Legislative agenda for entrepreneurs: An update on Illinois’ comeback story

Illinois is in financial despair, and it will take bold solutions to turn around the state’s economy.

That’s why in September 2014, the Illinois Policy Institute set forth its Legislative Agenda for Entrepreneurs, which contains policy proposals that would make Illinois a much friendlier state for new businesses, mainly by helping level the often-slanted playing field between startups and established businesses. Many of the proposals have since been drafted into legislation and championed by state lawmakers looking to put entrepreneurs and small businesses first. Below is an update on the Illinois Policy Institute’s Legislative Agenda for Entrepreneurs, with two additions.

An important note regarding this legislative agenda is the truly bipartisan nature of nearly every proposal. When it comes to getting new businesses off the ground, Illinois lawmakers have recently shown an inspiring ability to reach across the aisle and work on legislation to make it happen.

Two additions have been made to the Institute’s entrepreneurial agenda:

State Rep. Keith Wheeler, R-Oswego, proposed a bill that would make state agencies accountable to small businesses in the same measure small businesses are accountable to state agencies. Wheeler’s proposal amends the Business Assistance and Regulatory Reform Act to require each state agency to scrutinize its rules, regulations and permitting processes with regard to their burden on Illinois businesses, and report the findings to the governor and General Assembly. The process is to be repeated every five years.

State Rep. Dwight Kay, R-Edwardsville, proposed reform to Illinois’ workers’ compensation system to clarify definitions and restore equity between employers and employees. Although Kay’s proposals speak primarily to the manufacturing and construction sectors, along with other blue-collar industries, workers’ compensation reform is especially important for Illinois entrepreneurs. This is because entrepreneurs do not have an established safety record to bring down their premium rates, so Illinois’ out-of-whack workers’ compensation system is especially costly for new enterprises.

The Illinois Policy Institute’s updated 2015 Legislative Agenda for Entrepreneurs is as follows:

1. Allow Illinois small businesses to crowdfund. House Bill 3429, sponsored by state Rep. Carol Sente, D-Vernon Hills, would allow small businesses and startups to use investment crowdfunding to finance their creation and growth. This is an innovative new form of investment for which each state must create its own rules. The rules of the game set forth in HB 3429 would make Illinois the most competitive state for investment crowdfunding in the nation. The Illinois House passed HB 3429 on a 105-0 unanimous vote, and it is now being taken up in the Senate.

2. Keep government accountable to small businesses. House Bill 3887, sponsored by state Rep. Keith Wheeler, R-Oswego, would require state agencies to review their rules, regulations and permitting processes with regard to their effects on small businesses. After an initial investigation to find unduly burdensome regulations, the process would then be repeated every five years, with findings presented to the governor and General Assembly. The Illinois House passed HB 3887 on a 113-0 unanimous vote, and it is now being taken up in the Senate.

3. Slash LLC startup and annual fees. House Bill 325, sponsored by state Rep. Carol Sente, D-Vernon Hills, would lower startup and annual fees for new Limited Liability Companies by 70 percent. Illinois currently has the highest LLC startup fee in the nation, far out of line with its Midwest neighbors. Sente’s popular bill has received 38 co-sponsors in the House, and could play a part in a reform package to be worked out this legislative session.

4. Sunset the 2011 income-tax hike. Not only did the historic 2011 income-tax hike deal a crushing blow to job creation, it also signaled to businesses and would-be entrepreneurs that Illinois intended to fix its broken budgets and finance its profligate spending by continually raising taxes. Restoring Illinois’ low, flat income tax is not only important for encouraging growth, but also for signaling that Illinois is serious about getting its fiscal house in order. Thus far, the income tax has been sunset to 3.75 percent from 5 percent, as originally scheduled.

5. End DCEO cronyism. As the state’s economic development agency, the Department of Commerce and Economic Opportunity, or DCEO, is tasked with spurring economic growth in Illinois. Due to Illinois’ terrible business environment, the DCEO often resorts to making big companies happy by giving them massive income-tax breaks and other tax carve-outs. The Illinois Policy Institute’s Liberty Justice Center, or LJC, led the fight against crony tax carve-outs by filing a lawsuit against the DCEO’s tax breaks granted for “retained” jobs, which account for more than $500 million in tax credits granted by the DCEO since 2001. LJC argues these tax credits are illegal because they are contrary to the law, which states that tax credits can only be granted to newly created jobs, not simply “retained” jobs.

In addition, the Illinois Policy Institute plans to work with other Midwestern states to agree to a tax-break armistice so that all Midwestern states can agree to give up the zero-sum game of trying to poach each other’s businesses by offering tax breaks. This game has gone on long enough, and no one benefits from this type of cronyism. The Midwest could lead a nationwide end to this gamesmanship disguised as economic policy.

6. Repeal the death tax and franchise tax, Illinois’ economic loss leaders. House Bill 434, sponsored by state Rep. Ed Sullivan, R-Mundelein, and House Bill 391, sponsored by state Rep. David Harris, R-Mount Prospect, would repeal Illinois’ death tax and franchise tax, respectively. Illinois is one of only four states in the Midwest to impose a death tax, which drives away wealthy Illinoisans and hurts small businesses and family farmers. Illinois is also one of only three states in the entire country to impose a corporate franchise tax on “paid-in capital,” a tax concept that few if any entrepreneurs understand and which imposes an unnecessary and costly layer of tax compliance. These two taxes are major loss-leaders for the state economy, given they collect less tax revenue than they cost the state in economic growth. HB 434 has 18 co-sponsors, and HB 391 has five co-sponsors. Both bills could play a part in a reform package to be worked out this legislative session.

7. Reform licensing regulations for low-income occupations. The Illinois Policy Institute is focused on creating a more fair way for workers to enter low- and middle-income occupations, such as cutting and braiding hair and doing nails. Illinois should create a faster and easier pathway to enter lower-income professions that are outside of medicine and law.

In addition, many licensing restrictions that lock former criminals out of certain professions should be reconsidered if not entirely repealed. The Institute will have legislative proposals centered on these reforms in the 2016 legislative session.

8. Reform workers’ compensation. House bills 2418-2422, sponsored by state Rep. Dwight Kay, R-Edwardsville, along with senate bills 769, 771 and 772 would address a variety of loopholes and vague definitions in Illinois’ workers’ compensation law in order to create fair standards for compensating injured employees. These reforms would eliminate opportunities for abuse of the workers’ compensation system, which will help both employers and employees who truly deserve assistance. Reforming workers’ compensation is especially important for entrepreneurs, who bear the full brunt of Illinois’ worst-in-the-Midwest system, because only established businesses can build up a safety record to earn lower premiums. These proposals would also help catalyze a manufacturing comeback.

Lawmakers are beginning to address Illinois’ need for economic reform, and their efforts thus far should be applauded. Much more work lies ahead to make Illinois the single best state for starting a new business. However, a clear path forward has been marked out, and state leaders are actively looking to energize Illinois’s economy with a bipartisan, entrepreneur-first approach.

Michael Lucci is Director of Jobs and Growth for the Illinois Policy Institute.