Government Affairs Roundup
“Your Timely Roundup of Local, State, and Federal Updates”
Let’s hope the holidays around your house are much brighter than today’s news.
The Federal Reserve acknowledged today what those of us that have just started our Christmas shopping already know . . . things are expensive! Fed officials said that the central bank could raise interest rates three times in 2022, no longer calling inflation “transitory.” It’s an about face from the central bank and Chair Jerome Powell that comes as unwelcome news for Democrats and President Joe Biden as inflation has a tendency to take down the party in power.
Tensions are boiling over as discussions drag on between Biden and Sen. Joe Manchin over how to finish Democrats’ $1.7 trillion domestic spending bill. The legislation looks increasingly likely to stall over the impending holiday break, prompting Biden himself to bemoan the slow pace. And Manchin grew frustrated when questioned about whether he opposes a provision in the bill to extend the expanded child tax credit, deeming those queries “bullshit” and denying that he wants to end the $300 monthly check many families receive for children.
That provision expires this month and Democrats had hoped it would drive a year-end deal. Instead, Biden and Manchin don’t appear particularly close to clinching anything and Manchin has suggested pulling the child tax credit from the bill, according to a source briefed on the conversations. Publicly, Manchin himself said he does not oppose the tax credit.
Manchin is now floating the idea of extending the child tax credit for multiple years so that the cost of the proposal is fully reflected. A Democratic source has said the White House had agreed to limit the expanded child tax credit earlier this year because Manchin had demanded the limitation. Manchin is pulling the rug out from under the talks by now insisting that the tax credit be extended multiple years so that the likely true 10-year cost of Build Back Better isn’t misrepresented, the source said. So, things are a bit confusing, and everyone involved seems frustrated.
“The talks between [Biden] and Manchin have been going very poorly. They are far apart,” the source said. Though Manchin and Biden developed a warm rapport this year and collaborated on several prominent pieces of legislation, the plodding pace of the talks between the two Joes threatens to strain their friendly relationship. While Biden likes Manchin personally, he’s grown tired of the elongated talks and will soon push him to make a decision and support the legislation, according to two White House sources.
Sen. Lindsey Graham (R-S.C.) said yesterday that he thinks the Build Back Better Act is “dead forever” due to the Democratic infighting on President Biden’s social and climate spending bill, the cost of the proposal, and its potential impact with inflation.
Graham said on Fox News’s “Hannity”: “I think Build Back Better is dead forever, and let me tell you why, because Joe Manchin has said he’s not going to vote for a bill that will add to the deficit.”
*Government Affairs Roundup brought to you by Silver Cross Hospital*
IRS makes final monthly child tax credit payment unless Congress acts
The Treasury Department and IRS on Wednesday made their final monthly child tax credit payment under President Biden’s coronavirus relief law, as the administration and congressional Democrats push to enact legislation to extend the payments.
The agencies distributed more than $16 billion in payments Wednesday to the households of about 61 million children, Treasury said. Since the monthly payments started in July, Treasury and the IRS have sent out nearly $93 billion in payments.
“Since July, monthly payments of the Child Tax Credit have helped millions of families pay for essentials such as food, childcare, and other household needs as those expenses arise,” Treasury Secretary Janet Yellen said in a statement. “The lives of tens of millions of children across the country have improved because families have received tax relief when they need it most.”
The coronavirus relief law Biden signed in March expanded the child tax credit for 2021. As part of the expansion, Treasury and the IRS sent out monthly advance payments of the credit in the second half of this year. Families have received monthly payments of up to $300 for each child under age 6 and up to $250 for each child ages 6 to 17.
Wednesday’s payment is the final monthly payment absent congressional action. While Democrats intend to extend the monthly payments for one year as part of their social spending and climate package, the Senate has yet to pass a version of the legislation.
The IRS has told lawmakers that they should pass an extension by Dec. 28 in order for a monthly payment to be made on Jan. 15. Many Senate Democrats feel a sense of urgency to pass the spending bill, called the Build Back Better Act (BBB), by the end of the year in order to prevent a lapse in monthly payments. But Sen. Joe Manchin (D-W.Va.), whose vote is needed for passage, has not said whether he would vote in favor of proceeding to the bill or passing it.
House Speaker Nancy Pelosi (D-Calif.) on Wednesday signaled that Congress is unlikely to take up a standalone bill to extend the monthly payments, noting that it would be difficult for such a bill to pass the Senate, where it would need 60 votes.
“Of course we could pass that in the House, whether we could pass it in the Senate remains to be seen,” she said at a news conference. “But I don’t want to let anybody off the hook on the BBB to say, well we covered that one thing, so now the pressure is off. I think that that is really important leverage in the discussion on BBB, that the children and their families will suffer without that payment.”
Pelosi expressed optimism that the spending package would be enacted by the end of the year. She said that she hoped payments could be made retroactively if the legislation doesn’t pass until the new year.
House clears bill to raise debt limit
The House cleared legislation early Wednesday morning to raise the debt limit through next year’s midterm elections, staving off an unprecedented federal default just in time for the deadline set by the Treasury Department.
The bill, which lawmakers passed 221-209, with one Republican voting yes, raises the federal debt ceiling by $2.5 trillion to increase the limit to close to $31 trillion.
Congressional leaders say the new level will allow the nation to continue to meet its financial obligations through 2022 and into 2023. The debt limit hike does not authorize new spending – a message Democrats sought to underscore during debate ahead of the vote amid attacks from Republicans.
“I want to be very clear: raising the debt ceiling is not about incurring new debts but rather enabling the federal government to keep its existing commitments. By raising the debt limit, we are meeting our existing obligations to members of the military, veterans and recipients of Medicare, Medicaid and Social Security,” said Rep. Don Beyer (D-Va.), the chairman of the Joint Economic Committee.
Meanwhile, Republicans hammered Democrats over the vote, claiming the legislation will pave the way for “reckless” spending, as their colleagues press on with plans to advance President Biden’s Build Back Better Act.
“Republicans will not support raising the debt limit while Democrats push through trillions of dollars for purely partisan political spending and thereby depleting our Treasury, not just for today, but for generations to come,” Rep. Michael Burgess (R-Texas) said in floor remarks.
The vote came hours after the Senate passed the bill in a party-line 50-49 vote earlier on Tuesday, ahead of the Wednesday deadline set by the Treasury Department for ensuring the U.S. doesn’t default on its debt obligations. The bill now heads to the White House, where President Biden is expected to sign it promptly to ensure the nation doesn’t default on its debts.
While lawmakers won’t have to deal with the debt limit again until after next year’s midterm elections, the next fight in 2023 could unfold in a divided government between Biden and one or both chambers of Congress controlled by Republicans. Passage of the bill caps off months of fighting between Republicans and Democrats, particularly in the evenly split Senate, over how to address the nation’s borrowing limit.
Lead Pipe Replacement Plan
Vice President Kamala Harris is set to announce today a plan to replace every lead water pipeline in the country within a decade, utilizing $15 billion approved by Congress and coming rules from the Environmental Protection Agency.
President Biden and Democratic lawmakers in Congress have promised swift action on the issue, as lead pipes are considered a health hazard by the EPA, but state and local officials said it could take decades to take out all the millions of pipes nationwide.
Advocates of replacing the pipes say the new funding isn’t enough to replace all the lines and that Congress didn’t pass a mandated timeline—and some states and localities have given themselves until the middle of the century to complete the work.
Illinois and seven other states ask feds to freeze interest on loans used to pay unemployment benefits during pandemic
Illinois and seven other states are asking the federal government to reinstate a freeze on interest that’s piling up on money they borrowed to pay unemployment benefits during the early phase of the coronavirus pandemic.
Illinois owes nearly $4.5 billion to the federal unemployment trust fund, which has been accumulating interest at a rate of 2.27% since Sept. 6. As of Friday, the state owed $19.6 million in interest, a tab that would grow to more than $100 million if the debt is left unpaid for a year, according to Comptroller Susana Mendoza’s office.
“Taxpayers should not be on the hook for interest just because the pandemic is lasting longer than projected,” Mendoza said in a statement. “States are wrestling with how best to replenish their COVID-depleted unemployment funds and they should not have to do that with the meter running.”
Mendoza joined the chief fiscal officers of Colorado, Connecticut, Massachusetts, Minnesota, New Jersey, New York and Pennsylvania to ask U.S. Treasury Secretary Janet Yellen for the Biden administration’s support for reinstating a pause on interest charges that expired in September.
“We believe the waiver deadline was originally determined under the assumption that the pandemic would likely be over and that the economy and state governments would be in recovery mode,” they wrote in a letter Tuesday to Yellen. “However, it is quite plain to see that this public health crisis is not over, and the benefit provided by this interest waiver is still necessary.”
The financial chiefs are asking that the interest charges be frozen “until at least June 30, 2022, giving adequate time for our states to address this financial dilemma appropriately,” a move that would require congressional approval. Altogether, 11 states — three of which did not sign the letter — and the U.S. Virgin Islands owed $197.3 million in interest as of Friday, according to the U.S. Treasury Department. Illinois’ outstanding debt is the third largest among the states, trailing the $19.4 billion owed by California and $9.2 billion owed by New York.
Mendoza has been discussing the issue with members of the Illinois congressional delegation and has gotten a “positive response,” spokesman Abdon Pallasch said. Republican lawmakers have been critical of Democratic Gov. J.B. Pritzker and members of the legislature’s majority party for not addressing the deficit in the unemployment insurance trust fund in this year’s $42 billion state operating budget.
With Illinois receiving $8.1 billion in coronavirus relief funds from President Joe Biden’s American Rescue Plan, GOP legislators have called for the state to use some of that money to replenish the unemployment trust fund. “We’ve known for many months that the unemployment insurance trust fund debt was a problem we’d need to solve,” said state Rep. Tom Demmer of Dixon, a lead budget negotiator for the House Republicans.
Pritzker and the legislature’s Democratic majority ignored calls from the GOP to use some of the federal relief money in this year’s $42 billion operating budget to replenish the unemployment trust fund, Demmer said. “The reality is that 41 other states have addressed their own problems, and our strategy in Illinois should not be to simply hope the federal government bails us out again,” he said.
Mendoza acknowledged that without the federal action she and other fiscal officers are requesting, repaying the interest could result in higher unemployment taxes for businesses and lower benefits for people who are out of work.
“The cost of covering this federal initiative to extend unemployment benefits during the pandemic should not fall completely on the shoulders of businesses and labor,” Mendoza said in a statement.
Pritzker administration pushes against recommendations for full pension funding goal
Taxpayers are on the hook for Illinois’ unfunded public employee pension obligations, which increased by more than $120 billion in 25 years. And the governor’s office advises against changing funding goals as recommended by actuaries.
The Illinois Commission on Government Forecasting and Accountability recently published its report for the end of November with a focus on pensions. It found total unfunded liabilities were nearly $140 billion as of June 30, 2021, driven by the unfunded liability in the Teachers’ Retirement System of the State of Illinois with nearly $80 billion. The total funding ratio is 42.4%. The worst funded system is the General Assembly Retirement System, which is 19.3% funded.
But, based on “market value of assets,” the commission said the unfunded liability drops by $10 billion to $130 billion with a total funded ratio of 46.5%. Credit is given to “exceptionally strong investment performances by all the five systems” that outperformed estimated rates of return. In one example, the rate of return on investments for TRS was 7%, but returns came in at 25.2%.
Even with the “more realistic valuation,” the commission said in the past 15 years, the unfunded liability has grown from $42.2 billion to $130 billion, driven by what the commission said was insufficient state contributions.
For fiscal year 2022, Illinois budgeted $10.5 million for pensions, nearly a quarter of every tax dollar the state brings in. That’s expected to go up to $10.7 billion next year. That figure increases every year under projections with the peak of $16.5 billion by 2045 to get to a funding ratio of 90%.
The appropriateness of the 90% funding target was questioned by the commission’s actuary, Segal. In a letter to the commission, the company said in an opinion that the 90% goal “is not an appropriate goal.”
“We strongly recommend an actuarial funding method that targets 100% funding” over time, the opinion stated. A letter from officials from the State Universities Retirement Stem, State Retirement System and TRS also “strongly recommended raising the target funded ratio to 100%.” A letter from Gov. J.B. Pritzker’s director of the Office of Management and Budget said consideration of changes to the funding ratio goal needs to be reviewed carefully.
“An increase in the goal would result in higher payments, but eventually lead to a reduction in the unfunded liabilities in the systems,” GOMB Director Alexis Sturm said. “Given the current fiscal pressures facing the state, this too is inadvisable to consider until Illinois can eliminate the unpaid bill backlog” and other debts. “Therefore, at this time, the 90 percent funding ratio continues to be a reasonable and achievable goal for the State of Illinois pensions systems,” Sturm said.
Seven governors ask feds for dam funding to stop Asian carp
Gov. Gretchen Whitmer and the bipartisan Council of Great Lakes Governors asked federal leaders to fund the Brandon Road Lock and Dam in the 2022 Water Resources Reform and Development Act to prevent invasive Asian carp from entering Michigan’s water.
“The Great Lakes are the beating heart of Michigan’s economy, and we are taking action to put Michigan first and protect the Great Lakes,” Whitmer said in a statement. “By funding the Brandon Road Lock and Dam, we can protect local economies and key, multi-billion-dollar industries that support tens of thousands of jobs including fishing and boating. I am proud that my fellow Great Lakes governors from both parties and I are coming together to continue uplifting our economies, build the Brandon Road Lock and Dam, and keep invasive carp out.”
The Brandon Road Lock and Dam in Joliet is a critical chokepoint in the Chicago Area Waterways System for stopping invasive carp – especially bighead and silver carp –from entering Lake Michigan.
Southern farmers initially imported Asian carp in order to clean ponds by eating vegetation, but the fish escaped into the Mississippi River, ravaging catfish and other native food populations. Carp have no natural predators in the Great Lakes. Leaders said they are concerned the carp may starve out native species.
“Guarding the Great Lakes against the ravages of invasive carp is one of the most urgent tasks for those charged with protecting and managing Michigan’s natural resources,” Michigan Department of Natural Resources Director Dan Eichinger said in a statement. “The Brandon Road Lock and Dam marks a key pinch point for keeping these harmful species out of the lakes. This proposed funding will help secure a better future for the Great Lakes and for all those who cherish and depend upon them.”
The U.S. Army Corps of Engineers (USACE) submitted a Chief’s Report to Congress with a plan of action at the Brandon Road Lock and Dam to prevent invasive carp from entering the Great Lakes. Subsequently, Congress authorized the construction of the Brandon Road Project in the Water Resources Development Act (WRDA), which cost $858 million.
In January 2021, Whitmer and Illinois Governor J.B. Pritzker agreed to cost-share millions to protect the Great Lakes from invasive carp species via pre-construction engineering and design (PED) for the Brandon Road Ecosystem Interbasin Project.
In 2021, the U.S. Army Corps of Engineers and Illinois agreed to complete the PED estimated to take up to four years and cost $29 million. Illinois and Michigan have committed to pay the 35% non-federal cost share for this phase.
The governors of Wisconsin, Ohio, New York, Indiana, Illinois, Minnesota, Michigan, and Pennsylvania signed the letter that said the remaining cost for design, construction, operation, and maintenance is beyond the states’ capacity to match and requested federal funding.
Inflation Isn’t Going Away Just Yet — Here’s How Businesses Have to Respond
The plus side of supply chain woes? You won’t need to resort to discounts anytime soon. You may even need to raise prices.
Thanks to a confluence of factors — including supply chain havoc and a labor shortage — business costs have increased, and they’re unlikely to stabilize any time soon. “For the last six to nine months, we kept on thinking, ‘Next month it will level off,’ and it doesn’t,” says economist Lawrence J. White of New York University’s Stern School of Business.
The speed of inflation gains, White explains, is pushing price increases at a rate of about 5 percent per year. While that might not sound like a lot, it’s a considerable jump from the 2 percent annual increases the U.S. has seen over the past decade. White predicts that while the labor shortage will ease in months to come, he doesn’t see inflation plateauing until supply chain problems are fully resolved — which logistics experts estimate may happen as late as 2023.
To compensate for inflationary pressures, businesses have to make changes — including raising prices, making budget cuts, and reprioritizing needs — all while trying to keep customers happy. Here’s how you can cope and keep losses to a minimum.
Institute dynamic or flexible price increases
When she saw that even IHOP had increased its prices, Gina Luari, who owns the brunch restaurant The Place 2 Be, knew that it was time to do the same at her business. “Our bacon is three times the cost it used to be,” says Luari, who has three locations in the Hartford, Connecticut area and another under construction in New Haven. “We’ve had to open up five different accounts with distributors to get enough chicken for our popular chicken and waffles dish.” Luari held off on raising prices for fear of losing customers, but finally made increases in September to compensate for costs.
Craig Dunaway, president of Penn Station East Coast Subs, a restaurant chain with over 300 locations in 15 states, saw costs rise so rapidly that his business has increased prices not just once, but three times in the past year. Typically, the company raises prices annually — if that. “This was really unprecedented for us,” he says, noting that he felt comforted by the fact that grocery prices are also going up. Dunaway says that, in spite of price increases, customers haven’t noticeably made complaints.
Throughout the pandemic, a number of other businesses have adopted dynamic pricing by way of QR codes. Basically, the codes allow businesses to change prices as shocks occur, without the extra step of, say, reprinting a menu.
Offset increased costs in novel ways
John Carey, co-founder and vice president of appliance retailer Designer Appliances, which has two locations in Northern New Jersey, says appliance manufacturers started increasing prices since the start of the pandemic, which has dictated the prices that his company offers customers. Normally, a business like Designer Appliances might face competition from retailers who could offer the same products at lower prices — but right now, Carey says that across the board, prices are generally universal. The reason: “Consumers are desperate to just find somebody who either has inventory or has the promise of inventory in the near future,” he says.
But not all expenses can easily be passed off to the consumer — and that’s what led Designer Appliances to also start charging a $99 flat rate for shipping. “Between labor and gas, it costs a lot to deliver a washer and dryer or a refrigerator,” Carey says. “It also costs a lot to warehouse and maintain our inventory.”
Push out investment timelines
Price increases can help businesses weather the toll of inflation, but they may not compensate for all increased expenses. Luari planned to open her second and third restaurant locations pre-pandemic. When she opened the second in October, contractor and material costs were similar to what they had been pre-pandemic. By the time she started building out the third location, which opened in June, things had shifted. “The same back bar refrigerator was $3,000 more than it had been,” she says. “We went so over budget — it was so unexpected.” Luari signed the lease for her fourth location before starting construction on the third — and now has to deal with even higher startup costs in that build-out.
That means she’s made cuts where possible, and not just to what’s on her menu. Earlier in the pandemic, she made big investments in elevating the restaurant’s takeout materials. Now, she’s placed a hold on her goal of redesigning their takeout cups (which would have required a $10,000 investment). Ahead of winter, she plans to bulk-buy takeout materials to help offset some of the losses she expects to face from food prices. She’s also put off a redesign of one location’s patio area.
Vice President – Government Affairs
Joliet Region Chamber of Commerce & Industry