IFB Quickview

Friday, April 23, 2010

Is There Light At the End of the Tunnel?

Over the past several years the state budget process is like a train entering a tunnel. The engineer of the train moves forward hoping to come to the end and get the trains cargo out safely. But there is always the fear that something will go awry. A loose rail, fallen rock, or a whole host of things that could cause the train to be delayed, or even worse derailed. But in most instances, the light at the end of the tunnel appears and slowly gets larger as the train moves successfully down the dark tunnel.

The budget process has started to see the light at the end of the tunnel. This week the four legislative leaders and the Governor have started their face to face budget meetings. This time honored process usually starts a few weeks before the budget is unveiled. Of course there will undoubtedly be many, many more of these meetings.

This week's meetings were also accompanied by the traditional post meeting impromptu press "mobbing" where the media surround each leader and ask for their "take" on the meeting. It makes for great sound bites on the 10 p.m. news, but usually does not help move the process along.

Governor Quinn rolled out his latest budget plan which includes the call for $2.6 billion in budget cuts (no details have been made available), an increase of the state personal income tax rate from 3% to 4% (which would restore the proposed $1.3 billion cuts for education and generate an additional $1.7 billion in revenue), short term borrowing of $5.7 billion, and miscellaneous tax increases and eliminating business tax incentives (see section below for details). His plan still shows a short fall of $2.9 billion. But this has already started to be modified by the Governor himself over the past few days.

Immediately following the meeting Senator Radogno stated that the $2.6 billion in cuts do not add up because the Governor is already including appropriations that he originally proposed should be cut. Also of interest was a statement by the Governor's budget director that the state wants to change the way lapse period spending is allowed. Lapse period spending allows the state to pay for bills for goods and services of the previous budget year in the next from the original appropriation. The proposal would be to extend lapse period by four more months. This would allow the state to delay paying bills even longer because businesses who are owed by the state could not go to Small Claims court to get their money.

At the present time it is very evident that the Governor has not given up on his call for the increase in the state income tax rate. He and his staff continue to ask everyone to support the income tax increase. Even with an increase of 1% in the personal income tax rate the tax revenues generated would not be sufficient to cover the proposed 10% education cuts and pay the unpaid obligations to schools. It is even more obvious that a 1% income tax increase is woefully short in addressing the $13 billion deficit. The increase would generate approximately $2.7 billion. Meaning that all other proposed budget cuts and eliminations would not be restored in anyway shape or form.

So what is going to happen? We expect that there will be numerous budget negotiation talks that in the end will produce a budget that will look very similar to the current budget. The General Assembly will pass an appropriation bill that will make some cuts, but not sufficient to balance the $13 billion shortfall.

There are also rumors surfacing that a 6 month budget will be approved. The thought is that a 6 month budget would create a huge crisis if the Republican gubernatorial candidate wins. The new governor would walk into a state that would be in "shutdown" and forced to do something quickly. If the Democrat candidate wins, they would simply take up the issue in November, use the pending shutdown as pressure, and pass a revenue and spending package.

Proposed State Revenue Sources

The Governor's office started to "air" potential areas to increase revenue for the budget through removing tax incentives and increasing special taxes earlier this week. This has also become a part of the routine budget process over the past several years. Please note: NO AGRICULTURAL SALES TAX INCENTIVES ARE BEING DISCUSSED AT THIS TIME. The following is the list that has started to be aired, but the list lacks detail on how they will work:

Tax Change Proposal	Estimated Revenue Generation (Millions)
Income Tax
Change the definition of income to include the Outer Continental Shelf as part of the United State of America	$20 to $25
Repeal the Research and Development Tax Credit	$30 to $45
Decouple from the Federal Qualified Domestic Production Activity Deduction	$60 to $65
Tax Licenses of Canned Computer Software	$50 to $75
Sales Tax
Limit Vendor Discounts for general merchandisers for collecting Sales Taxes	$60 to $65
Limit Vendor Discounts for car dealers for collecting Sales Taxes	$7 to $9
Collect Sales Tax on downloaded music or videos	$5 to $10
Repeal the Manufactures Purchase Credit	$20
Increase other Tobacco Products tax from 18% to 30%	$9 to $10
Tax little cigars as cigarettes	$10 to $12
Other Taxes
Tax "industrial insurance" to remove current tax incentive that allows businesses to purchase property and casualty insurance from certain companies that are not subject the the state's insurance premium tax	$5 to $20
Financial Institution Data Matching	$10 to $35
Create a 5 cent tax on plastic bags.	$10 to $100 (It is assumed that the tax will cause a reduction of 50% to 95% use in plastic bags)
Create a Bottle Bill (5 cent deposit)	$65 to $80
TOTAL ESTIMATE	$361 to $571

As we have already stated, this list is subject to change. The Governor announced mid-week that the tax on music and video downloads (which has been dubbed in the media the "iTunes" tax) is already not being pursued. We will continue to monitor the development of this and the other portions of the budget.

Companion Animal Welfare Legislative Initiatives

Animal welfare issues continue to draw special interest in the General Assembly in light of the sensitivity over recent Humane Society of the United States (HSUS) efforts in neighboring states. During this legislative session, issues have been focused on companion animals. Issues like regulations on pet stores, dog breeders and the use of tethers on dogs have dominated the time spent on animal related issues.

The top priority of the HSUS this year is a pet store bill requiring signage divulging information about the breeder of the dog on site at the retail facility. HB 5772 is sponsored by Representative Mendoza and Senator Schoenberg. Throughout this legislative session this issue has been met with opposition from the pet stores. The bill was amended multiple times in the House and was held in Senate Consumer Protection committee for the purposes of an additional amendment in order to try and remove the pet stores opposition. Movement of the bill has been slow and tedious given the level of opposition and the contentious nature of the debate on this issue. Illinois Farm Bureau continues to monitor HB 5772.

Multiple bills were introduced on the dog breeder issue that was sent to task force last year and worked on all summer long. Ultimately none of the versions introduced were successful in moving through the General Assembly during this legislative session. HSUS introduced its own version, HB 5771 and then the task force introduced its version based on the outcome of its recommendations, SB 3633. Ultimately the lack of consensus doomed both bills.

Another priority of the HSUS is SB 2580, relating to the tethering of dogs. The bill as introduced was onerous and negatively impacted the owner of dogs that tether the animal outdoors. Illinois Farm Bureau and Illinois Pork Producers Association opposed the bill as introduced. IFB and IPPA participated in lengthy negotiations that resulted in a pared down version that allowed IFB and IPPA to go neutral on the bill. SB 2580 was held in House Agriculture Committee due to a lack of requisite yes votes to pass the committee. HSUS may work to amend the language from SB 2580 on another bill and attempt to pass it in another committee.

Fuel Standards in Illinois

In the last issue of QuickView we discussed the conflict over new fuel standards that the Illinois Department of Agriculture were putting in place dealing with the quality of pure gasoline that Illinois is receiving, blending with ethanol and is selling at its gas stations to the consumer. The conflict arose from the major refineries in Illinois and the oil and pipeline companies that supply fuel coming from the Gulf of Mexico who could not supply the necessary fuel to met this new standard. Under the new rule some fuel suppliers were stating that they would not be able to take the fuel they received and blend it with ethanol to produce 10% blend ethanol and meet the new fuel quality and volatility standards. On April 16th, the Illinois Department of Agriculture released a letter that the Department will not fully enforce the Gasoline Volatility Rule 8 Ill. Admin Code 850.60(c) rule until May 1, 2011. This will allow the current process to continue and allow the blending of base gasoline and ethanol without interruption until the industry can retool for the new standards.

QuickLook

The following is a short description of bills with the current status and position on each bill.

Questions

If you have any questions on the items listed in this edition of QuickView or on other state legislative matters please contact us. The State Legislative Team can be reached at (309) 557-2308 or by e-mail at statelegislation@ilfb.org.