By DIANE ROSS   Legislative Action

THE General Assembly adjourned July 2 to reconvene October 1, ending what may be the most extraordinary session within recent memory. Legislators failed to resolve the three major issues confronting them this spring: reapportionment, the Regional Transportation Authority, and the recession — and may be called into special session this summer to do so. Despite these signal failures, 1981 marked significant success in reform of unemployment insurance, legalization of multi-bank holding companies, deregulation of consumer loans, legalization of branch savings and loan offices, creation of secondary money markets for farmer and student loans, changing the date of primary elections, limited regulation of ambulances and vital adjustments in the state's new no-mandates-without-reimbursement policy, to identify legislation detailed here. For an overview of the final month of this extraordinary session see "The state of the State," p. 2. For more details on legislative action, see next month's legislative column in Illinois Issues.

FINANCIAL INSTITUTIONS

Multi-bank holding companies now permitted

AFTER a 10-year struggle that split the state's large and small bankers, Illinois has legalized a form of multi-office banking. Gov. Thompson signed the bill finally passed by the General Assembly allowing the so-called "multi-bank" companies.

For or against, Illinois bankers see this year's passage of the bipartisan, but still controversial, bill as a landmark in Illinois banking legislation. Legalization of multi-bank holding companies in 1981 is the third major reform of the state's banking laws in this century. The General Assembly approved the Electronic Funds Transfer System (EFTS) in 1979, one partial-service, or drive-up-type, facility per bank in 1965, and

Holding Company Regions

two partial-service facilities per bank in 1976.

Illinois is the 48th state to legalize some form of multi-office banking; the two holdouts are Virginia and Oklahoma.

Multi-office banking has been the number one banking issue in Illinois since 1971. Illinois law did not allow either form: branch banking, which allows banks to operate more than one full-service facility; or multi-bank holding companies, which allow more than one bank to affiliate with the same holding company.

Pro-branch bankers had failed to win approval for branch banking at the 1970 Constitutional Convention; the new document expressly prohibits branch banking unless a three-fifths majority of the General Assembly, or the majority of legislators elected, whichever is greater, approves it. Led by the Illinois Bankers Association (IBA), these pro-branch bankers immediately began to lobby for the legalization of branch banking in 1971, but they were never able to garner a three-fifths majority.

Bankers began to lobby for the alternative, legalization of multi-bank holding companies, in 1977. In theory, that would give banks the option of affiliating with holding companies or remaining independent. In practice, however, what the holding company offers the stockholders usually determines whether a bank affiliates or remains independent.

Bankers soon split over multi-bank holding companies, with the larger banks lobbying for and the smaller banks lobbying against.

The few large banks, claiming 80 percent of the state's banking assets, organized as the Association for Modern Banking in Illinois, arguing that multi-bank holding companies would stimulate intrastate competition among Illinois banks, while at the same time stifling interstate competition. The many small banks, representing 77 percent of the state's 1,259 banks, stayed with the IBA, arguing that multi-bank holding companies would have the opposite effect: larger Illinois banks would suddenly take over smaller Illinois banks and neighboring states' banks would gradually take over Illinois banks.

By the end of the 1970s the trend within the industry was moving from intrastate to interstate banking. And by the beginning of the 1980s two recessions had forced Congress to seriously consider deregulating the industry. In Illinois, however, while the House had occasionally passed bills legalizing some form of multi-office banking, the Senate had never considered the issue until this year.

This year's legislation, S.B. 578, sponsored by Sen. Roger Keats (R., Kenilworth), legalizes limited multi-bank holding companies. That is, it limits the age

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and location — but not the number — of banks that are allowed to affiliate with the same holding company. No new banks will be allowed to be chartered in order to effect an affiliation. No banks less than 10 years old are allowed to affiliate. And banks are allowed to affiliate only with a holding company located in their home region or a contiguous region. Illinois is divided into five holding company regions: (1) Cook County; (2) the "collar counties" of DuPage, Kane, Lake, McHenry and Will; (3) northern Illinois, including Quincy, Peoria, Moline, Rock Island, Rockford, Bloomington and Danville; (4) central Illinois, including Springfield, Decatur and Champaign-Urbana; and (5) southern Illinois, including East St. Louis.

In addition, S.B. 578 expands from two to three the number of partial-service facilities that banks will be allowed to operate. Illinois statutes had allowed one within 500 yards of the bank's full-service facility, and a second within 3,000 yards. The third will be allowed within 10 miles of the bank's full-service facility, or within the bank's home county, but not within one mile of another bank's full-service facility.

The original Senate multi-bank holding company bill, S.B. 375, sponsored by Sen. George Sangmeister (D., Joliet), was killed in the Senate Finance Committee, but resurrected as an amendment to S.B. 578, which had been channeled through the Senate Judiciary Committee. The Senate passed S.B. 578 34-20 May 21; the House passed it 99-59 June 18; and the governor signed it July 3 (P.A. 82-21). An identical multi-bank holding company bill, H.B. 666, sponsored by Rep. James McPike (D., Alton), passed the House 93-59 May 19 but was killed in the Senate Finance Committee.

Deregulation of consumer loans

IN AN EFFORT to ease the recession-tightened money market, Illinois will deregulate consumer loans this year — if Thompson signs a bill designed to make home and auto loans more readily available by eliminating state ceilings on interest rates. The controversial bill indefinitely eliminates Illinois ceilings on interest rates on home, auto, retail installment, revolving credit, general installment, credit union and finance company loans. In essence, consumer loans would be deregulated just as commercial and agriculture loans.

At the depth of the 1979-80 recession, financial institutions borrowed money at interest rates not limited by law, which were far greater than the interest rates on the money that they lent, which were limited by law. The result was that the major lenders — banks, savings and loans and credit unions — were no longer able to make a profit and home loans and auto loans, the major kinds of consumer loans, were no longer available.

In emergency legislation enacted during its fall veto session in 1979, the General Assembly eliminated Illinois' ceiling on home loans until 1982; during its spring 1980 session, the legislature followed suit on auto loans. In 1980, the General Assembly had attempted to deregulate all consumer loans, but that legislation, despite its bipartisan sponsorship, only passed the House (H.B. 3268, sponsored by then-House Speaker William Redmond (D., Bensenville) and then-House Minority Leader George Ryan (R., Kankakee)).

Meanwhile, Congress is currently considering deregulating consumer, commercial and agriculture loans nationwide (H.R. 2501).

Under H.B. 438, sponsored by current speaker Ryan and former speaker Redmond, the deregulation of consumer loans in Illinois would eliminate the following interest ceilings, according to the Illinois Department of Financial Institutions:

• Retail installment loans, or minor credit cards issued by department stores or gasoline companies, which currently carry a maximum interest rate of 21.60 to 28.32 percent, depending on the outstanding balance.
• Revolving credit loans, or major credit cards issued by banks, such as "Master Charge" or "VISA," which currently carry a maximum of 18 percent.
• Home loans (mortgages or contracts for deeds) secured by residential real estate. There is currently no ceiling on interest rates, although the ceiling is scheduled to return in 1982 if this legislation does not become law; home loans currently are being made with interest rates ranging from 14 to 16 percent.
• Motor vehicle loans secured by the vehicle, which currently carry maximum interest rates ranging from 23.18 to 26.62 percent, depending on the age of the vehicle.
• Installment loans requiring collateral, which currently carry a maximum interest rate ranging from 18 to 30 percent, depending on the size of the loan or the length of repayment.
• Loans issued by credit unions, which currently carry a maximum interest rate of 15 percent.
• Finance loans issued by finance companies, which currently carry maximum interest rates of 18, 24 or 30 percent, depending on the outstanding balance.
• Installment loans issued by finance companies, which currently carry a maximum interest rate ranging from 15.06 to 19.64 percent, depending on the length of repayment.

Under H.B. 438, the state ceilings on the interest rates for these loans would be eliminated immediately if Thompson signs the bill into law. But lenders would be required to notify consumers 30 days in advance of an increase in interest rates. Consumers would be required to pay the higher interest rates only on loans made after notification.

Most observers agree that H.B. 438 will produce an increase in interest rates on consumer loans. However, some observers believe that the resulting increased competition among lenders will eventually produce a decrease in the interest rates.

H.B. 438 passed the House 105-47 May 6; passed the Senate 31-23 June 23, and was sent to the governor June 29. An identical bill, S.B. 212, sponsored by Sen. Glenn Dawson (D., Chicago), had reached third reading in the Senate, but was sent back to committee with the passage of H.B. 438 in the House.

Branching of state-chartered S &L's

IN AN ATTEMPT to boost the state's sagging savings and loan industry (and stimulate its sluggish mortgage market), the General Assembly all but unanimously passed a bipartisan bill designed to allow branch offices of state-chartered savings and loans. The intent is to restore competition within the S & L industry and to sharpen competition among S & L's, banks and mutual funds industries.

Intermarket and intramarket competition has long been a major issue for Illinois savings and loans. Although the intermarket issue has remained branch offices, the focus of the intramarket issue has switched from banks to mutual funds due to the 1979-80 recession.

Illinois currently does not allow its 200 state-chartered S & L's to operate branch offices even though Illinois' 145 federally chartered S & L's have long had the power to branch. This advantage has weakened Illinois' so-called "dual charter" S & L system, which was designed to maintain competition within the industry. An increasing number of Illinois S & L's have switched from state to federal charters within the last decade.

In 1980 Congress passed the U.S. Monetary Control Act, deregulating savings and loans in an attempt to boost the industry and stimulate the mortgage market. In Illinois, where S & L's and banks are subject to similar regulation, the General Assembly automatically took steps to make S & L's more competitive with banks when

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it legalized Electronic Funds Transfer Systems in 1979 and limited service facilities in 1965 and 1976.

S.B. 919, sponsored by Senate President Phil Rock (D., Chicago), gives state-chartered savings and loans the same branching power federally chartered S & L's have. And it allows state-chartered S & L's to merge in nonemergency situations, thus salvaging sinking S & L's. S.B. 919 passed the Senate 56-1 May 29, passed the House 149-1 June 16, and was sent to the governor June 19.

Exempting more assets during bankruptcy

ASSETS exemptions under Illinois bankruptcy laws would be liberalized under a bill the General Assembly passed this year to follow up on recent Congressional action.

The issue centers on the amount of a debtor's assets that are exempt from creditors' claims when bankruptcy is declared. The debtor's "homestead" and some personal property is exempt.

In 1980 Congress radically broadened these'exemptions, in effect dramatically increasing the amount of a debtor's assets that remain beyond the reach of creditors' claims. Congress preempted all state bankruptcy laws, but allowed the state to reinstate their assets exemptions if they wished, since assets exemptions are considered a state, rather than federal, issue.

In 1980 the General Assembly reinstated Illinois' original assets exemptions. This year the General Assembly liberalized the exemptions, but not as much as Congress.

Under S.B. 300, sponsored by Sen. Stanley Weaver (R., Urbana), the "homestead" exemption would decrease from $10,000 to $7,500, but any individual not just a head of a household, would be eligible; children of deceased debtors would remain eligible until they were 21, not 18; and the exemption would be expanded to include condominiums. The bill would also replace flat monetary ceilings on personal property exemptions ($300 for individual; and $1,000 for households) with an itemized list of exemptions; and it specifically eliminates exemptions for the proceed; from life insurance policies, endowments of annuities payable to a deceased debtor's survivors.

S.B. 300 passed the Senate 51-0 May 20 passed the House 146-7 June 27, and was sent to the governor June 30.

LABOR & BUSINESS

Federal threat forces action on unemployment insurance

IN AN eleventh-hour effort to salvage the state's sinking unemployment insurance (UI) program, Gov. James R. Thompson signed into law July 3 the single most important bill to emerge from the 1981 session of the Illinois General Assembly. The landmark business/labor legislation includes nearly $500 million in UI reforms: a $240 million increase in employer taxes and a $260 million decrease in worker benefits.

The legislature passed the historic UI reform bill June 29 after business and labor negotiated an unprecedented settlement June 18. Employers and workers were finally forced to the bargaining table by a federal UI loan crisis that had already exploded into federal penalty taxes and threatened to burst into state interest payments as well.

The so-called "agreed bill" process by which business and labor negotiated the settlement and then drafted the bill, was reinstated in the mid-1970s, chiefly to resolve the worker's compensation (WC) and unemployment insurance issues that arose in 1975 when the then-Democratically controlled General Assembly radically liberalized WC and UI benefits. But the return of the agreed bill process had met with little real success — until June this year. Business and labor produced a pseudo reform of UI in 1979, but nothing on WC. They produced at least the preliminaries to lasting WC reform in 1980, but nothing on UI. The process this year had broken down entirely by March.

There were two major WC reform packages: H.B. 555 and 556, sponsored by Rep. Calvin Schuneman (R., Prophets-town), was consigned to the spring calendar, while S.B. 392-395, sponsored by Sen. Timothy Simms (R., Rockford) and Sen. John Nimrod (R., Glenview), was killed in committee. The other major WC package, S.B. 200 and 201, sponsored by Sen. Roger Keats (R., Kenilworth), was also killed in committee.

One WC insurance bill did reach the governor's desk: S.B. 662, a relatively non-controversial measure sponsored by Sen. Aldo DeAngelis (R., Chicago), which would allow two employers considered similar WC risks to qualify for group self-insurance. It passed the Senate 55-0 May 26, the House 155-4 June 17 and went to the governor June 25.

Illinois U.I. Trust Funds and Federal Loans Source: Illinois State Chamber of Commerce

The story appeared the same for unemployment insurance. The three major UI reform packages went nowhere: H.B. 446 and 467, sponsored by Rep. Herbert Huskey (R., Oak Lawn), were shelved for interim study; H.B. 673 and 675, sponsored by Schuneman, were consigned to the spring calendar; S.B. 520-523, sponsored by Simms, were tabled. Of the rest, however, two "voluntary quits" bills reached passage stage. H.B. 334, sponsored by Rep. Michael Tate (R., Decatur), passed with 10 votes to spare, 99-51, yet earlier that same day, May 14, H.B. 138, sponsored by Rep. Virgil Wikoff (R., Champaign), fell one vote short, 88-78. Republicans, knowing the Senate would not pass Tate's bill, made one more attempt at pro-business UI reform on June 10 by amending S.B. 168, a noncontroversial bill already passed by the Senate.

A report documenting the problems with the state's debt-ridden UI program had been released in April by the Illinois State Chamber of Commerce. According to the report, this year the state's UI debt to the feds is expected to reach $2 billion. And this year employers will start to pay the debt via a federal penalty tax; employers will pay $75 million in penalties in 1981. But by 1986, when the state's UI debt to the feds would be paid in full, employers are expected to pay a $525 million penalty. Employers, the chamber said, were prepared to cut those federal penalty tax losses by laying off workers — starting with 27,000 next year.

But apparently the AFL-CIO was not intimidated.

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Neither was the General Assembly. In April, both the House and the Senate were obsessed with the crisis that threatened to shut down Chicago's mass transit system.

By June, with only a month of the session left, Congress threatened to stop making federal UI loans altogether — or at least to start charging states 10 percent annual interest. It was the Congressional threat that galvanized first Senate President Philip Rock and finally Thompson into action, demanding that the chamber and the AFL-CIO sit down together in Springfield. There was no question but that any Congressional action would affect Illinois: among the 15 states with a federal UI debt, only Pennsylvania has borrowed more than Illinois. Without federal loans, unemployment insurance would cease to exist in Illinois. Even at 10 percent interest, its future would be doubtful. Since Illinois is currently borrowing at the rate of about $600 million a year, the interest would run about $60 million a year. Unlike the principal paid by employers, the interest would be paid by the state out of its general funds, which could hardly be stretched to pay $6 million a year, much less $60 million.

Business and labor accepted Thompson's offer to hold a summit meeting at the Executive Mansion June 16 and 17. On June 18 they called a news conference to announce they had negotiated an unprecedented settlement. The House amended this extraordinary "agreed bill" to S.B. 1081, a vehicle that had already passed the Senate. The amended S.B. 1081 passed the House 158-6 June 26, the Senate 57-0 June 29. Thompson signed the bill into law July 3; however, the bill is not effective until October 1 (P.A. 82-22).

S.B. 1081 decreases worker benefits by $260 million and increases employer taxes by $240 million in UI reforms designed to reduce what the state borrows from the feds in 1982, eliminate the need to borrow in 1983 and bring the state's UI program back into the black soon thereafter. Presumably these reforms will permanently resolve the voluntary quits eligibility issue, but apparently will only temporarily resolve the average-weekly wage formula benefits issue. Here are the key provisions of the landmark legislation:

• Worker Eligibility. Workers who voluntarily quit their jobs without good cause attributable to employers, workers who are fired for misconduct and workers who are laid off but refuse "suitable" work will no longer be eligible for UI benefits unless they get another job and earn an amount equal to what their weekly UI benefits would have been during four consecutive weeks. (Labor loses $102 million in benefits.)

• Worker Qualifications. Eligible workers must have earned at least $1,600 (up from $1,400) in their highest earnings quarter and at least $440 (up from $385) in their second highest, to actually qualify for UI benefits.

• Worker Benefits. Maximum benefits for all workers will be frozen for a year ending July 1, 1982, remaining at $148 a week for single workers, $178 for married workers, and $198 for workers claiming dependents. Under the UI formula, benefits are tied to the average weekly wage, with benefits increased twice a year to reflect increases in the average weekly wage. Benefits will now be increased only once a year. (Labor loses $72.5 million in benefits.)

• Employer Taxes. The maximum state tax rate will increase from 5 to 5.3 percent, while the minimum will increase from . 1 to .2 percent. To protect small employers, those with a payroll of less than $50,000 (up from $40,000) for any one quarter, will be taxed at a maximum rate of 2.7 percent (down from 3 percent) for that quarter. (Business taxes increase $36.8 million.) The worker's wage base on which employers are taxed will be increased from $6,500 to $7,000. (Business taxes increase $54 million). And the state surtax on employers, levied in times of extremely high unemployment, will be increased from .3 to .4 percent. (Business taxes increase $27 million.)

FARMING

Land and machinery loans via state revenue bonds

FARMERS held hostage by ruinous interest rates would be ransomed to fight back at inflation if Thompson signs a bill the General Assembly passed to create a secondary revenue bond money market to make first-time land and machinery loans available.

The legislature has created a number of secondary money markets in previous years, establishing bonding authorities to develop industrial facilities, housing, schools, environmental facilities, hospitals and toll highways. This year, in addition to the agriculture bonding authority, the General Assembly passed H.B. 1438, which establishes a student loan bonding authority.

State Treasurer Jerry Cosentino proposed the bond-backed land and machinery loans this year to follow up on the investment-backed seed and chemical loans he began last year. (Because the land and machinery loans take advantage of a similar federally backed program, they require legislative approval; the seed and chemical loans did not.)

To stimulate the market, Cosentino made $58 million in state investment funds available to Illinois banks to back low-interest seed and chemical loans beginning in May 1980. Cosentino invested the funds at 7-7/8 percent interest, requiring that the banks make the loans at no more than 11 percent interest. In 1980 more than 100 banks participated, eventually making 2,600 loans averaging $22,000 per loan, to help as many farmers as possible.

Cosentino renewed the low-interest seed and chemical loans this year, making $52.6 million available beginning in March 1981. He invested the funds at 11.5 to 13.75 percent interest and required that the banks make the loans at no more than 3 percent above whatever interest rates they paid on the investment funds.

Over the years the Farmers Home Administration (FmHA), working under the U.S. Department of Agriculture, has offered a number of such low-interest loans backed by federal funds. Under the Carter administration, the FmHA expanded the scope of the programs to encompass agriculture-related loans. Under the Reagan administration, however, the FmHA is expected to restrict the programs to agriculture loans.

Cosentino's bond-backed land and machinery loan proposal would take advantage of one FmHA program designed to allow young farmers without credit ratings or tenants without capital to buy the land and machinery they need to begin production. Under this program farmers who have repeatedly been denied credit are eligible and those whose applications are approved by the FmHA's county peer committees qualify for land loans up to $100,000 and major machinery loans in various amounts.

H.B. 607, sponsored for Cosentino by Rep. B.T. Donovan (D., Decatur), would create an Illinois Farm Development Authority (seven members appointed by the governor with the consent of the Senate) empowered to sell up to $50 million in bonds to provide the revenue to buy FmHA-insured land and machinery loans from the banks. (Actually the authority would buy up to 90 percent of each loan.)

H.B. 607 passed the House 127-11 May 20 and the Senate 30-27 June 26. A similar bill, S.B, 449, sponsored by Senate Agriculture Committee chairman Vince Demuzio (D., Carlinville), failed, however, in a 26-26 tie vote May 29. The House consigned to its spring calendar a third farm loan bill, H.B. 842, sponsored by House Agriculture Committee chairman Harlan Rigney (R., Freeport). Rigney's proposal, patterned after a national model suggested by the E.F. Hutton bond house, was far more comprehensive.

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