Chicago Paint & Coatings Association

February 18, 2014Maggiano’s

Oak Brook, Illinois

Direct Employment: 16,748

Rank among states: #5

Establishments: 2,457 Rank among states: #4

Average Wage: $46,595 Payroll: $780 million

Rank among states: #5

Foreign Exports: $221 million Rank among states: #1

A number of major paint manufacturers have facilities in I llinois including Ace Hardware, True Value, Valspar, Sherwin Williams, AkzoNobel, PPG 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 $20.9 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 $14.6 billion.

The Business of Paint & Coatings in Illinois

State of Illinois• $7 billion income tax increase in 2011

• @$7 billion Pension Payment Current Fiscal Year

• $5.2 billion backlog of bills (as of 2/13/14)

• $233.7 million in state’s checkbook (as of 2/13/14)

• Before Pension Reform - @ 100 billion shortfall in state-funded pensions (teachers, state, university, etc…deficit growing at $17 million per day)

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

households (806,054 people)• Loss of $26.3 billion in taxable revenue• 2012 – Illinois is #2 in the nation where more

people are leaving than arriving. #1 in 2011. In 2009 alone, 40,000 people left the state.

• Illinois has dropped from #6 in per capita income in 1998 to #16 in 2012

• Illinois’ unemployment rate is 8.6%, higher than the national unemployment rate of 6.7%.

Largest Costs

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

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

Tax Receipts – 1st Q FY 2014 (July-Oct.)

- Operating Revenues increased by $486 million or 6.1% from FY 2013

- Individual Income Tax Revenues increased by 6% vs. FY 2013

- Corporate Income Tax Revenues increased by 13.4% vs. FY 2013 (Recently, House Speaker Mike Madigan proposed a 50% cut in Corporate Income Tax Rate from 7% to 3.5%)

- Sales Tax Revenues increased by 7.7% vs. FY 2013- Total Expenditures increased by $725 Million, or 9 %

vs. FY 2013

Largest State Tax Exemptions – as of 7/1/13

• $1.96 billion Retirement & Social Sec. (I)• $1.63 billion Food, Drug, Medical (S)• $1.03 Billion Standard Deduction (I)• $555 million Property Tax Credit (I)• $405 million Tax-Exempt Organizations (S)• $315 million Exemption from Trade-Ins (S)• $259 million Farm Chemical Exemption (S)

Largest Business Tax Exemptions

• $259 million Farm Chemical Exemption (S)• $219 million Illinois Net Operating Loss Ded. (I)• $183 million Manufacturing Machinery Exemp. (S)• $142 million Gasohol Discount (S)• $127 million Biodiesel Discount & Exemption (S)• $121 million Retailers’ Discount (S)• $116 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 $13.2 million• Eliminate the Manufacturers’ Purchase Credit (MPC) $37.7 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 $116 million

Challenges Going ForwardIllinois – Financial Problems Continue

• 2011 Tax Increase to Start Decreasing 2015. Will it be Extended?

• Unions and Progressive pushing a Graduated Income Tax. Will this proposal be on November ballot? Will it Pass?

• Pension Reforms Challenged in Court. Even if Constitutional, will savings be enough? Recently, a study reduced the cost savings to $145 Billion from $160 Billion.

Other Current & Future Issues

• Pet Coke Restrictions• Corporate Income Tax Disclosure• Fracking/Shale Gas/Price of Natural Gas (Leucadia) • Chemical Regulation at State Level• Chemical Bans – Triclosan, BPA, Flame Retardants,

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

River• Illinois Pollution Control Board Opening

Paint Specific Issues

• PaintCare Program - Illinois• Tax/Fee on Paint for HHW Collection• Tax/Fee on Paint for Lead Abatement• Tax/Fee on Paint for Window Replacement• VOM Standards for Paint/Coating Products

Governor’s Race

• Republicans

Rauner, Brady, Rutherford and Dillard

• Democrats

Governor Quinn and Tio Hardiman

Possible Constitutional Amendments

Term Limits/Changes Number of Legislators & Raises Threshold to Override Governor’s Veto - Term Limits – 8 years total (effective 2015) - Reduces Senate from 59 to 41 members while increasing the House to 123 members from 118 members (effective 2023)- Increases threshold to override Governor to 2/3 from 3/5. Redistricting – Commission draws Legislative Map (after 2020 census)