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The pressure of taxes and the economy

BY APRIL 9, halfway through the 1979 General Assembly session, Illinois legislators had introduced 3,349 bills. And while these bills moved through committee at a sloth's pace, lawmakers had taken little substantive action even though they face major problems. Most pressing of all is the need to replace the corporate personal property tax, which must be replaced before July in order not to lose revenue for local governments.

In addition to that pressing tax problem, Illinois legislators are faced with decisions on tax and spending limitations, a proposed gas tax hike, changes in workmen's compensation and unemployment insurance plus other decisions affecting prisons, abortions, the environment and education.

Corporate property tax replacement

The Illinois Supreme Court ruled March 14 that the 1970 state Constitution was unequivocal in calling for an end to the tax on corporate property on or before January I, 1979, although 1978 accrued taxes are still collectible this year. Some $440 million in revenue -- 60 percent of which would go to local schools -- will thus be lost next year unless a replacement tax is drafted into law by the end of this legislative session. The Constitution requires that any replacement tax must be applied to the same classes that are presently paying personal property taxes, and it rules out imposition of ad valorum real estate taxes for the purpose of replacement.

A continual disagreement among state business groups has been the main deterrent to passage of a replacement tax. The retail merechants argue that their highly visible inventories have made them shoulder a disproportionate share of taxes and that most other business corporations have been hiding personal property in bonds and other capital investments. They want a redistribution of the tax on us. However, the state's other businesses, especially major financial institutions, have opposed relying on increased corporate income taxes alone to replace the tax. The Illinois State Chamber of Commerce says an increase in the income tax from 4 to 6.5 percent -- as suggested by the Illinois Retail Merchants' Association --would more than double the share financial institutions pay.

Attempting to mediate the dispute, Gov. James R. Thompson appointed a 15-member committee of business leaders to find a solution and offered his own proposal, H.B. 2700, as "a vehicle for discussion and compromise."

H.B. 2700, by House Minority Leader George Ryan (R., Kankakee) and Rep. Thomas Ewing (R., Pontiac), would increase the corporate income tax from 4 to 6 percent; levy an additional 1 percent tax on businesses now covered by the individual income tax, and raise the 5 percent utility tax to 8 percent for telephone, 7 percent for electric and 6 percent for natural gas. The utility tax hike would require a constitutional amendment.

H.B. 548, sponsored by the House Revenue Committee, would impose a 2 1/2 percent income tax on corporations (on top of the present 4 percent income tax), a 1 1/2 percent income tax on partnerships, associations, estates and trusts (presently not taxed by the corporate personal property tax) and create a tax based on invested capital for utilities. Assigned to House Executive Committee March 7.

S.B. 500, by Sen. Samuel C. Maragos(D., Chicago), would replace the corporate personal property tax with an excise tax and income excise tax, specifically producing three new taxes: (l) a small increase in the income tax; (2) a large new tax on invested capital of utilities; and (3) a large new tax on the original cost of personal property (rather than ad valorem tax on the value of property), introduced in Senate March 29.

The Senate bill was drafted by Allen Brewer, an executive of the Kraft Foods company, and is not favored by the Taxpayers' Federation of Illinois, according to Douglas L. Whitley, executive vice president of the federation. Some news accounts had linked the federation with the proposal, but Whitley says the federation does not believe the bill is "reasonable and acceptable" to enough of the business interests of the state. He says the federation is still looking for a fair compromise replacement. "There will probably be about nine bills, and they'll be all over the spectrum," he says. "I believe the compromise will begin with a basic income tax of an added one to one-and-a-half percent. ... A key point will be how the money is distributed locally after it is collected, whether by direct rebate of amounts equal to what was received in personal property tax revenue, or through the state school aid formula."

Whitley says the channeling method is the major concern of state and local officials. Bureau of the Budget Director Robert L. Mandeville said in February he favors using the school aid formula to distribute the revenue. But local officials will probably lobby heavily for straight rebates, since they fear the state will try to attach strings if revenue is returned through the formula. Use of the school aid formula may also raise serious constitutional questions, since this might be construed by the courts as a new ad valorem property tax because the school aid formula is based on a complex property evaluation process.

Tax-expenditure limitations

The pressure to replace the corporate personal property tax will undoubtedly divert attention from tax and spending proposals. Senate Republican Leader David Shapiro (R., Amboy) has also suggested that proposed constitutional amendments to limit taxes or spending need not be acted on until next spring since the proposals could not be put on the ballot until the 1980 general election. Nonetheless, legislation has been introduced, ranging from comprehensive plans to single-issue bills. All would limit the growth of government to some degree, and they generally fall into two categories: state ceilings and property tax controls.

Gov. Thompson favors a limit on state spending pegged to the rate of increase in the state's total personal income. He also wants property tax increases to be limited to the growth of personal income. Thompson's legislative package includes a constitutional amendment, SJR 36, and Senate Bills 1290-1305.

Spending and tax relief legislation introduced by the House Democrats (H.B, 2562-67) features replacing the sales tax on food and medicine and figuring revenue limits on statewide personal income.

H.B. 2564, by Rep. Clarence Darrow (D., Rock Island), would phase out the sales tax on food and medicine by July 1, 1983. The state would replace the revenue lost to local governments by increasing their share of the income tax.

H.B. 2562, by Rep. Richard Brummer (D., Effingham), would limit increases in state appropriations to the average increase in statewide personal income over the last five years.

H.B. 2563, by Rep. Fred Sehraeder (D., Peoria),

26 / May 1979 / Illinois Issues

would limit local property tax increases to increases in statewide personal income.

The Illinois State Chamber of Commerce (ISCC) recommends limiting revenue growth to the inflation rate of the previous year and limiting increases in assessed valuation of property to 2 percent a year. The ISCC package included three bills introduced by Sen. Prescott Bloom (R., Peoria) and one proposal to amend the Constitution, still pending as of April 11.

Rep. Donald Totten (R., Hoffman Estates) has introduced a constitutional amendment (House Joint Resolution 13) to confine revenue growth during a fiscal year to 8 percent of the total personal income of the state and to limit increases in local property taxes to no more than 3 percent of the prior year. Sent to House Revenue Committee.

Sen. John Knuppel (D., Petersburg) has proposed a constitutional amendment (Senate Joint Resolution 18) that would limit the amount of any ad valorem tax on property to 1 percent of ihe fair cash value. Assigned to Senate Executive Committee.

Rep. Patrick Grossi (R., Glenwood), on the other hand, wants to freeze the assessed value of property by statute. His proposal, H.B. 1359, is in Ihe House Revenue Committee.

Other bills introduced and assigned to the revenue committees include the following:

H.B. 709, by House Minority Leader George Ryan (R.. Kankakee), would freeze property taxes throughout the state by prohibiting increases in property tax revenue.

H.B. 121, by Rep. Donald Deuster (R., Mundelein), would gradually reduce the assessment ratio from the present 33 1/3 percent of fair cash value to 10 percent by 1986.

H.B. 179, by Rep. Daniel Pierce (D., Highland Park), would reduce the assessment ratio from 33 1/3 percent to 25 percent of actual value.

H.B. 508, by Rep. Gerald Bradley (D., Bloomington), also freezes the property tax by limiting the assessed valuation of property at the 1979 level.

S.B. 18, sponsored by Sen. Karl Berning (R., Deerfield), would confine the assessed valuation of real property to that established in 1975 until changes in the classification or quality of the property occur.

Gas tax increase

The governor announced his support of a gas tax increase in early March. He said he would ask for legislation raising the tax from the present 7 1/2 cents per gallon to 9 cents per gallon, to bail out the Road Fund and improve the most deteriorated state roads. But by March 31 no bill had been submitted to accomplish the governor's aim. The governor said, however, that the problem was not in finding a sponsor for the tax increase. One bill had been submitted to raise the gas tax to 12'/2 cents per gallon.

S.B. 85, by Sen. Knuppel to increase the motor fuel tax to 12 1/2 cents per gallon. Sent to Senate Revenue Committee Feb. 7.

Cigarette sales tax

The sales tax on cigarettes in Illinois brought in $181.9 million in revenue in fiscal 1978. The tax is presently 12 cents per package.

H.B. 408, by Rep. Wyvetter Younge (D., East St. Louis), would increase the cigarette tax by one mill per cigarette, revenue to go to a new fund for development of economically depressed areas. Assigned to House Revenue Committee Feb. 14.

Unemployment insurance, workmen's compensation

There will be a battle over changes in unemployment insurance (UI) and workmen's compensation (WC). Employers want to lower costs for both programs by tightening eligibility standards and reducing some benefits. They say the high cost of the UI and WC programs is one significant reason that business and jobs are leaving Illinois, and other businesses are discouraged from settling in Illinois. On the other hand, spokesmen for workers contend benefits must increase to reflect increases in the cost of living. Regardless of either perspective, the existing UI and WC laws will only intensify problems for workers and employers alike if an economic slump occurs as predicted.

House Speaker William Redmond (D., Bensenville) and Senate President Philip Rock (D., Chicago) have asked the governor to direct the Illinois Department of Labor to bring labor and management representatives together for developing UI and WC programs acceptable to both sides.

At the request of House Speaker William Redmond (D., Bensenville) and Senate President Philip Rock (D., Chicago), Gov. Thompson agreed to name a nine-member committee consisting of three representatives each from labor, management and the public to develop UI and WC programs acceptable to both sides.

UI and WC subcommittees have been formed in both the House and Senate under the Labor and Commerce Committees to consider proposed legislation.

H.B. 19, by Rep. Herbert Huskey (R., Oak Lawn), would require an unemployed person to report in person to an employment office every two weeks.

H.B. 145, by Rep. Virgil Wikoff (R., Champaign), would eliminate the provision that an individual's failure to cross a picket line does not render him ineligible for benefits.

H.B. 146, by Wikoff, would increase the amount of parental support from one-fourth to one-half to qualify for dependent benefits. It would also tighten eligibility for individuals who leave work voluntarily, and make those who are discharged for misconduct, or those who refuse gainful employment ineligible. They would be ineligible for benefits until paid wages for 10 weeks in subsequent employment.

H.B. 156, by Rep. Richard Mautino(D., Spring Valley), would provide that holiday pay be counted as wages when computing the base period on which benefits are figured. It would also require that private nonprofit schools, other than higher education, contribute 1 percent of wages to the unemployment trust fund; and that wages paid by a base period employer to an individual who leaves voluntarily and receives wages in subsequent employment, shall not become benefit wages with respect to the former employer.

H.B. 221, by Rep. John Dunn (D., Decatur), would increase the waiting period from 8 to 9 weeks for an individual who quits a job voluntarily and that his or her weeks of eligibility for unemployment compensation be reduced by the number of weeks of the waiting period.

H.B. 535, by Rep. Harry Yourell (D., Oak Lawn), would transfer custodian responsibility of the unemployment clearing account from the state treasurer to the director of labor.

H.B. 600, by Rep. Yourell, would establish that individuals who quit their jobs, voluntarily, without good cause, are ineligible for benefits until they accept bona fide work.

H.B. 690, by Rep. Jim McPike (D., Alton), would increase the maximum benefit amount from $135 per week to 66 2/3 of the statewide average weekly wage.

H.B. 768-773, by Rep. McPike, would increase the minimum weekly benefit from $15 to $25 and eliminate the waiting period for eligibility; change critical date in definition of "child" from beginning of his current weekly claim; make nonacademic school personnel eligible for benefits during summer vacation; increase amount of reduced weekly benefits; provide that benefits shall not be denied to an otherwise eligible individual who is not recalled to work within one week after termination of a labor dispute; and amend UI law relating to eligibility for benefits of employees involved in certain labor disputes.

H.B. 833, by Rep. Giddy Dyer (R., Hinsdale) and Rep. Wikoff, would provide that an individual must have worked for at least 20 weeks during his/her base period and earned at least $ 1,500, $500 of which must have been paid during a quarter other than the calendar quarter in which his/her wages were highest, in order to be eligible for benefits. Increases the period of ineligibility for benefits to 13 weeks upon voluntary leaving, discharge for misconduct and refusal of work; reduces the total period of eligibility for benefits in such cases by 13 weeks. Extends the time to appeal from a claims adjudicator's finding or determination to 14 days.

H.B. 894, by Rep. McPike, would raise the maximum weekly benefits from $135 to 2/3 of the statewide average weekly wage, increase the base

27 / May 1979 / Illinois Issues

period eligibility amount from $1,000 to $1,100, with $300 paid in the quarter not including the quarter when the employee's wages were highest, and changes certain eligibility requirements and increases time for appeal.

H.B. 977, by Rep. Wikoff, would make an individual ineligible for benefits if he is not available for full-time work.

S.B. 31, by Sen. Roger Keats (R., Kenilworth), would provide that an employee may not receive unemployment benefits at the time of separation of lay-off, if the employer has made payments for holiday pay to the employee.

S.B. 190, by Sen. LeRoy Lemke (D., Chicago), would provide that cash tips or cash gratuities equal to or greater than $20 a month shall be treated as wages. Presently all gratuities are treated as wages, without regard to amount.

Workmen's compensation bills

H.B. 25, by Rep. Huskey, would limit the maximum permanent partial disability benefits to 50 percent of the state's average weekly wage and the maximum benefits for death or permanent total benefits to 100 percent of the state's average weekly wage.

H.B. 34, by Rep. Robert Terzich (D., Chicago) and Rep. Thaddeus Lechowicz (D., Chicago), would amend the Workmen's Compensation Act and the Worker's Occupational Diseases Act to conform to Supreme Court Rule 302 (a) concerning appeals from the circuit court in cases arising under those acts.

H.B. 431, by Rep. Edmund Kornowicz (D., Chicago), would create an exception to the exclusive remedy provision of the Workmen's Compensation Act. An employee would be allowed to sue the employer in a common law tort action for injuries sustained as a result of the employer's removal or disengagement of safety devices of any equipment by the manufacturer.

H.B. 537, by Rep. J. Theodore Meyer (R., Chicago) and Rep. John Beatty (D., Chicago), would increase the salary of arbitrators from $34,000 to $2,000 less than the salary received by members of the Industrial Commission which is presently $38,000.

H.B. 648, by Rep. Calvin Skinner Jr. (R., Crystal Lake), would define accidents sustained while attending or participating in employer sponsored recreational activities as outside the course of employment and not eligible for compensation.

H.B. 947, by Rep. Lechowicz, would provide clarification of the Industrial Commission's power to make rules and regulations for determining extent of disability sustained.

H.B. 1126, by Rep. Ronald Griesheimer (R., Waukegan), would provide that medical examination of injured employee by the employer's physician be performed in the county where the employee resides.

S.B. 121, by Sen. Lemke, would require all companies offering casualty insurance to also offer workmen's compensation insurance.

S.B. 120, by Sen. Lemke, would provide that when an employer has three consecutive policy years of workmen's compensation insurance with no claims payable under the policy, the carrier may not refuse to renew the policy until a year after a compensable injury occurs. The carrier shall grant that employer a 15 percent reduction in premium for the first year after his first three year injury-free period.

S.B. 55, by Sen. Terry Bruce (D., Olney), would provide that the total benefits payable to an employee under the Workmen's Compensation Act, the Worker's Occupational Diseases Act or the Social Security Act shall not exceed 80 percent of the employee's average weekly wage. Excludes persons over the age of 62 years from this provision.

Government reorganization

Based partially upon staff reports ordered in December, Gov. James R. Thompson has issued three separate executive orders this year to reorganize state agencies. Under Article V, section 11 of the state Constitution, such executive reorganization orders, if they contravene existing statutes, must go to the General Assembly. If either house disapproves by a majority of those elected, the executive order will not be enacted. If neither house disapproves within 60 days, the executive order goes into effect.

Thompson's most important reorganization proposal calls for creation of a new Department of Commerce and Community Affairs. Under Executive Order No. 3 issued March 30, a new agency would be formed through consolidation of: the Department of Business and Economic Development, the Governor's Office of Manpowerand Human Development, and certain community affairs powers of the Department of Local Government Affairs (DLGA). The order also would transfer certain tax-related powers of the DLGA to the Illinois Department of Revenue.

Executive Order No. 2 issued March 2 forms a Private Industry Council to coordinate education and training with private sector jobs in 70 rural Illinois counties. It would change the composition and scope of the Illinois Employment and Training Council and the Balance of State Planning Council. The governor says this will mandate a stronger role for business and industry in state Comprehensive Employment and Training Act programs.

Executive Order No. 1 issued February 22 would transfer certain rehabilitation powers of the Department of Children and Family Services to the Board of Vocational Rehabilitation.

Although other more sweeping reorganization plans are being considered by the governor, no executive order Issued after April 1 may be considered in this annual session, according to the state Constitution.

H.B. 921, by Rep. Douglas N. Kane (D., Springfield), would change implementation procedures for executive orders and create the Executive Reorganization Implementation Act. Referred to House Committee on Assignment March 14.

H.B. 417, by Rep. William L. Harris (D., Marion), would mandate review of all state agencies and programs at six-year intervals and create the Illinois Sunset Act of 1979. Assigned to House Executive Committee Feb. 14.

H.B. 649, by Rep. Totten, is essentially the same as H.B. 417. Assigned to House Executive Committee March 7.

28 / May 1979 / Illinois Issues