process,” Welch told NPR Illinois. “We still have a long way to go…The legislature has different ideas. Some of the things [Pritzker] mentioned [in his February Budget Address] we agree with, some we don't. Some we don't agree with strongly.”
Punishing Property Taxes; A Failed Progressive Tax
One element the House Democratic caucus strongly disagrees with Pritzker on is the governor’s proposal to again not pay the $350 million in extra funding for Illinois public school districts — an amount prescribed by a 2017 revamp to the state’s school funding formula. The 2017 law, aimed at getting poor school districts on a more equitable footing with districts in wealthy communities, asks the General Assembly to infuse at least $350 million more year over year for a decade.
The extra money is supposed to be targeted toward districts identified as below funding adequacy, judged in part by the district’s local property tax generation. Schools in Illinois rely heavily on property taxes compared with other states — another driver behind the 2017 law.
Welch said lawmakers “certainly have to push back on that particular proposal,” referring to Pritzker’s bid to skip the $350 million in extra funding for the second year in a row. The governor for his part says schools would be made whole by a windfall of federal cash for districts.
“We've taken a lot of steps forward, we don't want to go backward,” Welch said of the state’s four-year-old funding law. “If we don't fund [schools] properly, what are they going to do in response? They're going to raise taxes.”
Harmon also emphasized the pressure put on homeowners and businesses by local property taxes, but said changing the state’s whole tax system would take “an honest debate” — with businesses in particular.
“If you look at it holistically, our tax system really is upside down,” Harmon said. “We have some of the highest property taxes in the nation, and at the same time we have some of the lowest income taxes in the country. That doesn't work.”
A quieter promise in Pritzker’s central campaign pledge to implement a graduated income tax in Illinois was the opportunity for property tax relief if the state could collect more from high income earners and businesses. If the state’s income tax revenue increases, the argument goes, Illinois could send more state support to local governments and schools, which would in turn take pressure off of those local taxing bodies, and eventually result in lower property taxes.
But voters in November rejected a constitutional amendment to allow for a graduated tax after business leaders and Republicans spent big on a campaign to sow doubt over the tax, citing Illinois’ decades of fiscal mismanagement. Though Pritzker spent millions of his personal wealth, the referendum failed, and the $3.4 billion in annual extra revenue the governor had predicted would come from a graduated tax won’t materialize.
Welch in February floated the idea of trying for a graduated income tax again with the caveat that the extra revenue would go toward paying Illinois’ mountain of pension debt. But the Democrat says he first wants to learn from the lesson of the referendum’s failure.
“The graduated income tax failed, and it failed miserably,” Welch said. “And so we have to now assess why…We're not considering doing the graduated tax this session. That's not on the table.”
Welch said ethics reform would likely help lawmakers’ case when and if they try to push a graduated tax again someday.
“People don't trust us,” Welch said. “And because people don't trust us, they didn't trust what we would do what we said with the [graduated income tax] money…I think there's a lot of things that we need to do before we can really pass the structural fixes that we need to address [the state’s structural budget deficit], because people don't believe in anything that we're saying down here in Springfield.”
Harmon, who first pushed a constitutional amendment for a graduated tax in 2014, agreed with Welch’s diagnosis, saying “restoring some confidence in Illinois government” and recovering Illinois’ economy from the pandemic would both be prerequisites to a second attempt. He also dared the business community to get on board.
“If businesses in particular want their property taxes to go down, I would urge them to partner with us to retool our income tax system, so that we can make that that adjustment and have a tax system that is far more rational and predictable,” Harmon said.
Senate GOP Leader Dan McConchie (R-Hawthorn Woods) also pointed out that property taxes are regressive, but in his dream scenario, the entire tax system would be blown up and local governments and schools would “fundamentally shift away from property tax[es].”
“If you invent a new app for your smartphone this year and you make a million dollars, you know you're going to pay, let's say $10,000 in property tax,” McConchie said. “If you lose your job and make nothing you pay $10,000 in property tax. The fact that we're so heavily relying upon property taxes is really problematic for families, because it is, it's just there, regardless of how much money they make.”
A Fix For Property Taxes Or Burden On Businesses?
McConchie said property taxes’ inherent regressive nature is especially difficult for new and small businesses “because you're not paying taxes based upon your profits or how much money is going through your business, you are basing it on the number of square feet that you have.”
Cook County Assessor Fritz Kaegi says he has a solution for that, but in more than two years of trying his pet legislation has so far not moved forward.
Kaegi was elected to the assessor’s office in 2018 after a Tribune investigation revealing how former Assessor Joe Berrios’ office systematically under-assessed properties in wealthy areas and over-assessed properties in poor and often minority communities. Kaegi’s re-assessments of large swaths of Cook County so far have shifted the tax burden largely to commercial properties, which include businesses and income-earning buildings like apartment complexes.
But he’s also pushing a law change — which would automatically apply to Cook County but allow other counties to opt into — that would permit the assessor’s office to collect income, expense and vacancy data from commercial property owners in order to assess a property more accurately and give businesses more stability so they can plan for property tax expenses. Kaegi points out this data is usually made public when a commercial property owner appeals his or her property tax assessment, but his proposed law would shield the income and expenses data from freedom of information laws.
McConchie said there was “merit to the idea,” but said the bigger hurdle is businesses knowing how to hire a property tax lawyer with connections and clout. One such firm is co-owned by former House Speaker Mike Madigan, McConchie noted.
“I think that [Kaegi’s] proposal is trying to work within the current system, when I think we probably need to blow up the current system, and get something else fundamentally redone,” McConchie said.
Welch has previously been a co-sponsor of Kaegi’s bill, but Harmon was more tepid on the idea.
“Any sort of significant change in policy has to be digestible by all of the stakeholders, and that sometimes takes time,” Harmon said. “Sometimes that takes a period of preparation for folks to understand that we're moving to a new policy and you can start to plan for the impacts…A radical change overnight almost never happens in Springfield, by design.”
Durkin, who noted he’s never been successful in appealing his own property taxes, said he felt Kaegi “wants to do the right thing,” but criticized Kaegi’s recent assessments that shifted property tax burdens to businesses.
“It just puts more responsibility on the local business guy and it's just not right,” Durkin said.
IMA, IRMA and the other groups like the Building Owners and Managers Association of Chicago remain opposed. Kaegi’s spokesman, Scott Smith, said the office “remain[s] in conversation with legislators,” and cited a recent hearing on the bill last month, where “supporters testified that this bill would offer more certainty for real estate investors and small business owners in neighborhoods and communities throughout the county.”
Illinois’ budget is also squeezed by an ever-growing pension debt — a reality generations of policymakers have tried to address but largely failed.
In March, Moody’s Investors Service said Illinois’ adjusted net pension liability was $317 billion — a 19% jump from last year. Of course, that entire bill would never come due at once, but the staggeringly large sum is often used as Exhibit A by those who claim the state’s fiscal picture is irredeemable. Illinois has the worst-funded pension system in the nation.
In recent years, Illinois’ constitutionally required pension payments have ate up anywhere from one fifth to one quarter of the state’s general revenue fund budget. In 2012, then-Gov. Pat Quinn said he was “put on this earth” to solve Illinois’ pension crisis, and unveiled a cartoon snake dubbed Squeezy the Pension Python to illustrate how pension costs are strangling state services.
A year later, lawmakers went with Madigan’s pension reform plan to reduce automatic 3% compounded cost-of-living increases for state retirees, raised retirement ages and limited the maximum salaries on which pensions are based.
But organized labor, which had fought tooth and nail to prevent the law from passing, sued over the reform. In 2015, labor won a unanimous decision by the Illinois Supreme Court, which held the law was unconstitutional thanks to the pension protection clause in Illinois’ constitution.
Similar reforms for smaller pension systems were also voided as unconstitutional.
Durkin, who had only been elected House GOP leader a few months before the pension vote, now wants a do-over. But he blames the majority party for burying their heads in the sand.
“Right now I don't get a sense of urgency out of the Democrats to say that we're going to stop this insane, insane appropriation to our pension systems without at least reining in the cost,” Durkin said.
Durkin says he wants to at least try to pass the other option lawmakers could have gone with in 2013: a negotiated pension reform dubbed the “consideration model” in which organized labor would agree to certain cuts in pension benefits. Then Senate President John Cullerton championed the approach, but ultimately lost out to Madigan’s proposal.
McConchie agrees, noting the extreme political unlikelihood that Illinois’ constitution would be amended to weaken or remove the pension protection clause — an idea floated by groups like the libertarian-leaning Illinois Policy Institute. McConchie says attempting a negotiated settlement would at least help guarantee both the state’s pension systems and smaller municipal pension systems don’t implode for future generations of public employee retirees like teachers.
“We need to have reforms that actually get our pension systems onto the track that they can fulfill the promises that were made to the people who essentially have put all their eggs in that basket,” McConchie said. “These people do not qualify for Social Security…And if counted on this pension, we need to do what we can to guarantee them that their pension will be there long-term.”
Harmon, however, poured cold water on the idea of ever attempting to reduce pension benefits again, saying it’s futile. Harmon believes that not even changing the state’s constitution would erase the state’s legacy pension debt — meaning the pension liability accrued up until the moment the constitution was amended. He also believes the consideration model would be found unconstitutional based on the 2015 decision, which he read to mean the pension protection clause is ironclad.
“Those benefits are protected, not only by the pension clause, but also by the contracts clause of the state constitution and the United States Constitution,” Harmon said. “So there are a lot of people who would like to wish away the Constitution when it's inconvenient, but the short answer is on the legacy debt, we're going to have to pay it.”
The Democrat says not enough attention has been paid to a pension change made a decade ago that created a second tier of state employees hired after Jan. 1, 2011, who are entitled to much less rich pension benefits “so low, in fact, that [the federal] Social Security [Administration] may ding us in forces to raise some of those benefits,” Harmon said. Over time, he said, those changes will make a significant difference to the state’s pension debt.
“It's a problem that took a century to get into this deeply,” Harmon said. “It's gonna take decades to get out.”
Welch is honest when he says he doesn’t know how to solve Illinois’ pension woes. He said he felt the weight of his vote for the 2013 overhaul as a “labor guy” but knows “something has to be done to address our pension [debt].”
Changing the state’s constitution isn’t palatable to Welch, but he didn’t close the door on trying to negotiate with labor again. Finding a solution, Welch said, would require “everyone around the table.”
In February, Welch floated trying again for a graduated income tax but guaranteeing the revenues would go toward paying down the state’s pension debt.
“Certainly I think that we need to drive more revenue into our budget,” Welch said. “I’d like to figure out ideas on where the revenue could come from.
The political landscape has changed dramatically since lawmakers geared up the energy fight more than two years ago, with the introduction of progressives’ Clean Energy Jobs Act in early 2019 — just weeks after Pritzker was inaugurated.
With a crowded agenda during the governor’s first legislative session, negotiations on how Illinois could boost its renewable energy portfolio were spiked. But in the months that followed, Chicago news outlets began publishing a steady drip of stories hinting at federal investigators looking into connections between Madigan’s inner circle and ComEd/Exelon.
By September of that year, federal agents staged very public raids at the offices of politicians on the state and local level, and wide-ranging subpoenas revealed that, among other items, they were looking for information related to ComEd and Exelon.
COVID threw yet another wrench in plans to negotiate an energy bill. Several months into the pandemic, ComEd signed off on a $200 million fine and admitted in a deferred prosecution agreement that the company engaged in a years-long bribery scheme attempting to curry favor with longtime former House Speaker Mike Madigan.
After Madigan was identified as “Public Official A” in the ComEd bribery scheme, the former speaker was loathe to give lawmakers a forum to meet and consider his future, let alone omnibus energy legislation. In the fall, high-level lobbyists and consultants for ComEd and company officials with ComEd and Exelon were also indicted, including some of Madigan’s closest allies, like former state representative and longtime lobbyist Mike McClain and lobbyist John Hooker.
Though the feds made Exelon a target of its investigation, the company has not shied away from asking Springfield for subsidies to keep two nuclear plants — Byron Generating Station in north central Illinois and Dresden Generating Station in Chicago’s furthest southwest suburbs — open and operating. The request is similar to one Exelon made several years ago when it threatened to shutter its nuclear plants in Clinton and the Quad Cities, which prompted the General Assembly and then-Gov. Bruce Rauner to agree to the Future Energy Jobs Act in late 2016.
Competing plans for getting Illinois to 100% renewable energy by 2050 prioritize different energy models, but the comprehensive proposals include some measure of ethics reforms given both the federal investigation and large utilities’ significant influence in Springfield.
Welch said a final negotiated energy law should address ethics law, but also said the package also must result in equitable opportunities in the energy sector for all Illinoisans, including Black and Latino workers. The state’s burgeoning solar industry has been praised as an opportunity for minority workers.
But some alternative energy suppliers have also been accused of unfairly targeting poor and minority communities with energy prices sometimes hundreds or thousands of dollars more than market value.
“Understand that equity is at the center of everything that we do here,” Welch said. “It's a core principle, and it's going to be woven through every policy that comes out of this legislature.”
Those alternative energy suppliers have spawned in the wake of Illinois deregulating its energy market in 1997. Since then, Illinois’ energy costs have tumbled significantly — on that, both businesses and Democrats like Harmon can agree.
Karr and Denzler said IRMA and IMA members are invested in keeping the cost of energy in Illinois low, noting it as one of the state’s “few” competitive advantages for businesses. Denzler noted manufacturers consume one third of all energy used in the U.S., so any increased utility rates would have an impact.
Harmon agreed with Denzler that reliability needs to be central to any plan that tinkers with — or overhauls — Illinois’ energy grid, saying he doesn’t “want us to be the next Texas where things blow up and we don't have any power and the prices go up 1,000%,” referring to massive outages in Texas after a severe winter storm in February where at least 57 people died from consequences like cold and fires.
While Denzler advocates for an “all of the above approach” to energy policy, including nuclear, natural gas, coal, wind and solar, Harmon said being more aggressive with renewables while still providing reliable and affordable energy is possible.
“Twenty years ago when I was getting started in advocating for renewable energy, I was laughed at in the [Capitol] building that [it] was unrealistic and never going to happen,” Harmon said. “Today…the cost of renewable energy has tumbled so low that it's a direct threat to Exelon nuclear plants.”
McConchie, who is an energy consultant at solar-focused firm Verde Solutions LLC, believes Illinois could get to 100% renewable energy by 2050 so long as technology in the industry continues to advance, but said so far, Illinois’ program providing subsidies for solar projects is not showing enough return on investment.
The Republican also resents Exelon’s approach asking the state for more support for nuclear power in both 2016 and now. McConchie voted against FEJA during his first year in office.
“Exelon was threatening at that point shut down two nuclear plants, essentially had a gun to the head of the state and demanding extra money out of the state,” McConchie said. “And here we are just a few short years later, now it's two different nuclear plants, same type of situation.”
In recent years, many businesses have used their platform to signal progressive beliefs, and corporate values often include taking responsibility for climate change. Denzler pointed to advances in clean energy made possible by manufacturers, as well as firms who’ve achieve reduced emissions while increasing output as ways businesses can be part of the solution “without having a one-size fits all government mandate.”
While Durkin has railed against Madigan, Exelon and ComEd since the still-growing federal investigation was made public, he advocated for caution in rethinking Illinois’ energy portfolio.
“Nuclear power is clean energy,” Durkin said. “People don't like it, but the fact [is], it's clean. It's there for a reason, and it does provide a backstop for us whenever the other types of power that we rely upon come to a halt, like we saw a few years ago with the [polar] vortex.”
The Republican warned that “reactionary” energy legislation could make for unintended consequences.
“Nukes [were] the only thing that was keeping us warm,” Durkin said of recent winters where extreme cold limited other energy supplies. “So we’ve just got to be careful on how we approach this, and not just summarily say, ‘We’re done with this, we're done with that’ because of a scandal.
Unemployment Trust Fund
The state’s unemployment insurance trust fund, from which out-of-work Illinoisans’ unemployment benefits are paid out, faces a $5 billion deficit — more than twice what the state saw during the depths of the Great Recession.
Many states who face unemployment fund deficits have already said they plan to use the stimulus dollars coming to them from the $1.9 trillion American Rescue Plan to shore up the funds. Illinois is set to get $7.5 billion in direct state aid from that package, and in a joint op-ed penned by Pritzker, Welch and Harmon last month, the Democrats said $2.5 billion of that sum is already spoken for; the state will use it to pay back short-term borrowing from the Federal Reserve that filled holes in Illinois’ budget for the 2021 fiscal year and this current fiscal year.
Harmon is hoping for additional federal relief, noting Illinois is not alone in its unemployment trust fund’s depletion. He also doesn’t think cutting Illinois’ unemployment benefits is the answer, as unemployment checks are “not a full remedy for the people who are unemployed.”
Welch, Durkin and McConchie do not favor raising unemployment taxes on businesses to stabilize the trust fund.
“I think it's way too premature to talk about additional taxes on our businesses,” Welch said. “We're talking about creating an environment that's going to spur job creation and economic growth, and we're looking at all options right now.”
The Republicans said any fix would also have to address issues with the Illinois Department of Employment Security.
McConchie was a victim of unemployment fraud and said businesses should not have to pay for the more than 1.3 million fraudulent claims filed with IDES since the pandemic began.
“So that's one thing that I think we should take off the table immediately is having businesses be responsible for government’s screw-up,” McConchie said.
Durkin wants IDES to make “significant changes” after the early months of the pandemic left many out-of-work Illinoisans calling IDES hundreds of times, and sometimes waiting for weeks or months for an answer to more complicated issues.
“While we do any type of assistance to the UI trust fund, we have to fix that agency,” Durkin said. “I still to this day…receiv[e] frantic emails from people who have been lost in the system, people who are the victims of fraud that can't get through to IDES.”