What Pritzker may mean for taxes, wages and more
Similar to Rauner in wealth, inexperience, but priorities differ
For the second election in a row, Illinois voters have handed the governor’s office to an ultrawealthy but politically inexperienced businessman who promises to jump-start the state’s economy.
But Democratic Gov.-elect J.B. Pritzker, a billionaire heir to the Hyatt Hotel fortune and a former venture capitalist, offers a vastly different approach to boosting investment and job growth than his predecessor, Republican Gov. Bruce Rauner, a multimillionaire former private equity investor.
Rauner, whose agenda ran into strong opposition from the Democratic-controlled legislature, focused on issues like freezing property taxes and curtailing the power of organized labor, whereas Pritzker aims to boost the state’s minimum wage and create a graduated income tax, among
other proposals.
Here’s where Pritzker stands on issues related to business, jobs and the economy.
Income taxes
Higher-income taxpayers could pay steeper income taxes under Pritzker, who is pushing the state to move from a flat rate to a graduated income tax through a constitutional amendment.
Illinois is one of only eight states with a flat individual income tax rate, which legislators raised to 4.95 percent in July 2017, overriding a Rauner veto.
Pritzker favors a graduated tax, with successively higher rates at higher income brackets, like the federal income tax. However, the Illinois Constitution mandates a flat income tax. Changing to a graduated structure would require voters to approve an amendment.
A March report by the nonprofit Civic Federation recommended a graduated income tax rate with a maximum spread of 3 percentage points between the highest and lowest rates to generate additional revenue for the state, minimizing the burden on low-income taxpayers. Pritzker hasn’t proposed specific rates, saying they need to be negotiated with lawmakers.
The earliest opportunity for voters to have their say on the issue would be the 2020 election, halfway through Pritzker’s term. He previously floated the temporary solution of increasing exemptions for lowerand middle-income residents while boosting the overall tax rate to create a de facto graduated rate. On Wednesday, during a television interview, Pritzker seemed to back off the idea of a short-term fix.
Critics of the graduated tax say it could prompt wealthier residents and businesses to leave the state.
Minimum wage
Workers earning the minimum wage could be in for a raise under Pritzker, who supports raising the state’s minimum wage to $15 an hour.
Illinois lawmakers passed a bill last year that would have gradually raised the wage from $8.25 an hour to $15 by 2022. Rauner vetoed the bill, arguing it would have reduced jobs and hurt workers more than it helped. Advocates said the wage hike would have increased the pay of 2.3 million Illinois residents.
Among economists, the jury is out on exactly what the impact of a minimum wage hike would be. About 38 percent of economists surveyed by the University of Chicago’s Booth School of Business in 2015 said they were uncertain about whether raising the minimum wage to $15 per hour would lower the unemployment rate for low-wage workers.
Chicago Booth professor Steven Kaplan argues that a wage hike has the potential to make it harder for people to find entry-level work, outweighing the benefits.
There’s also a risk that a minimum wage higher than the average in other states would make it harder to attract or keep employers with lots of low-wage workers that don’t have a compelling reason to locate in Illinois, he said.
Illinois’ minimum wage already exceeds the federal rate of $7.25 an hour. Chicago’s minimum wage, currently $12 an hour, is set to rise to $13 on July 1.
Health care
Pritzker has said he wants to give every Illinois resident the chance to buy into the state’s Medicaid program. The state- and federally funded program now serves lower-income people, those with disabilities and many elderly people.
His plan, however, still has many unanswered questions and hurdles to clear before becoming reality.
Currently, many low- and moderate-income Illinois residents qualify for federal tax credits when they buy insurance on the state’s Obamacare exchange. Pritzker wants to make those credits available when they pay to be part of the Medicaid. Those who aren’t eligible for the tax credits could still pay to participate.
“It’s completely the right thing to be trying to do from an affordability perspective and to give some populations new options, but your new governor should expect some pushback,” said Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation.
For example, such a plan might not work well for doctors. The amount of money Medicaid reimburses doctors is typically less than what they get from private insurers, so if a large number of people switch to Medicaid, doctors could see their overall reimbursements go down, Hempstead said. Hospitals also could struggle financially.
On the other hand, if it results in more people gaining insurance, that could help hospitals and doctors who now don’t get paid at all for patients without insurance, Hempstead said.
Many questions remain, including what kind of premiums and deductibles consumers might pay, whether the option would be open to residents who get insurance through their jobs, and whether federal approval would be required.
Organized labor
Pritzker’s win is a major victory for organized labor, which felt under attack by the Rauner administration.
“I think unions feel protected” with Pritzker entering office, said Tom Balanoff, president of Service Employees International Union Local 1. “I think unions feel they have a governor who respects workers’ right to unionize and improve their lot.”
Pritzker, who got union endorsements early in the Democratic primary, is expected to steer clear of the kinds of policies Rauner pushed — including the creation of local right-towork zones, where compulsory union membership or fees would be prohibited, and eliminating requirements that the state pay prevailing union wages to contractors on public construction projects.
Bob Reiter, president of the Chicago Federation of Labor, believes Rauner’s focus on weakening union power undermined labormanagement relations and interfered with the business climate.
With Pritkzer, Reiter hopes labor, business and government can work together on mutual priorities, including greater investment in worker training programs and a capital infrastructure plan that creates construction jobs and helps make Illinois an attractive place for manufacturers.
“I am optimistic. He has been very engaged with us,” Reiter said.
Labor attorneys are anticipating the Pritzker administration will pass workerfriendly legislation that failed under Rauner. Brian Alcala, a Chicago-based lawyer who represents management in employment cases, expects Pritzker to support a measure that bans employers from asking job candidates what they earned at their prior job so as not to perpetuate gender pay disparities. Rauner vetoed two such proposals.
Development
In places where they invest hundreds of millions, or even billions, of dollars, big commercial real estate investors dislike uncertainty.
That’s what they face in Chicago, where Pritzker’s election comes as the city prepares to pick a successor to Mayor Rahm Emanuel, who is not seeking reelection in the spring.
Years into a development boom in and around the city, investors also await specifics of Pritzker’s policies.
Many in the industry are worried about potential new taxes that could push down returns on properties they build or buy.
But there’s some optimism that statewide dysfunction that has clouded the future — such as past budget impasses — can be avoided under single-party state leadership, said Tim Anderson, CEO of Chicago development and construction firm Focus.
“I hope that unified leadership will allow them to tackle our fiscal issues,” Anderson said. “It’s really in the Democrats’ camp.”
Pritzker has yet to outline specific details of how he’ll use tools such as tax incentives to recruit and retain large corporations. Pritzker’s administration will use incentives, though selectively, spokeswoman Jordan Abudayyeh said in an email.
“For nearly two decades, J.B. worked to create an environment for companies to see Illinois as one of the nation’s leading technology hubs,” Abudayyeh said. “As governor, J.B. will be the state’s chief marketing officer, working to bring new business to the state, but any incentives to attract new jobs to our state must be a good investment that yields a positive return for Illinois taxpayers.”
Incentive packages should hold companies to their job creation commitments, she said.
Discovery Partners Institute
The future of the Raunerbacked Discovery Partners Institute, a proposed Chicago innovation center to be built on an undeveloped 62-acre South Loop site, may be in doubt under Pritzker, who has expressed concern over the lack of private funding.
The state approved a $500 million appropriation for the public-private project, a partnership with the University of Illinois. Related Midwest, which owns the long-vacant former rail yard, has agreed to donate land for the center as part of a planned mixed-use development.
The institute has rented a Chicago office but doesn’t expect to break ground for about a year. It has yet to announce any private funding.
Pritzker, who helped found Chicago technology incubator 1871, said in an emailed statement that he believes in public-private partnerships, but he questioned the dearth of private funding.
“I think Discovery Partners Institute has real promise,” Pritzker said. “What I criticized was the fact that the governor had promised that he was going to go get private resources to match the public resources that he would ask for, but he never did that.”
Bill Sanders, who was named interim director in August, said the institute is finalizing the land agreement, designing a building of up to 1 million square feet and seeking private funding.
“We believe that this is very much in line with Gov.-elect Pritzker’s priorities, including his founding of 1871,” Sanders said. “We’re operating under the expectation and intention that this project will move forward.”