Government Affairs Roundup
“Your Timely Roundup of Local, State, and Federal Updates”

Chamber members:

The big news of the week is that Chicago will host the 2024 Democratic National Convention. The announcement came Tuesday and it was heavily covered around the country, noting the city beat out Atlanta and New York for the four-day convention next August. The convention is scheduled for August 19-22 next year. It is expected to bring as many as 50,000 visitors to Chicago. The Republican Party will host their presidential nominating convention a month earlier in July, roughly 90 miles north of Chicago in Milwaukee.

A news release announcing the choice noted Chicago is “an ideal backdrop” to host the nominating convention for President Joe Biden and Vice President Kamala Harris. It will also highlight the importance of the Midwest as “a key voting bloc in the 2024 election,” the release noted.

“Chicago is a great choice to host the 2024 Democratic National Convention,” Biden said in the news release. “Democrats will gather to showcase our historic progress including building an economy from the middle out and bottom up, not from the top down. From repairing our roads and bridges, to unleashing a manufacturing boom, and creating over 12.5 million new good-paying jobs, we’ve already delivered so much for hard working Americans – now it’s time to finish the job.”

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Report suggests state spending will soon begin outpacing revenues once again
While Illinois has recently experienced a prolonged stretch of good financial news, a new state fiscal forecast notes that if spending continues to grow at its recent pace it could lead to future budget deficits. It would mark the reversal of a recent trend during which the state logged considerable surpluses this fiscal year and the two years prior.

In the highest-spending scenario outlined in the three-year forecast from the Commission on Government Forecasting and Accountability, the state could once again face a bill backlog as high as $18 billion. That estimate assumes spending growth at its five-year average of 7.1 percent.

“This example shows that spending patterns seen in the past few years cannot continue without a comparable increase in revenues which is not seen in the commission’s current estimates,” the report from the legislature’s nonpartisan forecasting commission noted.

If the state keeps spending growth at 1.8 percent – the most austere scenario outlined by the commission – it could maintain an accounts payable balance of $1.4 billion, the same as it was at the end of Fiscal Year 2022. Even in that scenario, state spending would outpace revenues in the upcoming Fiscal Year 2024 that begins July 1 – although Gov. JB Pritzker has proposed decreasing state spending in FY 24.

His $49.6 billion proposed spending plan for FY 24 represents a 0.7 percent decrease from the baseline number assumed in the COGFA forecast. Lawmakers, however, are still working on crafting a final budget before their May 19 adjournment. “We have to pass a balanced budget…Illinois has had a past where, you know, for a few years anyway, that didn’t happen,” Pritzker said at a news conference last week. “… And I think the General Assembly has taken that very seriously.”

While the new report illustrated that lawmakers may have to tighten their belts in the coming years, it remained consistent with previous projections by the commission and other forecasters that have suggested an economic slowdown is on the horizon. The COGFA report noted that over the past five years, state revenues have grown at a rate of 12 percent on average, compared to the 7.1 percent average expenditure growth.

Pandemic-era federal stimulus funds have mostly dried up, however, and their effect on the nation’s economy is beginning to wane. Many economic forecasts anticipate a mild recession is on its way. The slowdown was evidenced in COGFA’s March revenue update that was published recently, showing that revenues declined $563 million from the same month last year. It marked the first year-over-year decline for any month this year, but COGFA noted the drop was expected after a record March 2022.

In other words, revenue growth rates of 18 percent and 12 percent that were seen in fiscal years 2021 and 2022 are not likely to be repeated anytime soon. COGFA anticipates revenues will shrink by 1.4 percent to $50.4 billion in the upcoming FY 24 and remain under current-year levels until FY 2026, when they jump 2.5 percent to $52.2 billion.

As for spending, one important caveat is that the growth of the past two years been at least partially driven by measures that COGFA described as “fiscal discipline.”  That includes debt retirement, increased pension payments and long-term savings.

It has also included temporary tax relief and other one-time expenditures that won’t carry over from one fiscal year to the next. But spending across human services, education and other agencies has also grown. “Current forecasts would allow for more of this kind of spending in the short-term,” COGFA wrote in the report. “However, longer-term, economic and tax revenue forecasts remain murky as the potential for a recession remains.”

The three-year report also analyzed threats to the state’s fiscal position, including the potential recession, a COVID-19 resurgence, population loss and pension debt among others. Many of the threats, the report noted, “can be directly linked” to “a long-term trend of having expenditures being higher than revenues.” It also noted that “work still remains” for the state to achieve a “budgetary system that is more stable in the long-term.”

“An opportunity exists to improve the state’s financial situation by better aligning the revenues and expenditures of the state. This can be done by raising revenues, cutting spending, or some combination of both,” the report noted.

Illinois could also achieve stability by broadening its sales tax to include more services. “The Illinois sales tax was originally developed in the 1930s when the economy was much more reliant on goods production,” the report noted. “By taxing services, the tax system would modernize to more accurately reflect the economy of 2023.” The revenues resulting from a service tax could be used to offset a portion of the sales tax on goods and “allow for the overall tax rate to be lowered,” according to the report.

The state could also save money by reducing statutory interest payments on overdue bills and using current-year surpluses for “paying down debt, investing for future growth, reducing taxes, and/or returning money to taxpayers.” But on the whole, the report noted, “After the budget stalemate that occurred from 2015-2017, the state’s financial position has been getting better each year.”

The report’s final piece of advice: “The State needs to continue to show fiscal discipline and demonstrate that the results of the past few years are not an anomaly.”

Economy adds 236K jobs in March, unemployment dips to 3.5 percent
The U.S. economy added 236,000 jobs in March and the unemployment rate declined to 3.5 percent, as labor markets stayed tight despite interest rate hikes by the Federal Reserve. Analysts were expecting the economy to add 238,000 jobs and for the unemployment rate to hold steady at 3.6 percent.

The U.S. labor market has remained strong in the face of nine consecutive rate hikes by the Fed but the central bank is still projecting the unemployment rate to hit 4.5 percent this year, according to its latest summary of economic projections.

Consumer prices up 5 percent annually as inflation cools
Prices across the economy fell to an annual increase of 5 percent, down from 6 percent annually in February, according to data from the Labor Department. On a monthly basis, inflation rose 0.1 percent after rising 0.4 percent in February and 0.5 percent in January.

House Republicans pass marquee energy bill
House Republicans passed a sprawling energy bill last Thursday, delivering their biggest legislative win since they took control of the chamber in January and setting up a clash with Democrats by pitting fossil fuels against President Joe Biden’s climate change agenda.

The bill passed by a 225-204 vote, with four Democrats joining Republicans to pass the bill and one Republican legislator voting against. The energy package won’t advance in the Democratically controlled Senate, but Republicans can use it as a cudgel ahead of the 2024 election, furthering their accusations that Biden’s opposition to fossil fuels helped produce last year’s record spike in gasoline prices, stoked inflation and continues to threaten voters’ pocketbooks.

Republicans kept their slim majority together to marshal the legislation through, with a few House Democrats also voting in favor of H.R. 1 (118), enabling House Speaker Kevin McCarthy (R-Calif.) to tout the bill as bipartisan.

“We just found that a majority of [Democrats] are so extreme that they would rather stand with China and Russia than with the American energy worker,” McCarthy told reporters after the vote. “I am not sure what’s controversial in the bill. I am not sure what’s controversial that you can speed the process up so you can make things in America.”

Democrats Henry Cuellar and Vicente Gonzalez, who hail from oil and gas producing Texas, voted for the bill, along with Marie Gluesenkamp Perez of Washington and Jared Golden of Maine, while Republican Brian Fitzpatrick voted against it.

President Biden has vowed to veto the bill, known as the Lower Energy Costs Act. But elements of the bill, aimed at streamlining permitting rules for energy projects, could serve as the starting point for negotiations on that narrower issue with the Senate, where centrist West Virginia Democrat Joe Manchin last year pushed his own plan to ease those regulations.

Republicans designed the bill to do two things at once. First, they sought to deliver a blow against Biden by repealing provisions of Democrats’ Inflation Reduction Act, such as the $27 billion Greenhouse Gas Reduction Fund to boost clean energy and a fee imposed on oil and gas methane emissions.

Republicans contend that the president is recklessly pushing a quick transition away from coal, oil and natural gas toward green-energy sources that China dominates, which would increase dependence on Beijing and other adversaries. The energy bill seeks to address some core Republican energy priorities from the past decade, from disapproving of Biden’s block on the Keystone XL pipeline to mandating more oil and gas lease sales and making it harder for states to block the construction of interstate pipelines that cross their borders.

But the House GOP also sought for the bill to represent an opening bid on the wonky issue of energy permitting — a rare policy area that both parties believe could lead to a bipartisan deal later on with the Senate.

“By showing our strong support, we give some of our Senate Democratic friends an idea of okay, we have a place to work the permitting space particularly,” said Rep. Kelly Armstrong (R-N.D.), a member of the House Energy and Commerce Committee. “Even if it’s not the whole package, these are smart policies whether you are trying to hook up offshore wind or trying to get a gas pipeline from North Dakota to Illinois.”

The GOP bill would overhaul rules for reviews conducted under the bedrock 1970 National Environmental Policy Act for energy infrastructure, ranging from pipelines to clean energy projects and mines, by setting a two-year deadline for major reviews and making it more difficult for environmentalists to sue to stop projects. But most Democrats and the White House dismissed the Republican bill as doubling down on fossil fuel-centric policies that would benefit global rivals by keeping the U.S. out of the race to compete in industries of the future like electric vehicle manufacturing and clean energy development.

“None of it [the GOP energy agenda] makes sense in this moment,” said Rep. Kathy Castor (D-Fla.), a member of the Energy and Commerce Committee. “They ignore the fact it was the high fossil fuel prices that was the primary driver of inflation. What I hear from folks back home is they don’t want to be at the mercy of these gas and oil price spikes. They are looking towards the clean energy economy — greater independence and more money in their pocket.”

In its statement of administration policy opposing the bill, the White House noted that both domestic oil and gas production are set to reach record highs this year as companies have responded to last year’s high prices to bring more supply to the market. Gasoline prices have come down from record highs since the aftermath of Russia’s invasion of Ukraine last year but they could be set to rise again this summer during peak driving season.

Republicans, though, counter that their agenda makes more sense in the current moment since Russia’s military aggression underscored the importance of maintaining ample supplies of oil and gas even as the world transitions off fossil fuels.

“It comes down to affordability, it comes down to cleanliness, and it comes down to security,” said Rep. Garret Graves (R-La.), who wrote many of the major permitting parts of the bill. “This administration has caused so many problems with their energy strategy, our solution fixes a lot of the problems.”

Stay well,

Mike Paone
Executive Vice President
Joliet Region Chamber of Commerce & Industry
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