Chicago Paint & Coatings Association February 18, 2014 Maggiano’s Oak Brook, Illinois

State of Illinois $7 billion income tax increase in 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 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 – 1 st Q FY 2014 (July-Oct.) - Operating Revenues increased by $486 million or 6.1% from FY Individual Income Tax Revenues increased by 6% vs. FY 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 Total Expenditures increased by $725 Million, or 9 % vs. FY 2013

Largest State Tax Exemptions – as of 7/1/13 $1.96 billionRetirement & Social Sec. (I) $1.63 billion Food, Drug, Medical (S) $1.03 BillionStandard Deduction (I) $555 millionProperty Tax Credit (I) $405 million Tax-Exempt Organizations (S) $315 millionExemption from Trade-Ins (S) $259 millionFarm Chemical Exemption (S)

Largest Business Tax Exemptions $259 millionFarm Chemical Exemption (S) $219 millionIllinois Net Operating Loss Ded. (I) $183 millionManufacturing Machinery Exemp. (S) $142 millionGasohol Discount (S) $127 millionBiodiesel Discount & Exemption (S) $121 millionRetailers’ Discount (S) $116 millionNon 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 Forward Illinois – Financial Problems Continue 2011 Tax Increase to Start Decreasing 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)