All About Business: Indications Point to Favorable Legislative Conditions in Illinois

Nov 1, 2011

“We have to improve – if nothing else – the image of Illinois.” – David Vite, president Illinois Retail Merchants Association

 

Illinois House Speaker Michael Madigan recently made waves when he attended a fundraiser for Republican U.S. House Speaker John Boehner, the political arch nemesis of Madigan’s fellow Illinois Democrat, President Barack Obama. Madigan, the state Democratic Party chairman, went as the guest of Terrence Duffy, executive chairman of the CME Group. In the wake of last year’s income tax increase, Duffy has threatened to move the Chicago-based futures and derivatives trading operation out of state. Madigan’s spokesman, Steve Brown, told the Chicago Sun-Times that the Illinois speaker did not contribute to the U.S. House speaker’s political action committee, and the reason for his attendance was Duffy’s invitation, as well as political bridge-building. “We’ve said for more than a year, one of the messages of 2010 is the need for people to cooperate, and that’s what Madigan’s tried to do,” Brown said. 

Since the country’s economic crisis and subsequent recession, efforts to decrease unemployment and get the state on sound fiscal footing have made for some strange political bedfellows and some concrete developments on longstanding hot-button issues. With the state’s unemployment rate at just below 10 percent, elected officials of all stripes can feel the public dissatisfaction with the so-called jobless economic recovery nipping at their heels. “You can’t pick up a newspaper, read an article … watch a television show or listen to the radio without people talking about jobs and people talking about growing businesses,” says David Vite, president of the Illinois Retail Merchants Association. “That kind of backdrop has caused leaders of all political parties to take a much deeper look for a kind of welcome mat for those who can and will grow the economy through creating new jobs.” 

Gov. Pat Quinn chastised Madigan in the media for attending the fundraiser. But if Madigan’s top priority was to keep Duffy happy, then Quinn had little room for complaint. The governor has promised $100 million in incentives to Motorola over the next 10 years in exchange for that company staying in Illinois. He gave $3.2 million to Chicago-based Groupon so the company would add 250 new jobs in Illinois as opposed to operations in other states. He has also said he is open to working out similar deals with Sears and the CME Group to entice them into staying.

At the beginning of the spring legislative session, all four caucus leaders had a shared goal. “I believe that workers’ compensation overhaul is the single most important piece of legislation we can pass this session to prove that we’re serious about improving the business climate,” Senate President John Cullerton told a group of business leaders at a luncheon early in the session. Lawmakers approved substantial changes to the workers’ compensation system that were backed by several major business groups, including the Illinois Retail Merchants Association and the Illinois Manufacturers’ Association. The path to reform was rocky — at one point, the sponsors of the reform bill were threatening to dismantle the entire system. However, Vite, who lobbied lawmakers on the issue, describes the process as a collaboration between both parties and several interest groups. “At any moment … this legislation could have been derailed. We could be talking about another missed opportunity for workers’ compensation. Instead, bipartisanship showed up. Business and labor worked together. Lawmakers rolled up their sleeves and worked with committed business leaders for reform in our workers’ compensation laws.” 

However, the Illinois Chamber of Commerce took a neutral stance on the bill. Chamber president Doug Whitley has vowed to make workers’ compensation a campaign issue in the 2014 gubernatorial race if the new law does not lead to savings for employers. He says Illinois cannot pat itself on the back for making a change but must look at what other states are doing to make themselves competitive for businesses. “There’s a keeping-up-with-the-Joneses aspect to this,” he says. 

Other legislation where many business groups declared a victory also ostensibly forced jobs out of the state. A new law that requires Internet retailers such as Amazon.com to collect Illinois sales tax based on relationships with marketers in the state caused Amazon and Overstock.com to sever such relationships. The loss of business chased at least one Web marketing company to a neighboring state. Business organizations pushed hard for the “Amazon tax,” saying it is unfair to ask brick and mortar stores to collect the tax while online sellers do not and can therefore sell products for a lower total cost to consumers. Vite points out that Illinois residents who shop online still owe the state tax, but most are unaware or do not pay it. “People who buy owe tax; all we’re doing is talking about a collection mechanism.” 

Business interests also played a hand in passing a landmark education reform package. The Portland-based Stand for Children advocacy group raised millions in campaign cash, some from prominent members of Illinois’ business community, and gave big to candidates, the majority of them Democrats, during last year’s election. At the same time, teachers’ unions had cut their support to send Democrats a message about the recent public employee pension benefit changes — which created a two-tiered system with less generous benefits for those hired after the change. The bill was rushed through the legislative process in one day by Democratic leadership. 

When the first hearing on education reform came, union representatives found themselves publicly pleading with the Democrats in charge to slow down and hear their input. They did slow down, and the final package passed in the legislature in May with all groups congratulating each other on working together.

Cut to July. Stand for Children founder Jonah Edelman bragged to an audience at a conference in Aspen, Colo., that his group had exploited the rift between teachers’ unions and Democrats and used money and pressure from the media to get the organization’s agenda pushed through the legislature. The group’s Illinois chapter distanced itself from Edelman’s comments, and some say the reality of the process was not as simple as his controversial characterization. Kent Redfield, an emeritus professor at the University of Illinois Springfield, says that teachers’ unions pulling their support gave Democrats political “cover” to make some of the changes they did, but that education reform was on their to-do list anyway. “I think it’s silly to think that Stand for Children somehow bought the changes. I think it’s silly to think that pressure from the [Chicago] Tribune or Stand for Children made those changes happen,” Redfield says. “What [the unions] did wasn’t prudent as far as their long-term interests, and so Speaker Madigan was less inclined to be accommodating to the unions. But clearly, compared to what’s been done in other states, this was pretty modest. This was not a situation where Speaker Madigan or [Senate President John] Cullerton were in some reactive catch-up kind of situation.” 

Redfield says the recent political shifts have been more about Democrats trying to rehabilitate their image following former Gov. Rod Blagojevich and his legacy of corruption. “Certainly, part of this has been positioning by the Democrats to present themselves as the new and improved Democrats, post-Blagojevich. The [Democratic] legislative leaders have been trying to walk that fine line of not abandoning their base but producing a record of change — a record of policy changes, so they can credibly put out that narrative.”

Even before the Blagojevich scandal and the recession put Democrats in political hot water, Redfield says, business groups were starting to become less partisan because they saw no end on the horizon to the Democratic legislative majority. “You had the Chamber of Commerce and business groups looking at this and saying, ‘We might be in a permanent minority.’ … And not making it about Democrats or Republicans — that’s a big shift from 10 years ago, 15 years ago.” Now that Democrats are facing more challenges, Redfield says members of the business community see their opening. “The business interests have been trying to leverage the Democrats’ problems to try and get policy changes. They’re trying to take advantage of that.”

Other analysts say it is a matter of leadership coming around to the difficult decisions required in a new economic landscape. “It’s not so much a change as it is a reality. And that’s the economic reality facing our state and facing our country,” says Laurence Msall, president of the Civic Federation, a Chicago-based think tank, and a member of the Illinois Issues Advisory Board. 

Business associations say the politicians are courting them. “Illinois came into this recession without a plan and with no reserves,” Vite says. “A day doesn’t go by when some policymaker doesn’t call our office, when a policymaker doesn’t say, ‘What can we do for you?’ … That’s something that we haven’t seen here in a long time.” Republicans see the change as a result of sticking to their message of fiscal conservatism. “What I think is a good thing that’s going on in the state Capitol now is a lot of things that you’ve been talking about and a lot of things that we have been talking about on the Republican side are starting to be discussed, and I think will ultimately happen,” House Minority Leader Tom Cross told a gathering of Illinois Chamber of Commerce members during the spring session. “So the persistence pays off. For a number of years there, we were a little frustrated. We weren’t getting anywhere. People weren’t listening. I think the public was. I think you were, and we said, ‘We’re not going to give up.’” 

That’s not to say that Democrats have handed business lobbyists the keys to the store. Workers’ compensation changes came on the heels of an increase in the corporate income tax rate to 7 percent from 4.8 percent. The private sector called the increase a jobs killer, and governors from neighboring states began to flagrantly court Illinois businesses with billboards and ad campaigns. Workers’ compensation reforms almost seemed like a bone being tossed to business as Quinn reminded them publicly and often that they pay more for injury insurance than they do to the state in income tax. 

The change that some business-backed groups see as the key to the state’s fiscal stability — a reduction in pension benefits for state employees hired before January 2011 — failed to gain the support needed to pass during the spring legislative session. Cross’ bill, which would have allowed employees to keep all benefits earned to date but given them the option of paying more for their benefits or switching to a 401(k)-type plan going forward, never made it to a floor vote. 

“The state of Illinois unfortunately is driving economic development decisions to other states,” says Msall. “Stabilizing the state budget would show that we’re serious about creating a state government that is predictable.” Msall and many others believe that the only way to stabilize the budget is to help the state crawl out from under its billions in unfunded pension liabilities by cutting benefits for current employees. “All those other things are nice,” Msall says. But he adds that without addressing the state’s pension liability, changes such as workers’ compensation and Medicaid reform, which also passed with Democratic backing last session, do little to ensure the stability of state government. 

Duffy of the CME Group says businesses might have been more open to the income tax increase if changes to the pension benefit structure had been part of the deal. “Address the pension issue and then raise taxes,” he told Crain’s Chicago Business. “Say: ‘Listen, if we fix this problem, it’s going to cost us all a few bucks.’ Okay, I’m in.”

Msall says such changes to the pension system would not be an overnight job creator but would give the state a more positive outlook to business and possibly open the door to cheaper borrowing, since such steps toward stability might lead to a better credit rating for the state. Vite agrees that such changes in perception are important. “We have to improve — if nothing else — the image of Illinois.” He says that some retailers in Illinois are beginning to hire again but admits the employment facet of the recovery is slow in coming. He says some of those that are hiring are having trouble finding solid applicants. “Finding employees that are qualified, ready, willing and able to work, that’s difficult right now.” He adds that the sluggish housing market is affecting lots of other areas as builders are not buying supplies and out-of-work construction laborers are buying less of everything else. “It is a journey right now. It’s not a sprint.”

Madigan and Cross have been meeting with business groups and labor representatives to try to find a change in the pension systems that would stand a chance in the legislature. 

Union officials, joined by Cullerton and others, maintain that changes such as the ones in Cross’ legislation violate the state Constitution. They say employees have paid their required share into their retirement, while politicians have skipped payments and used the money to fund programs that are more politically popular. Anders Lindall, spokesman for Council 31 of the American Federation of State, County and Municipal Employees, says members of the business community are using the economic crisis as an opportunity to lower the bar for workers’ benefits in both the public and private sectors by channeling people’s anger over the country’s economic state away from businesses and banks and toward public workers. 

“Politicians of both parties, in our view, have been lending way too much credence to attacks on public sector workers. Those who have tried to stoke resentment among public and private sector workers when none should exist manipulate budget problems toward ideological ends,” Lindall says. “They want to impose the same Wal-Martized vision, the same race to the bottom on the public sector, on teachers and police officers, librarians and firefighters, caregivers and sanitation workers.” 

Redfield says that in the end, benefits may change little or not at all, and state lawmakers will likely instead try to push the cost of some pensions onto other entities, such as local school districts and universities. “I would be surprised if Cross’ bill passed in the House, and I don’t think it will ever pass in the Senate. That’s just not the way we’re going.”

He says part of what motivates Democrats to make progress on some reforms is a desire to take them off the table as campaign issues for next year’s election, while leaving the door open to revisit them later. “Whether this is the beginning or the end, [they] don’t have to move on it until 2013. They’ve done enough to be able to kind of rest on [their] laurels.” Redfield says it will be easier to tell after the election whether Democrats’ loyalties and the role of business in Illinois policymaking have made a long-term shift. As for the recent changes, Redfield says, “the Democrats are giving some ground or solving problems, depending on your perspective.”

Illinois Issues, November 2011