Government Affairs Roundup
“Your Timely Roundup of Local, State, and Federal Updates”
Action heats up on the debt limit front once again as a new date has been thrown out for need to adjust the ceiling. On the state side, a number of proposals are up for review before the end of the session and budget making process.
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Debt Ceiling Update
Kevin McCarthy (R-Calif.) passed the first major test of his Speakership last Wednesday as the House narrowly approved a sweeping plan to raise the nation’s borrowing authority and cut spending. The bill called the Limit, Save, Grow Act cleared after days of bickering with a “razor thin” 217-215 vote.
The Democratic-controlled Senate won’t sign off on this. Neither will President Biden. But it sends a message to Republicans ahead of the 2024 election and shifts attention to Democrats in the broader debt ceiling fight. The GOP measure proposes to cut federal spending by nearly 14 percent over a decade and lift the cap on borrowing by $1.5 trillion through March, which envisions the partisan drama rewinding in the midst of the presidential election year. What’s next? The Senate won’t even take this proposal up, but it sets the stage for negotiations about the federal debt limit.
Almost no other country in the world has a debt ceiling. Elsewhere, politicians argue over how high taxes and spending should be when passing budget laws. Once those laws have passed, the government doesn’t need any additional authority to borrow money to pay for its programs.
Your household budget works the same way: You don’t first decide whether to buy a car and then separately decide whether you should repay the car loan. The decision is whether to buy the car in the first place. If you do, you repay the loan — or go bankrupt.
The U.S. government instead uses a two-step process. After passing tax and spending policies, Congress must pass another law that authorizes repayment of its obligations. This second law increases the limit on how much the government can borrow, which is known as the debt ceiling. Denmark is the only other country with a similar system, and Danish politicians increase their debt ceiling well in advance, typically without rancor.
On Monday, Janet Yellen, the Treasury secretary, announced that the federal government was likely to hit its debt limit in about a month, around June 1. If that happens before Congress raises the ceiling, the federal government could default. Defaulting could spark global financial chaos because investors have traditionally viewed American debt as a safe investment in a risky world.
President Biden on Monday called Speaker Kevin McCarthy (R-Calif.) and other congressional leaders to invite them to a May 9 White House meeting in response to the debt limit announcement from Treasury Secretary Yellen. Biden’s ask comes after the White House for months maintained that Congress has an obligation to raise the debt ceiling without conditions, pointing to decades of precedent and noting that the debt has been accrued over hundreds of years and reflects spending the government has already approved. Republicans, meanwhile, are using the debt ceiling as leverage as they seek significant cuts to government spending programs.
McCarthy and Biden have not spoken at length about the debt ceiling or government spending since the Speaker visited the White House on Feb. 1. But after Yellen told lawmakers and the White House they have one month before the drop-dead date for defaulting on the nation’s available resources to pay bills, President Biden is changing his tune, but only so far as to meet with congressional leaders. Administration officials on Monday insisted that Biden has no plans to drop his demand for a clean debt ceiling increase.
In a high-pressure letter delivered on Monday while the House is not in session, Yellen said her department estimates that the U.S. will be unable to pay its outstanding obligations beyond that date unless Congress approves new Treasury borrowing authority. Citing revenues tallied after the tax filing season concluded in April, Yellen said the “X date” is expected to arrive more rapidly than earlier projections. Just last week, Goldman Sachs, anticipating the Treasury’s updated timeline, said the X date was not expected before the end of July.
Senate Majority Leader Chuck Schumer (D-N.Y.) started the ball rolling on Monday, taking a procedural move to put two competing debt limit bills on the Senate calendar: one to simply suspend the debt limit through 2024 and the other the House-passed GOP package. Putting the bills on the calendar doesn’t guarantee a vote on either, but it does place Democrats’ “clean” proposal without spending cuts head-to-head with the House Republican bill.
“This process will ensure that once a clean debt ceiling is passed the House bill is available for a bipartisan agreement on spending and revenue as part of the regular budget process,” a Schumer spokesperson said Monday night.
Senate Minority Whip John Thune (R-S.D.) said Biden’s engagement is “good news” but on Monday, with the fresh X-date projection announced, he said the Senate GOP stance remains: “The only thing that can get 60 votes in the Senate is something negotiated between the President and the House Republican leadership.”
“I’m not sure at this point what Schumer or McConnell add to the conversation,” said Thune. “I think they’re gonna have to work it out.”
Last week the House Appropriations Committee published all earmark requests for fiscal 2024 and seeing what’s on lawmakers’ federal funding wish lists is always interesting.
House members are warming up to the revival of earmarks, with 5,067 earmarks, a nearly 7 percent increase over last year. If all the requests were passed into law (they won’t be) they’d total $19.4 billion.
Here is what is on Congresswoman Lauren Underwood’s list:
- Aurora Area Interfaith Food Pantry – Reaching New Heights: Improving Accessibility, Mental Health Resources and Educational Offerings
- Safe Passage Inc. – Building New Beginnings Emergency Shelter for Victims of Violence in DeKalb County, Illinois
- Lewis University – Advancing Research in Next-Generation Semiconductor Manufacturing
- Greater Joliet Area YMCA – Joliet Youth Innovation Center, Inspiring Curiosity and Expanding Childcare Access
- City of La Salle – New High Producing Water Well
- Pace Bus – Pace Electric Bus – Plainfield, IL
- City of Ottawa – North Fire and Ambulance Station
- U.S. Army Corps of Engineers Chicago District – Lockport, Illinois
- Kendall County Community Food Pantry – Kendall County Food Pantry Infrastructure Improvement
- Guardian Angel Community Services – Supportive Services for Sexual Assault Victims
- City of Crest Hill – City of Crest Hill Corrosion Control Treatment Study
- Village of Romeoville – Spangler Sanitary Lift Station Replacement
- Village of Newark – Elevated Water Tank Rehabilitation
- Hinckley Public Library District – Hinckley Public Library Renovation
- Joliet Regional Port District – Training Activity Operations Apron at Lewis University Airport (LOT) Chicago-Romeoville
Full information can be found here: https://underwood.house.gov/services/community-project-funding
Budget talks heat-up
With the list of funding requests growing and three weeks to go in the legislative session, a top Pritzker administration official advised lawmakers this week that they shouldn’t expect any major late-arriving tax revenue windfalls. “I can say without hesitation that there will not be an April surprise,” Department of Revenue Director David Harris told the Senate Appropriations Committee.
April is an important month when it comes to state finances because that’s when people are filing their income taxes. It plays a major role in whether the state will meet its current-year revenue estimates and greatly shapes the economic outlook for the year ahead. The legislative Commission on Government Forecasting and Accountability’s April report is due out early next week.
Harris said while he expects April revenues to come in below last year’s record output of $8 billion, he expects Illinois will still meet its Fiscal Year 2023 estimates. The expected year-over-year decline, he said, is due partially to the fact that the month has one less receipting day than it did a year ago. “Do not lose sight of the fact that FY 22 was an absolutely record year in terms of revenues that came in. FY 23 will be the second highest in terms of revenue that has ever come in for the state of Illinois,” he said.
Still, he said, the lack of an April spike will mean the state will enter Fiscal Year 2024 without the “tailwinds” that have driven the record revenue performance of the past two years. Those revenues allowed the state to build a “rainy day” fund balance of more than $1.5 billion while paying down debt and approving $1.8 billion in tax relief.
Harris said lawmakers should be cautious in their final three weeks of negotiations on the budget for Fiscal Year 2024, which will begin July 1. “Looking ahead to FY 24, I would simply encourage caution. I think the governor’s budget that was introduced is accurate … or certainly is conservative,” he said.
The governor’s office projected $49.9 billion in revenues. Harris noted that the governor’s estimate – which dates back to February – is about $465 million below COGFA’s most recent estimate, which was released in early March. A spokesperson for the Governor’s Office of Management and Budget noted that the difference is less than one percent of the budget.
“Our estimate is conservative and reflects the ongoing uncertainty in the economy and the difficulty economists have had around the globe in preparing revenue projections the last few years,” GOMB’s Carol Knowles said in an email statement. “Director Harris’ comments are reflective of that ongoing uncertainty. We are continuing to monitor the economy and all of the data we have available to us.”
What the revenue estimates end up being will determine how much money is available for a long list of funding requests that include municipalities looking for a roughly $250 million increase, providers of care for individuals with developmental disabilities asking for $88 million beyond what the governor proposed, and hospitals seeking a 20 percent Medicaid rate increase.
Those and several other requests come as recent state estimates have shown that spending on Medicaid benefits for noncitizens aged 42 and older is expected to cost $990 million in FY 24, an increase of $768 million from initial current-year estimates.
“Let’s be clear, we are going to pass a balanced budget,” Gov. JB Pritzker said when asked about those pressures this week. “That is what I’m focused on. The legislature’s working out the details of what it wants its priorities to be, I’ve put forward my priorities. And I think that, generally speaking, the budget that I put forward is the one that we will pass with, obviously, some changes here and there by the legislature.”
Harris, meanwhile, credited recent budgets for putting the state in “the most stable financial condition it has been in the past 30 years.” This week, Democratic Comptroller Susana Mendoza noted the state’s accounts payable balance dipped below $500 million.
House leaders, Speaker Emanuel “Chris” Welch and Minority Leader Tony McCombie were asked about their budget priorities during an Illinois Business Day panel discussion at the Abraham Lincoln hotel. Welch touted the budgets passed during the first four years of the Pritzker administration and expected much of the same for the Fiscal Year 2024 budget, which goes into effect this July.
McCombie, as she has continuously pushed for during her first few months as leader, asked that Republicans are “at the table” when it comes to negotiations. Any item on the budget that calls for more than a $25 million increase she hopes will be reviewed thoroughly before approved.
“I want it to be balanced, I want it to be a transparent process,” she said during the panel moderated by Chicago Tribune reporter Rick Pearson. “When I say truly balanced, I don’t want it to be a slight-of-hand to take from one fund to another.”
Early Childhood and Direct Service Professionals Make Their Ask
Education advocates expressed their support for a budget proposal increasing investment in Illinois schools and teachers during a Senate Early Childhood Education subject matter hearing on Thursday.
Gov. JB Pritzker rolled out his Smart Start Illinois initiative during his February state of the state address, a plan which he says will improve educational service and access while preventing tax increases. Among its several components, the initiative would provide preschool access to every Illinois child ages three to four by 2027 and a $70 million plan to address teacher shortages throughout the state.
The committee hearing featured several proponents of the governor’s initiative that could be included in a budget approved by lawmakers in coming weeks. Multiple speakers touched on the underfunding of childcare centers in the state which they say has pushed some workers out of the field and thus severely limits how many children they can serve.
“Early childhood educators are drastically underpaid,” said Edgar Ramirez, president and CEO of Chicago Commons which provides early education to 1,800 children. Educators have a lower starting pay at $17 per hour at his school than places like Amazon, he said, despite having to obtain credentials and 60 credit hours post-high school to do the job.
The low pay has added to instability for many childcare centers and their students throughout the state, added Department of Human Services Division of Early Childhood Director Bethany Patten where pay is sometimes no higher than minimum wage. Federal COVID-19 related funding helped during the pandemic is drying up, which she says makes Smart Start a pressing need in this year’s budget.
“Smart Start childcare contracts will allow providers to cover higher wages through consistent base funding, helping to offset the unpredictable nature and fluctuation of private pay tuition and CCAP (Child Care Assistance Program) subsidy payments,” she said, the governor’s budget proposal including $130 million on-top of federal funding to stabilize operational funding.
The Thursday committee hearing was part of the ongoing budget negotiations continued this week in the Capitol as the clock ticks on the Illinois General Assembly’s spring session. It also comes on the heels of a push by caregivers for individuals with developmental disabilities are calling to more than double a funding increase proposed by the governor.
The Illinois Association of Rehabilitation Facilities requested a $4 hourly increase to the wage rate for direct service professionals in community-based settings that serve individuals with intellectual and developmental disabilities. Direct service professionals, or DSPs, are the individuals who provide daily personal care such as assisting individuals with eating, grooming and dressing. The requested increase is $2.50 beyond an increase proposed by Pritzker earlier this year.
The $4 rate increase is also backed by AFSCME Council 31, the union representing about 4,000 workers at community facilities as well as about 4,000 employees at state-run centers. Supporters say the increase is needed to fill staffing shortages and offer more competitive wages. The current $17 wage rate is just $4 more than the state’s $13 minimum wage, although some DSPs make more than that and some make less.
“Look at the cost of food, gas rent, mortgage insurance,” Veronica Lea, a DSP of 30 years at Trinity Services in Joliet said at a Capitol news conference on Wednesday. “People working in fast food make more than we do. And that’s, again, a shame…Our pay is so low that people leave. They love their job but just can’t afford it.”
The governor’s proposed budget tops out at $49.6 billion and keys in on addressing homelessness, poverty and crime in addition to the focus on education
Calls to reform estate tax grow
A prominent attorney remarked nearly 12 years ago that 2010 was a “good year to die.” Well, at least for relatives of the deceased. The reason the attorney made this comment was due to Illinoisans not facing a federal or state estate tax – a payment imposed on the estate of a descendant before inheritance is delivered – that year. Since then, the tax has returned and its exemption threshold has gradually increased.
As it stands, net assets in Illinois assessed at $4 million or higher are subject to a tax ranging from 0.8% to 16%. Calls to reform the estate tax have grown in recent weeks in the Capitol, albeit with varying methods.
Illinois Republicans have long promoted either a full repeal or modification of the tax, a method which the minority party claims will keep more people in the state. Their legislative efforts have fallen short in this aim, including one that would have gone into effect if voters approved the graduated income tax proposed constitutional amendment in 2020.
Alternatively, a recent report from the Center of Tax and Budget Accountability suggests a lowering of the threshold – making more Illinoisans subject to the tax – is the best route. Authors of the report say the state is at a “fiscal crossroads,” due to COVID-19 related federal subsidies running out, where dropping the exclusion amount would make-up some of the loss in the funds.
“From a fiscal policy standpoint, few tax options are available that would raise revenue while simultaneously making state-level taxation fairer by responding to the significant growth in wealth and income inequality,” the report found. “One such option, however, is the tax assessed on wealthy estates.”
One of 12 states to have a state estate tax, Illinois is projected to receive $426 million in Fiscal Year 2024 per Gov. JB Pritzker’s budget proposal, a reduction north of $200 million from FY 2022. The Illinois Attorney General’s office administers the tax with 94% of the tax receipts received going to the state’s General Revenue Fund and the remaining 6% is dedicated to the Estate Tax Refund Fund to refund overpayments.
Asked about what action, if any, the state needed to take regarding its estate tax, the governor did not provide indication as to how he leaned. “My priority is balancing the budget, making sure that we are continuing our march to credit upgrades and making sure we’ve set the real foundation for fiscal stability in our state,” he said following remarks made during the 2023 Illinois Business Day event in Springfield.
Preparing for reductions
The CTBA report lists several recommended changes to the “Exclusion Limit” as a way to restore some of the funding lost by increasing the threshold from $1 million to $4 million. Dependent on how low the limit would drop, the state could receive up-to $300 million in new revenue per year.
A higher threshold means less estates have been subjected to the tax, which had a peak of more than 5,000 estates in 2001. By 2020, that number had dropped to 860 bringing with it an estimated $5 billion state revenue loss over the course of 18 years according to the report.
Federal funding, by comparison, dedicated to the state from the Coronavirus Aid, Relief, and Economic Security Act and the American Rescue Plan Act surpassed $10 billion.
“Reducing the Exclusion Limit would both broaden the base subject to Illinois’ Estate Tax — thereby generating new revenue from those with large estates — and enhance the tax fairness created by the Estate Tax,” the report reads, adding that working and middle-class families are unfairly taxed when compared to the wealthy in Illinois.
Down on the farm
Characterization of this being a tax on the wealthy is not one that Illinois Farm Bureau Director of State Legislation Kevin Semlow agreed with. Increasing farmland value and agriculture equipment costs in recent years have made more middle-class family farms meet the Exclusion Limit, he said, causing them to either sell off some of their assets or to take-out loans to make their payment. IFB supports either a repeal of the state estate tax or increasing the threshold to $12 million – closer to the federal estate tax limit of $12.92 million. “We are one of the last few midwestern states that have it (state estate tax) and it really hampers agricultural interests, especially farmers,” Semlow said.
Republicans have mostly led action on estate tax-related legislation introduced in the Illinois General Assembly this session. None have seen much action, including one from Springfield GOP Rep. Mike Coffey, exceeding some committee discussion as time dwindles before the scheduled May 19 adjournment.
House Minority Leader Tony McCombie introduced House Bill 1459 in January which would have the exclusion amount be equivalent to a calculated sum by Section 210 of the Internal Revenue Code. That amount in 2011 was $5 million, according to the Internal Revenue Service, and then adjusted for inflation in the years to follow.
McCombie, R-Savanna, indicated a chance of bipartisan agreement to make change to the tax during a Wednesday interview. Estate tax reform should only be part of a larger overhaul of the state’s tax system and how it spends those dollars, she said. “Oftentimes, it’s considered a double tax,” she said of the estate tax. “So, I can’t believe that government would think that’s a good idea.”
Senators Sue Rezin, R-Morris, and Rob Martwick, D-Chicago, were also asked their positions on the tax during the Illinois Business Day panel discussion moderated by Chicago Tribune reporter Rick Pearson. Martwick noted recent surpluses in previous state budgets, which could make a loss of state estate tax funds through a repeal affordable. However any change, he said, would have to be part of a larger discussion of tax reform, especially as Illinois deals with its $140 billion pension debt.
“We can spend money on repealing the estate tax – that’s what it is – it’ll take money out of our budget because we have it,” he said to the crowd of business leaders gathered at the Abraham Lincoln hotel. “But what’s going to happen in two years?”
Illinois moves to build its own Obamacare marketplace
Governor J.B. Pritzker is supporting new state legislation that would establish an Illinois health care insurance exchange, an effort to protect an important Affordable Care Act provision in Illinois in the event future federal leaders ever look to roll back parts of the landmark law.
The proposed legislation in Illinois is being introduced through amendments to the state’s Administrative Procedure Act, or House Bill 579, and calls for Illinois to create its own one-stop shop for health care insurance. The federal marketplace, established under former President Barack Obama’s ACA in 2010, requires states to pay a fee to the platform, which gives every American the opportunity to buy a health plan. But by building its own exchange, Illinois would have control over its health care insurance market and insulate itself from any changes in federal policy.
The move also appears to be Pritzker’s way of protecting a marketplace in Illinois even if a Republican becomes president and directs federal agencies to cut back on marketplace resources. Pritzker’s office points to the fact that under former President Donald Trump’s administration, funding for enrollment navigators was diminished.
“Our marketplace will also be insulated from changes in federal policy by those who seek to undermine access to affordable health care,” Pritzker spokeswoman Jordan Abudayyeh said in a statement to Crain’s. “Moving to a (state-based marketplace) insulates Illinois from changes in federal administrations who may seek to sabotage the marketplace.” The bill amendment is working its way through the Illinois Legislature. New sponsors joined the bill on Tuesday.
Under Illinois’ current system, the state uses a partnership exchange marketplace with the federal government in which residents enroll via HealthCare.gov. The number of Illinoisans enrolling in a marketplace plan this year hit a new record with nearly 343,000 plans selected, up 6% from last year, according to the Illinois Department of Insurance.
Concern around federal health care policy and its impact on states was heightened last year after the Supreme Court overturned Roe v. Wade, which protected Americans’ right to an abortion. Since then, federal courts have moved to ban the use of a common abortion pill as well. Additionally, big changes were made to the ACA in March when a federal judge in Texas ended a federal mandate requiring health insurance companies and employer-sponsored plans pay for certain preventive health care services. Other states, including Georgia and Pennsylvania, have set up their own marketplace exchanges in recent years. As of January, 18 states had created their own exchanges, according to the Centers for Medicare & Medicaid Services.
In a statement, Pritzker’s office said a local exchange would allow the state to better identify and target underinsured and uninsured people in Illinois. The Illinois exchange would be operated by the Department of Insurance and the Department of Healthcare & Family Services, which also administers Illinois’ Medicaid plans.
“The hope under a state-based marketplace) is that the state can easily direct Illinoisans who are enrolling to the plan that works best for them,” Abudayyeh said. “For instance if you enroll in an ACA plan but would be better served on a Medicaid plan, we would easily be able to enroll you.”
It’s unclear exactly how much it would cost Illinois to set up its own exchange. Rep. Robyn Gabel, D-Evanston, a sponsor of the bill, did not respond to a request for comment. If the legislation passes, Illinois will likely need to set up a new website and system to distribute plans and hire people to manage it, says Zarek Brot-Goldberg, an assistant professor at the Harris School of Public Policy at the University of Chicago.
“While I think bringing things in-house is probably somewhat costly, it does give Illinois a nice opportunity to not just protect itself against whims of what might be happening nationally, but also allow it to … maybe make these exchanges a little more functional,” he says.
Executive Vice President
Joliet Region Chamber of Commerce & Industry