By DIANE ROSS   Legislative Action

Adjustments to last year's laws

MOST of the substantive bills passed during this off-year session, ostensibly devoted to appropriations bills, were truly emergency in nature. This year the legislature generally made changes in laws it made last year, changes necessitated by court rulings, federal action, the recession.

Gov. James R. Thompson had until September 13 to act on Senate bills, September 21 to act on House bills. Legislation summarized in this column includes the governor's action as of September 1, the deadline for this magazine.

By September 1 Thompson had also taken action on a number of revenue bills analyzed in the September column. On the partial repeal of the state inheritance tax, Thompson amendatorily vetoed H.B. 93 on August 10, moving the effective date back six months from July 1, 1982, to January 1, 1983. On the partial outlawing of the practice of double taxation of public utilities, Thompson amendatorily vetoed H.B. 991 on August 9, moving the effective date ahead one year, from January 1, 1984 to January 1, 1983. On the tax breaks business wanted, the governor had not yet acted on H.B. 2588, which bans the recent use of the unitary or combined apportionment method of computing corporate income taxes. He had signed, however, H.B. 1296 on August 18 (P. A. 92-0935), which freezes the classification of corporate property. And he went on to amendatorily veto H.B. 2485, a companion freeze bill. He made the freeze permanent by eliminating a provision that would have lifted it January 1, 1985.

As the Taxpayers' Federation of Illinois points out, Thompson obviously adjusted the effective dates of the inheritance tax and public utilities tax bills to delay any real decision, until after the election, on whether the state can afford the loss in revenue.

Thompson's amendatory vetoes are, of course, subject to action by the Illinois General Assembly. And the legislature won't reconvene for its annual fall veto session until November 5, three days after the elections.

Financial Institutions

Fiduciary standards; bond sales; banks; savings and loans

PERHAPS the most significant action on financial institutions this year clarified state fiduciary standards. Creditors have long made loans to trustees or beneficiaries of land trusts, with the property as collateral, even when the creditor and the trustee were the same person. Although the statutes were silent, case law had supported the practice until it was questioned by the Illinois Supreme Court in a 1981 decision in Home Federal Savings and Loan Association of Chicago v. Karen Zarkin. The General Assembly legalized the practice in S.B. 1488, sponsored by Sen. Art Berman (D., Evanston); the bill passed the Senate 56-0 May 27, the House 162-0 June 17. It was effective the day the governor signed it August 6 (P.A. 82-0891).

The legislature also passed a bill designed to stimulate government bond sales. The state has delayed some of its bond sales and many counties, municipalities and special tax districts have stayed away from the market altogether due to high interest rates.

Sales of general obligation and revenue bonds (and other kinds of debt) were subject to a statutory ceiling on interest rates of 9 percent until three years ago when the legislature authorized ceilings of 9 percent or 70 percent of the prime rate, whichever was greater. This year, the legislature redefined the optional measure to 125 percent of the 20 General Obligation Bond Index published in Bond Buyer (the accepted guide for determining the yield for municipal bonds). The change was included in S.B. 59 (actually House Amendment 3, sponsored by House Minority Leader Mike Madigan), which passed the House 161-2 April 14 and was concurred in by the Senate 47-0 April 27. The governor signed it May 12, 1982, and it was effective immediately (P.A. 82-0746).

Last year the General Assembly followed 48 other states and legalized multibank holding companies. It also eliminated the ceiling on most consumer loans and gave state-chartered savings and loans the same branching power Congress gave federally chartered S&Ls.

One deficiency in last year's banking legislation was that holding companies were not allowed to acquire banks less than 10 years old. Since then a number of banks have failed, and to save these banks, the General Assembly has now authorized an exemption: Holding companies would be allowed to acquire new banks chartered to reorganize old, failed banks. The bill is H.B. 2397, sponsored by Rep. Tim Bell (R., E. Moline), which passed the House 153-3 May 13, the Senate June 15. The governor signed it June 23, and it was effective immediately (P.A. 82-0761). A similar bill, S.B. 1667, was sponsored by Sen. Stan Weaver (R., Urbana).

Despite last year's action eliminating interest rate ceilings for consumer loans, there are a number of other loans with ceilings still set by statute, including relocation loans, such as mortgages, made by employers to employees they hire or transfer. These loans are interest-free for six months, with the ceiling on the interest rates after that time set by statute at 9 percent. Since most employers can no longer afford to make the loans at such a low rate, the ceiling was lifted under S.B. 1330, a bipartisan measure sponsored by Senate President Phil Rock and House Speaker George Ryan. It passed the Senate 47-3 April 28, the House 141-2 June 21. It was effective immediately August 16, when the governor signed it (P.A. 82-0908).

Last year's S&L legislation attempted to restore the parity between state-chartered and federal-chartered institutions, strengthening Illinois' so-called dual-charter system designed to maintain competition within the industry. Since then federal law has allowed the federal S&Ls to discount and sell low-yielding mortgages, writing off the loss over the life of the mortgage rather than the year of the sale. State-chartered S&Ls are allowed the same write-off terms under H.B. 1651, sponsored by Rep. Dwight Friedrich (R., Centralia). It passed the Senate 55-0, the House on concurrence vote 157-0, and was signed by the governor June 29. It was effective immediately (P.A. 82-0769).

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Auto Insurance

Edgar and Cosentino both push for compulsory plans

NEITHER Republican Secretary of State Jim Edgar nor Democratic Treasurer Jerry Cosentino could push his compulsory auto insurance bill through the General Assembly this year. Evidently, the legislature didn't want to hand a political plum to either Edgar or Cosentino since they're running against each other for secretary of state. (Edgar hopes to be the first Republican elected to the office in 20 years.)

Cosentino's plan, drafted as Senate Amendment 1 to S.B. 1280, sponsored by Sen. John D'Arco, a Chicago Democrat, cleared the Democratic Senate 30-28 May 26, only to be stopped in committee in the Republican House. Edgar's plan, written as House Amendment 1 to S.B. 1559, sponsored by Rep. Roger McAuliffe, a Chicago Republican, shot out of committee only to fall 13 votes short on the floor, 76-60 June 24.

One of the biggest differences between the two plans was cost: Edgar's estimated at $284,000 annually, Cosentino's at $2.5 million a year.

Edgar's plan was based on "self-certification," in which the burden of proof that a driver is insured rests with the state — a premise less likely to be opposed by the insurance industry. Under Edgar's plan, applications for auto license plates and renewal stickers would require the auto insurance company and policy number be listed. Drivers would also be required to carry a card issued by the company showing proof of coverage. The secretary of state would verify coverage with the company, but only on a random sample basis on about 1 percent of applications.

Cosentino's plan was based on "proof of insurance," in which the burden rests with the individual and his insurance company. This presumption was certain to irritate the insurance industry. Under Cosentino's plan, the secretary of state would provide companies with duplicate forms from which the company would issue duplicate proof of insurance cards; one would be attached to the application for plates or stickers, the other would be carried by each driver. Cosentino's plan called for the secretary of state to verify coverage with insurance companies for all vehicles.

About 20 percent of the motor vehicles in Illinois — about 40 percent in Chicago — don't carry insurance, according to Edgar. The big companies like Allstate and State Farm, which write most of the policies in Illinois, say compulsory auto insurance would force them to raise premiums for good-risk drivers to offset the cost of covering the bad risks.

About half the states have compulsory auto insurance, most in combination with no-fault auto insurance. Since enforcemem varies from state to state, however, it is difficult to tell how effective compulsory auto insurance has been in keeping uninsured drivers off the road — or whether it has caused companies to raise premiums on good-risk drivers.

In Illinois over the last 10 years, about three dozen compulsory auto insurance bills have been introduced. Many have passed one house or the other, but the only one to pass both chambers was vetoed by Gov. Dan Walker (though it carried a Democratic sponsor), apparently because of the expense.

Other Insurance

Group life; METs; insolvency; rape exams

ALTHOUGH compulsory auto insurance, did not pass, other bills on insurance did. Four are considered significant by the insurance industry.

Perhaps the most important is a measure designed to stimulate the sluggish life insurance market by making in-state companies competitive with out-of-state companies. The life insurance lobby argues Illinois loses business to other states because Illinois law is more restrictive.

Group life coverage would be redefined to require only two or more members instead of 10 or more, and the lines of group life coverage which companies are allowed to sell would be expanded under S.B. 1581, sponsored by Senate Minority Leader Pate Philip. It passed the Senate 54-0 May 5, the House 157-0 June 18, but the governor amendatorially vetoed it August 20.

Illinois would become the first state to pass a model group health insurance bill designed to eliminate fly-by-night companies fleecing small business under a measure the Illinois Department of Insurance sought. The so-called Multiple Employer Trusts, or METs, which provide group health coverage to employers with only a few employees, are licensed under the U.S. Employers Retirement Insurance Securities Act (ERISA), a loosely enforced federal law passed at the turn of the century. Unscrupulous entrepreneurs have turned METs into lucrative scams. Currently the department must go to court before it can investigate, which gives the MET time to leave town. Under the key provision of H.B. 2357, sponsored by Rep. Patrick Grossi (R., Chicago), the Department of Insurance says the legal presumption is established that the state has regulatory jurisdiction over any health insurance company unless a company, including METs, can prove otherwise. The METs provision was patterned after a model recently adopted by the National Association of Insurance Commissioners. H.B. 2357 passed the Senate 57-0 June 24; the House concurred 160-1 June 25; and it is effective immediately if the governor signs it.

Other significant provisions, which deal with arson, give the Department of Insurance full law enforcement status and require companies to release information to federal, state and local law enforcement agencies.

Another important bill was sought as an emergency measure by the Department of Insurance to deal with the higher incidence of larger companies forced to liquidate. Currently, insolvent insurance companies are not allowed to pay claims until they have completed the lengthy liquidation process. Under the key provision of H.B. 2095, sponsored by Rep. Bernie Epton (R., Chicago), companies would be allowed to pay claims while in the process. The bill passed the Senate 58-0 June 24; the House concurred 148-0 June 25; it was effective immediately when the governor signed it August 16 (P.A. 82-0920).

Health insurance companies which provide coverage for physical exams would have to expand coverage to include exams resulting from rape or sexual assault, and standard deductions would not apply, under H.B. 2520, sponsored by Rep. Diana Nelson (R., LaGrange). It passed the Senate 52-0 June 23; the House concurred 144-0 June 24; effective 180 days after the governor signed it July 28 (P.A. 82-0885).

October 1982 | Illinois Issues | 31

Pensions, Pay

Investment changes; Judicial pay raised

LEGISLATORS threw the door open for investment of public pension funds this year, and they gave judges a pay raise. Despite some initial success, collective bargaining failed again.

The state's public pension systems could play the stock market under legislation which replaces a list of approved options for investing public pension funds with the so-called "prudent person rule." Under the rule, which federal law uses to govern the investment of private pension funds, any investment considered prudent would be allowed. Following the advice of a gubernatorial task force, Illinois would join a handful of other states which have recently shifted to this broad policy.

Illinois' five state public pension systems — those for teachers (elementary and secondary), higher education, executive branch employees, legislators, and judges — hold combined assets of $4.5 billion, perhaps the state's largest pool of investment capital. The erosion of the state's tax base has dramatized the potential of the investment of public pension funds. Last year, a bill was enacted to standardize the list of approved options (H.B. 795/P.A. 82-0740).

The Illinois Study Commission on Public Pension Investment Policy, created by Gov. Thompson last year, found that state public systems receive less than a 5 percent return on investments, while local public systems and private systems receive more than 8 percent. The commission recommended the "prudent person rule" as the best way to boost returns, arguing that it would develop the state's economy as well as make the systems more sound.

The only opposition came from the General Assembly's own Pension Laws Commission, which argued for a more cautious approach. That opposition softened, however, with the addition of provisions that tightened state fiduciary standards, chiefly the provision that holds those who advise, invest or manage public pension funds liable for civil damages.

The Thompson commission's recommendations were initially contained in H.B. 2516, sponsored by Rep. Lee Daniels (R., Elmhurst), which passed the House 140-17 May 13, but died in committee in the Senate. The proposal was amended onto S.B. 1579, a vehicle sponsored by Sen. John Davidson (R., Springfield), which passed the House 118-9 June 21;-the Senate concurred 39-18 June 29. The governor signed it August 25 (P.A. 82-0960).

Illinois' 800-plus judges will get about a 30 percent pay raise under a bill that will eventually cost the state $14 million a year. The raises, however, will be phased in over two years. No serious effort was made in the regular session to raise pay for constitutional officers or legislators.

Legislators last gave judges a pay raise in 1978, during the notorious fall session in which they also raised their own pay. Since then the Illinois State Bar Association and the Chicago Bar Association have continued to argue that Illinois is losing some judges and failing to attract others because salaries are far below those for attorneys in private practice. This session's bill was introduced in the fall of 1981, but, lacking sufficient votes, was held over until spring. Opposition came from a variety of interest groups which argued that the state should fund human services first.

One-half of the pay raises took effect July 1, 1983, at a cost of $14 million for SPY 1984. The seven Illinois Supreme Court judges, whose salaries went from $50,000 to $58,000 in 1978, will eventually get $75,000 a year under the new raise. The salaries for the 34 judges in the state's five appeals courts went from $45,000 to $53,000 in 1978, and will reach $70,000 after the new two-step increase. The 760 circuit judges had their salaries increased in 1978 from $42,500 to $50,500, and their new salaries will reach $65,500. Circuit court associate judges' salaries rose from $39,000 to $44,500 in 1978, and will rise to $60,000 under the new plan. The new raises are in S.B. 1242, sponsored by Sen. Art Berman (D., Evanston), which passed the Senate 32-25 May 27 and the House 102-70 June 22. The governor signed it June 23 (P.A. 82-0762).

As for the bargaining bills this year, university faculty were attempting to gain the legal right to bargain collectively, as elementary and secondary teachers did last year. H.B. 1345, sponsored by Rep. Jim McPike (D., Alton), passed the House 106-64 April 21, but died in the Senate Rules Committee. Another attempt was made with S.B. 733, sponsored by Sen. Glen Dawson (D., Chicago), a vehicle bill amended in the House, but it failed the House 87-66 April 22.

State employees under the governor's jurisdiction were also seeking the right by law to bargain collectively, but H.B. 1873, sponsored by Rep. Peg Breslin (D., Ottawa), died in the Senate Rules Committee after it passed the House 103-62 April 21.

The only pension raise granted by the legislature was a 14 percent raise to Chicago firefighters. Effective July 1, 1982, minimum benefits for those who retired before September 1, 1976, go from $350 to $400 a month, their first raise in 10 years. The cost of living increment for retirees 52 and older goes from 1.5 to 3 percent a year. These pension changes are in S.B. 740, sponsored by Sen. Frank Savickas (D., Chicago). It went to conference committee with the final version adopted June 30, by the House 98-49, and the Senate 42-11.

Motor Vehicles

Making license plates cheaper and in-state

ILLINOIS PRISONS would make Illinois license plates — not New York or Texas prisons as is now the case — under all Republican Secretary of State Jim Edgar sought to cut costs and to return the contract to the state. Edgar's office issues the plates.

Under the bill, the change in state policy would take effect January 1, 1983, but the Illinois Department of Corrections (DOC) says it would need about three years and about $3 million to renovate its facilities. Meanwhile, Edgar is investigating using facilities of other state agencies if a shorter timetable and cheaper price can be met.

About 40 states now make their own license plates; Illinois used to, and in its prisons. About 40 years ago the state shifted the annual contract from public institutions, like prisons, to private firms. New York and Texas prisons have made Illinois license plates since 1979 because they have been the low bidders on the at annual contracts.

H.B. 396, sponsored by Rep. John Hallock (R., Rockford), would eliminate competitive bidding on the annual contracts and would authorize DOC to make the plates; in effect state policy would revert to the position of 40 years ago.

Hallock introduced the bill last year; it passed the House unanimously only to be held in committee in the Senate to give DOC time to come up with a plan for renovating its facilities. This year H.B. 396 passed the Senate 57-0 June 25; the House concurred with Senate amendments 157-0 June 29.

Under Edgar's predecessor, Alan Dixon, Illinois switched from annual to five-year license plates for cars in an effort to cut costs. Edgar wants to cut costs further by issuing plates for six to eight years instead of five, staggering issuance of replacement plates over four years not one, issuing multi-year plates for trucks as well as cars — and have Illinois prisons make the plates. Edgar has the administrative authority to make all the changes except the latter; for that he needed legislative authorization.

In 1972, Illinois changed the statute on bidding of state contracts to give preference to Illinois public institutions and private firms. Ironically, a challenge to a license

32 | October 1982 | Illinois Issues

plate contract struck down the law, sending the contract out-of-state. The Cook County Circuit Court ruled the state preference law unconstitutional in Metal Stamping Corporation (an Arkansas firm) v. Roland Burris (then DAS director); on direct appeal, the Illinois Supreme Court refused to hear the case.

In 1977, Illinois changed the same law to bar any private firm, in-state or out-of-state, whose officers had ever been convicted of bribery, from bidding on a state contract. Again, ironically, a challenge to a license plate contract upheld the law, sending the contract to an out-of-state prison. The case involved the 1979 calendar year contract for which the Arkansas firm (the same one involved in the preference case but operating under a different name) was the sole bidder. But the firm's former president who had maintained a controlling interest in the firm, had once pled guilty to bribery charges. After his death the Arkansas firm sought a declaratory judgment to allow it to bid on Illinois contracts. The Arkansas firm lost, and the Cook County Circuit Court upheld the state bribery-bars-bidding law in Polyvend, Incorporated v. Ted Puckorius (DAS director); the First District Appellate Court upheld the lower court; the Illinois Supreme Court refused to hear a further appeal.

New traffic fines policy: no pay, no license

The secretary of state would be authorized to suspend a driver's license automatically — without a hearing — when a circuit court issues a warrant for the arrest of a driver who ignored traffic tickets. This controversial measure was part of a last-minute conference committee report; its purpose is to help local governments financially.

Chicago police sought the bill, arguing that Chicago fails to collect an estimated $500,000 to $1 million a year in delinquent fines, and spends an estimated $2 million a year for police on traffic court duty. No figures were available for the situation downstate.

Under the bill, circuit court clerks would notify the secretary of state when they issue warrants for the arrest of drivers who have ignored 10 or more parking tickets or two or more tickets for moving violations in the same county. The secretary of state would automatically suspend the drivers' licenses.

The suspension provision is part of the conference committee report on H.B. 1913, also sponsored by Huskey, which was adopted by the Senate 36-21 July 1 and the House 116-39 July 2.

Another provision of the same conference committee report entitles retired legislators to special license plates. Among others who already receive such special plates are disabled veterans, ex-prisoners of war, winners of the Congressional Medal of Honor, National Guard personnel, the handicapped and amateur radio operators.

'No Sale' of cars, trucks on Sundays

Illinois would join a few other states that have banned sales of cars and trucks on Sundays under a bill designed to cut dealer costs while maintaining competition within the industry.

Sunday sales is at issue chiefly in the Chicago area, where city dealers, forced by ordinance to close on Sundays, fear suburban dealers are gaining an unfair advantage. The Illinois New Car/Truck Dealers Association pushed for the ban; the only opposition came from individual used car/truck dealers.

The ban, to be effective January 1, 1983, would not include Sunday sale of motorcycles and car/truck parts and accessories, as well as gas and oil. The Sunday ban is provided for in Amendment 1 to H.B. 1243, sponsored by Rep. Roger McAuliffe (R., Chicago). The bill passed the Senate 42-11 June 16; the House concurred 105-65 June 23. A similar bill, H.B. 1363, sponsored by Rep. Herb Huskey (R., Oak Lawn), had failed in the House 87-69 April 14; the pressure from the new car/truck dealers evidently pulled enough votes necessary to pass H.B. 1243. The governor signed it July 13 (P.A. 82-0788).

Children's car seats required

Illinois would require drivers to keep children five years and younger strapped into special children's car seats under a bill that passed this year after failing for the last three years. The seats must meet U.S. Department of Transportation standards. Effective January 1, 1983, violators would be fined $25 for the first offense, $50 for the second. The bill, H.B. 608, sponsored by Rep. Lee Daniels (R., Elmhurst), passed the House 114-47 April 21 and the Senate 39-13 June 25.

Inspecting auto parts shops

The secretary of state would get new authorization to make surprise investigations of the records of auto parts businesses, the so-called "chop shops," under a bill replacing a previous statute which was ruled unconstitutional by a federal court in the 1981 case, Bionic Auto Parts and Sales v. Tyrone C. Fahner and Jim Edgar. Edgar's office believes the new authorization will prove constitutional. The bill, S.B. 1558, sponsored by Sen. Max Coffey (R., Charleston), passed the House 167-0 June 24; the Senate concurred 56-0 June 29.

34 | October 1982 | Illinois Issues