Chicago Paint & Coatings Association

February 17, 2015

The Business of Paint & Coatings in I llinois

Direct Employment: 12,108

Rank among states: #6

Establishments: 2,444 Rank among states: #4

Average Wage: $53,000 Payroll: $642 million

Rank among states: #4

Foreign Exports: $258 million Rank among states: #2

A number of major paint manufacturers have facilities in I llinois including True Value, Valspar, Sherwin Williams, AkzoNobel, Benjamin Moore and Rust-Oleum. I llinois is the “Aerosol Capitol of the World.” More aerosol products are manufactured in I llinois than anyplace in the world. Spray Paint was invented in Chicago, I llinois in 1949 by Seymour of Sycamore. I ronically, the City of Chicago banned the retail sale of spray paint in 1993. The ban is still in effect.

Facts About the I ndustry When we talk about paint and coatings, we are not referring solely to paint used to cover walls in your home. Enamels, primers, undercoats, stains, varnishes, industrial coatings, specialty coatings, aerosol paint, caulks, sealants and adhesives are all coatings. The U.S. paint and coatings industry includes manufacturers, raw materials suppliers and distributors. Raw materials for paints and coatings are derived not only from fossil fuels and minerals but also from natural products, such as clays, tree saps and vegetable oils. Petrochemicals are still among the most critical raw material, and the industry is seriously affected by petrochemical shortages and price fluctuations. The manufacture of paints and coatings may be a small industry in the United States as compared with other industries; but most of the manufacturing activity occurs in the U.S. Manufacturing facilities are located in urban areas like Chicago, Cleveland and Louisville, as well as in Northern New J ersey, throughout California, Florida, and Washington state. The $23.5 billion industry is made up of roughly 800 companies. The top 10 paint companies, ranging in annual sales from $700 million to over $3 billion, represent about 70 percent of the U.S. market, or about $16.4 billion. The next largest paint companies, ranging in sales from $100 million to $700 million, represent about 10 percent of the market or nearly $2.4 billion. The remaining paint companies compete for the 20 percent balance of the market, or approximately $4.7 billion. Although many of the larger companies are publicly held, many — if not most — of the remaining smaller manufacturing companies are privately held and/or family businesses.

State of Illinois

• $7 billion + income tax increase in 2011 – Starts to expire on January 1, 2015

• @$7 billion Pension Payment - Current Fiscal Year• $5.124 billion backlog of bills (as of 2/11/15)• $100 billion + shortfall in state-funded pensions

(teachers, state, university, etc. ) • Governor proposing serious cuts in all GRF programs

to alleviate debt

Loss of People, Revenue• Since 1995 – Illinois has lost 366,616 tax-paying

households (806,054 people)• Loss of $26.3 billion in taxable revenue• 2014 – Illinois is #2 in the nation again where more

people are leaving than arriving. #1 in 2011, #2 in 2012 • More people fled Illinois than were born here in 2014,

sustaining a record net loss of 95,000 people • Illinois has dropped from #6 in per capita income in

1998 to #15 in 2013• Illinois’ unemployment rate is 6.4%, higher than the

national unemployment rate of 5.6%. (Dec. 2014)

Largest Costs

• Structural Imbalance – State Pensions, Medicaid, K-12 Education

• Pensions - Over $7 billion and Climbing • Medicaid - $7.3 billion• Education - $8.95 billion – flat through 2015

Taxes & Spending - Partial expiration of 2011 income tax increase -

decreases personal income tax rates to 3.75% from 5% corporate income tax to 7.75% from 9.5%, costing the state over $2 billion just for the current fiscal year.

- Current Budget & Revenues:Lawmakers approved $35.7 billion budgetRevenues projected to only be $34.49 billionLeaving $1.2 billion deficit

Since Illinois has a balanced budget requirement, this deficit was made up by $650 million in borrowing from other funds and $380 million in postponed bills, and other delayed payments, all of which must be paid back July 1, 2015.

Largest State Tax Exemptions – as of 4/1/14

• $2.23 billion Retirement & Social Sec. (I)• $1.64 billion Food, Drug, Medical (S)• $1.11 Billion Standard Deduction (I)• $548 million Property Tax Credit (I)• $333 million Tax-Exempt Organizations (S)• $282 million Exemption from Trade-Ins (S)• $267 million Farm Chemical Exemption (S)

Largest Business Tax Exemptions

• $267 million Farm Chemical Exemption (S)• $204 million Manufacturing Machinery Exemp. (S)• $146 million Gasohol Discount (S)• $133 million Biodiesel Discount & Exemption (S)• $125 million Retailers’ Discount (S)• $114 million Non Motor Vehicle Use (MF)

88% of all Exemptions are contained on these two pages

Other Tax Incentives Targeted • Return to 3 factor income tax apportionment for non-service companies $70 million• Repeal Research & Development (R & D) Tax Credit $30.6 million• Eliminate the Manufacturers’ Purchase Credit (MPC) $34.5 million• Decouple from federal accelerated depreciation (one-time revenue increase) $100 million• Include Puerto Rico and outer continental shelf in definition of U.S. $30 million• Require income tax withholding on gaming winnings over $1000 from non-residents $4 million• Decouple from 2004 federal tax legislation (qualified production activities deduction) $53 million• Repeal deduction for foreign and domestic dividends received by corporations $90 million• End deduction for company owned life insurance $9 million• Tax canned software $65 million• Extend the insurance tax to industrial insurance $15 million• Repeal exemption for fuel transported to out of state destinations (Stealth Gas Tax) $45-90 million• Limit retailers sales tax discount $125 million

Challenges Going ForwardIllinois – Financial Problems Continue

• $9 Billion Budget Deficit – Including $5.124 Billion in Backlog of Unpaid Bills

• 2011 Tax Increase Started to Expire Jan. 1, 2015, reducing revenue by $2.1 Billion in the Current Fiscal Year and an Additional $2.7 Billion in the next Fiscal Year starting July 1. Will Tax Increase be Extended? If so, at What Rate?

• Pension Reforms Challenged in Court. Constitutional? If Not, Back to Drawing Board. Over $7 Billion in Pension Payments due this Year.

Other Current & Future Issues

• Loss of Revenue - Income Tax; Possible Service Taxes• Clean Power Procurement – Electricity Costs• Fracking/Shale Gas/Price of Natural Gas• Chemical Regulation at State Level• Chemical Bans – Triclosan, BPA, Flame Retardants,

Coal Tar Sealers, Polystyrene Containers, etc. • Asian Carp/Chicago Waterway System/Mississippi

River• Illinois Pollution Control Board Opening