Not So Okay Corral

Like gunslingers of the old West, the Governor and the legislative leaders continue to stare each other down until someone blinks. Before a budget negotiation for Fiscal Year 16 can begin with the goal of avoiding a government shutdown something has to give.. Technically, we’re beyond the end the last fiscal year with the State’s fiscal year beginning July 1st. The larger challenge for everyone is that with a Democrat controlled General Assembly, to pass anything since we’ve gone beyond the timeframe when a simple majority of votes is required , there needs to be a 3/5 majority of votes. Technically, the Democrats control both Chambers with the necessary 71 votes in the House and 36 votes in the Senate so they can pass anything. Unfortunately, we are heading into another election cycle and neither caucus wants to put their vulnerable members on tax votes.

The Governor’s Turnaround Agenda calls for various business reforms which Illinois businesses support which include worker’s Compensation reform.. Also included in the plan are items like term limits for legislators, which technically requires both a legislative action to get a constitutional amendment on the ballot and for the people to actually vote for that amendment. More controversial in a “union” state are the Governor’s efforts to allow local government to choose whether to require prevailing wages.

The “Horse Trading” has not really begun – but the Governor and the Democratic leaders have both indicated that they have made compromises. The State of Illinois is in financial crisis as is the City of Chicago and many other communities in the State. They chose a Republican Governor to break the hold the Democrats had on the Governor’s Office and the General Assembly. The Governor has shown he won’t be bullied by vetoing a budget the Democrats sent him that was $4Billion beyond available revenues. In the last several years, the General Assembly has shirked their constitutional responsibility to pass a balanced budget by sending a budget to the Governor and letting him make all the hard political cuts.

However painful, the State cannot keep spending more money than it takes in and taxing to meet spending is not the only answer.

Political Puzzle Complete

Governor Bruce Rauner has taken his place in the Governor’s mansion in Springfield and immediately began to tackle some of the large budget/legislative issues. The first was to balance the current fiscal year budget that is $1.6 billion “short” of planned expenditures. The Governor and the four legislative leaders agreed on how to cut general revenue spending and “sweep” other dedicated funds to balance the budget. This was a great first step. The focus will now shift to other big issues that need to be resolved – the Fiscal Year 2016 budget, pensions, school funding, possible expansion of the sales tax to services, among others. Some of these issues are under the control of the legislature and some are not. We are waiting for the Supreme Court to rule on the pension reform law. Who knows where that will end up? If they find the pension law constitutional, the work becomes marginally easier.

In Chicago, the political environment has been interesting with the first Mayoral run-off since the local election law was created. Not only did the “primary” result in a Mayoral run-off, 19 Aldermanic seats also were in play, including many long-time incumbents. The race between Rahm Emanuel and Chuy Garcia was exciting in terms of seeing a true democratic process at work. In the end, they both needed to “earn” the position. When the polls closed and the votes were counted, Rahm Emanuel was re-elected. It became clear during the campaign dialogue that there was the need for greater focus on the economic development and job creation in all of the city’s neighborhoods. Mayor Emanuel also has recognized that he must have greater involvement of stakeholders and be more inclusive in this plans moving forward.

Many of the incumbents that lost were closely aligned with Mayor Emanuel, so we can expect a more lively debate on issues in the City Council. They, too, have big issues to tackle – school funding, pensions, seeking a Casino – most of which will send the Mayor to Springfield to knock on doors and work with the Governor and the General Assembly.

Based on my experience, we’re in for a long ride this Spring, so buckle up and enjoy the ride!

Governor Rauner and 2015

The State and Federal elections are done. We've been spared the constant haranguing of negative political ads. In the Fall Veto Session some were predicting passage of a state $10 minimum wage and even the passage of the “Cullerton Pension Bill”, viewed by many to be the more "constitutional" version of the law - but nothing.

So now, new Governor Bruce Rauner has his hands full with all major budget, tax, and pension issues to tackle. There has not been a Republican Governor since 2003, but he will still be dealing with a Democratic majority in both houses of the General Assembly.

Governor elect Rauner and his staff are hard at work developing their transition plans and the evaluation of State agencies, boards and commissions to present Illinois with a new vision and a strategic plan for the first 100 days. While his experience in the legislative arena is limited, his business acumen and negotiating skills should serve him well in the State Capitol.

So in 2015, the State of Illinois faces many challenges but will have new leadership in the Governor’s office. Based on representations at our Legislative Luncheon in November of cooperation and compromise we are all hopeful that the depth and range of major issues facing Illinoisans will result in reasonable leaders governing with the peoples’ interests their first priority.

Making Manufacturing Matter

At our recent event, Midwest Manufacturing Matters, I spoke of three things that are important to the success of manufacturing as the driver of our economy. First, we need to recognize the breath and strength of Midwest Manufacturing to our regional, national and global economy.

• In recent months this region has received three out of the 12 national federal designations through the Impacting Manufacturing Communities Partnership: The Chicago Metro Metals Consortium, the Milwaukee 7 Region and the Southwest Michigan Region all received the designation.
• Chicago received $70M in federal funding towards the creation of a national digital manufacturing lab which also included $250M in private and government funding commitments.
• The Illinois Department of Commerce and Economic Opportunity (DCEO) provided $3M in state funding for the Illinois Manufacturing Lab at the University of Illinois.
• The DCEO provided $2.5M in funding for the Technology Incubator 1871 at the Chicago Merchandise Mart.
• World Business Chicago is funding the 1,000 Jobs Campaign focused on manufacturing.
• Other regional efforts include the Chicago/Cook and Collar Counties Regional initiatives led by Cook County President Toni Preckwinkle with their initial focus on regional Exporting.
• The Metro West Manufacturing Workforce Collaborative developed by the Alliance for Illinois Manufacturing, NORBIC, Jane Addams Resource Corporation (JARC) and Career Connect. The initiative expands JARC’s entry level manufacturing training into the Tech Center of DuPage. Career Connect works through DuPage United recruiting candidates through outreach through to local churches and community organizations. The Alliance for Illinois Manufacturing works with manufacturers to identify open positions and connects trained people into those positions using federal workforce On-the-Job-Training wage reimbursements. This initiative is funded by DCEO and DuPage County.

SO THERE’S A LOT HAPPENING IN OUR REGION.

Second, the public profile of manufacturing needs to be raised. Manufacturing is the Mother of the Middle Class and it is not your grandfather’s manufacturing business. Manufacturing offers a great a great career and great jobs. Our Midwest Manufacturing Dinner, attended by over 350 manufacturers and businesses began our campaign to do that.

Third, and most important every manufacturer, every cog in the supply chain, large and small, needs to be an ambassador for our industry. From the White House to the State House to every Local House of government – people are finally talking about the importance of manufacturing to our economy. Make sure you are part of that voice. Be loud and proud to break through the silence.

IT IS MANUFACTURING’S TIME FOR A RENAISSANCE. SEIZE THE MOMENT.

Renaissance Resurgence

After a significant number of years of the “death Knoll” for manufacturing, the phoenix is rising and manufacturing, specifically “Advanced Manufacturing” is on everyone’s radar screens. The most important economic indicator is that manufacturing has enjoyed its greatest resurgence since the 2008 frozen economy. In a July 1, 2014 article in Thompson Reuters by Angela Moon, she reported that “The U.S. manufacturing sector gained more momentum in June, driven by the fastest growth in output and new orders in over four years…Manufacturing is growing strongly, and work flows suggest this has legs (David Tinsley, PNP Paribas) As this news flow is absorbed further, rate hike expectations for the first hike in Q4 this year should harden.” So the Manufacturing Renaissance predicted by David Rosenberg with Merrill Lynch in January 2008 may be finally happening.

In a much deserved and long awaited manufacturing renaissance for the Chicagoland region, we are finally getting the attention and recognition the region deserves as the second largest and most diverse manufacturing region in the country. We are the gateway to the U.S. economy through our diverse system of air, highway, train and intermodal facilities – almost everything connects through our region. In a study for the Aspen Institute in March 2013, Steven Gold, President of the Manufacturers Alliance for Productivity and Innovation indicated that “manufacturing is still the greatest wealth-creating tool we have.”

The Chicago Region received a major win for advanced manufacturing with the selection as the site of the Digital Manufacturing Lab to be Located on Goose Island. This public private partnership involves $70 Million from the federal government and expects to receive $250M in state, city and private support. According to the chief technology officer for the project, Bill King the efforts will look at “how do we use computing and digital technologies for the entire manufacturing sector…We will have to be really smart about picking the right problems to fix first.” This is a great step forward intended to create technology transfer for small manufacturers and drive forward the region’s advanced manufacturing capabilities.

On May 28, 2014, the U.S. Secretary of Commerce, Penny Pritzker announced the Chicago Metropolitan Region’s designation as one of 12 Manufacturing Communities, key area for metals and machinery manufacturing in the country.

The stars are aligning for manufacturing. The activities of the Alliance and NORBIC are leading the way to utilize federal workforce funds to hire and train under-employed and unemployed adults to fill the current entry and mid-level positions in Cook and Collar Counties. In partnership with Jane Addams Resource Corporation our training partner and new contracts with DuPage, Kane and Will Counties in addition to our funding from the Department of Commerce and Community Affairs, we are building connections between employers, workforce agencies, training partners and candidates for employment. Our activities working with the IMA’s Foundation on the STEM initiatives in Cook County represent our focus on future manufacturing workforce needs. As pointed out in almost every study done on manufacturing, developing workforce strategies for manufacturing will be the key to fulfilling the predictions of a Manufacturing Renaissance.

State of Flux

We seem to be coming out of the longest winter in recent times, and the longest Primary Season in years and we’re entering into what will likely feel like the longest political season we’ve seen in a very long time.

Some of the “white noise” has cleared for a second. And then, we’re right back immersed in a political whirlwind until the first week of November. The Governor’s race is down to incumbent Governor Pat Quinn and new comer to politics, businessman Bruce Rauner. Both candidates seem to be well financed according to recent campaign finance reports so be prepared to be seeing, hearing and reading about each candidate’s views, plans and strategies.

Also in play this season is the U.S. Senate seat with incumbent U.S. Senator Dick Durbin running against State Senator Jim Oberweis. Again both candidates will be well financed.

Look for lots of “class war” games, discussions of economic health and grid lock in Washington and Springfield.

With Illinois’ economy still recovering and the “temporary tax increases” expiring at the end of the calendar year, there will be plenty of horse trading going on in Springfield to deal with pensions, education, human services, Medicaid Affordable Care act expansions, and unpaid bills growing to $6Billion. Already, the Democratic leaders have advanced a budget proposal indicating that the tax would be made permanent; a real estate tax credit of 5% may be eliminated and replaced with a flat $500 property tax credit. This makes for a pretty long legislative session, but the looming elections will likely mean pushing anything difficult to the Fall Veto Session after the General Election.

Pensions, Patience and Politics

After years of debating, task forcing, and posturing at long last the Illinois General Assembly passed and Governor Quinn signed the pension reform legislation. And after the “Sequester” and the Federal Government “Shut Down” Congress finally reached a two year budget agreement instead of “Shut Down – Take II”. But there’s still lots of work to do.

Resolving the State “larger” pension issue was critical to moving forward on anything else in terms of State Budget discussions or any other major issues that may require any funding. But now the City of Chicago and Cook County are looking to Springfield to take action to assist them with “local” pension reforms. As predicted, a law suit has been filed by the retired teachers to block the new Pension Law. Other suits may follow. The estimated cost savings over 30 years for the Pension Reform is $160 Billion. If the law is successfully challenged, we’re back in the same financial position we’ve been in, with higher costs for bonds, lower bond ratings and continued delayed government payment cycles.

The bigger “800 pound gorilla” is the extension or making permanent the temporary tax increases. That needs to be resolved this calendar year as the tax is scheduled to expire January 2015.

So what can complicate the constructive resolution of these significant legislative issues? Well, it’s an election year for the Illinois General Assembly and our Constitutional Officers – Governor, Attorney General, Secretary of State, Comptroller and Treasurer. The Primary field for Republican candidates for Governor is pretty large – Senators Dillard and Brady (Republican candidate 4 years ago), State Treasurer Dan Rutherford and wealthy businessman Bruce Rauner. The field is mostly wide open for Governor Quinn on the Democrat side. Also running are our Congressmen and Senators. Generally what this means is that controversial issues don’t get resolved for fear of the impact on elections.Could mean a “Special Session” after the election to “deal” with all of these issues – most pointedly, the Income Tax extension or permanent increase. So Pensions, Patience and Politics will be the stuff this next year is made of.

And They Are Off

I’m not talking about the horses at the Arlington Race Track from our recent Networking and New Membership Event August 16th. The race we’ll all be watching now is the Illinois Governor’s race, which has had several twists and turns in the last couple months. Attorney General Lisa Madigan and businessman and Daley Legacy, Bill Daley both pulled out of the Democratic Primary. Other than an unknown from an anti-violence not –for-profit, Governor Quinn has essentially a “free pass” for the Democratic Primary.

On the Republican side, there’s a bit of the “deja vu” element with Senators Kirk Dillard and Bill Brady as “re-runs”, add to that State Treasurer Dan Rutherford moving up the constitutional political ladder and a rich businessman, Bruce Rauner taking a maiden political voyage. There is no obvious front runner at this point but it’s way too early for that. Illinois’ economy is in a standstill as we all hold our breath and wait for the Illinois General Assembly to finally resolve our $100Billion pension crisis during the Fall Veto Session. Pension deficit builds upon pension deficit – City of Chicago teachers, firefighters and policemen. Now focus on our “people” near the Potomac in Congress and we’re dealing with sequester and Federal government shut-down so everyone will be posturing politically as they file their petitions to run for election next year. AND October 1st begins the Obamacare adventure which stands in the middle of the budget debate with Republicans in Congress trying to repeal the Act and Democrats in the Senate refusing to do so . Economist Austan Goolsbee from the Chicago Federal Reserve Bank stated at last week’s Regional Tri-State Economic Development Summit organized by the Chicagoland Chamber, that until Taxpayers decide how we feel about deficit reduction, Obamacare, and other government budget issues our elected officials will not resolve these issues, especially going into another round of elections. So the “race” will be more of a Marathon so stay tuned.

Pensions Politics and Procrastination

In the world of Rodney Dangerfield’s “Deja Vu all over again”, Illinois’ financial position is still victim to the impasse on Pension reform. We hear various numbers bantered about - the $17M a day has now been revised down to $5M a day but the clock continues to tick for every day we don’t solve the problem. By next summer it is projected that we’ll be $102.7Billion in debt, with billions in unpaid bills. Even with stronger than projected tax revenues for Illinois, without a resolution to the unfunded pension liability, bills don’t get paid, we pay well over market costs to issue bonds - $180M more and $130M in interest and the hole just keeps getting deeper. The media, the pundits and even the man on the street all agree that the problem needs to be solved. So that’s pensions.

What is the roadblock to a negotiated pension settlement - yes, it is Illinois, so you're right, it’s politics. There were two competing bills that had some bi-partisan votes or at least agreement on some elements of the proposals. Speaker Madigan’s version was expected to save more money - $187M, but President Cullerton’s version - $57.6M was negotiated with the unions in the hope that an agreed bill would eliminate the risk of a court challenge. Suburban and downstate schools don’t want to have to pick up costs that Chicago schools currently do – so this affects downstate and suburban Republicans and Democrats votes.

Then enter the Colleges and Universities with yet another version with some elements that could be woven into the final bill. And then the City of Chicago arrives hoping to attach to the larger reform efforts and help to deal with the CPS pension payment issue. Finally, some newly announced Republican and Democratic candidates for Governor start flaming the “blame game fires” for the impasse, and mix it with these “statewide” egos and there’s your politics.

And the final answer is procrastination. But this is largely due to the fact that the decision is leading up to the 2014 elections. What happens when there is a difficult issue both from a policy and a politics perspective, there’s upcoming elections, they all need to raise campaign dollars and garner favor and votes – you got it – Procrastination. The word Leadership is part of an ancient language that used to live in the State Capital, that and honesty and duty to the People of Illinois. And still we wait.

ADVANCED IS THE NEW GREEN!

From the White House to the State House to every other house in the country we’re saying we’re all for it! But just like the "Green Movement", most people don’t know exactly what Advanced Manufacturing is. Luckily, we do. Many of our companies are indeed companies where advanced manufacturing takes place. The 2013 Manufacturer of the Year, Janet Kaiser, Century Metal Spinning and ExCell Kaiser can even show you what precision metal spinning means to the aero space and research & development world. She produces proto-types for all the federal research labs in the country. Another of our companies, Arrow Gear, manufactures aerospace gears. What’s important about that type of advanced manufacturing? It demonstrates the "weighted" value of manufacturing in the economy. 55 different people touch an Arrow Gear before it moves into the marketplace.

Cliff Hanging

Looks like we’re one quarter of the way down the mountain on the ongoing saga of the “federal fiscal cliff”. As is common with most difficult decisions they consider, Congress waited until the last minutes of 2012 to negotiate a “partial deal” on the cliff issues – not the most difficult ones, like actually figuring out spending cuts or even passing the first budget in three years. On those we’re still “hanging”. The final Congressional play was approved by the House of Representatives. Now it goes to the President who has indicated that he will to sign this initial compromise into law.

So what did Congress pass? Well, we once again redefined the “middle class” as individuals with $400,000 of income and $450,000 for couples, giving them a 39.6% tax rate. Using these same levels on capital gains and dividend income, the tax rates bump from 15% to 20%. Estates would be increased to a top rate of 40% for the portion exceeding $5 Million, with the threshold rising each year with inflation. One major bi-partisan compromise was not expanding the Alternative Minimum Tax from expanding to an additional 28 million households.

For the 2 million long-term unemployed, there is a one year reprieve in unemployment benefits.

For businesses, the 2% payroll tax will be restored to the “pre Bush Tax cut” level of 6.2% - a 2% increase.

Other reprieves, doctors serving Medicare patients will not have a 27% cut in their payments for one year and across –the- board cuts of $109 Billion will be delayed for two months.

Congress added a last minute “good faith” change by preventing a $900 pay raise for lawmakers due to take effect this Spring.

So the second quarter of the way down the mountain hits around the end of February when the Treasury Department will exhaust measures that extended the nation’s $16.4 trillion debt ceiling, at which point we can’t pay our bills without raising our borrowing limit. This will require bi-partisan support.

The third quarter presents itself in early March with the deadline for figuring out domestic programs and Pentagon cuts delayed as part of the deal.

The final quarter hits on March 27, 2013, when the “continuing Resolutions” utilized by Congress in the past three years as an alternative to actually passing a real budget expires. This short-term extension of the “current spending level” budget needs to be renewed or government will possibly shut down.

In Illinois, we have the added concern of the General Assembly not dealing with our state “fiscal house” major budget buster – pension reform. If the Governor and the legislative leaders do not offer a pension solution, the Bond Rating Companies will further reduce Illinois’ already downgraded standing, making the cost of issuing bonds much more expensive. This results in less road, bridge and school construction.

One bright spot in Cook County is that President Preckwinkle delivered on her campaign promise to repeal the Stroger sales tax increase of 2008. This puts the county’s share of local sales taxes to 0.75%, a reduction of 0.25%.

I guess we should all strap on our climbing harnesses and plan for the worst and hope for the best.