Misclassification of Workers and Cost of Surety Bonds Debated

The second meeting of the Interim Study Committee on Employment and Labor took place recently. Committee members discussed a proposal offered by Sen. Karen Tallian (D-Portage) that would address some concerns related to the misclassification of workers specific to the construction industry. Her proposal would create a payroll fraud task force that would identify those commercial and industrial construction projects in which payroll fraud or employee misclassification is suspected of occurring.

The task force would assess investigative and enforcement methods. Additionally, the group would supervise and direct an investigator hired by the Department of Labor (DOL) and assigned to the task force to conduct investigations and enforcement activities.

The task force would consist of the commissioners from the DOL, the Department of Workforce Development (DWD) and the Department of Revenue (DOR), plus the chair of the Worker’s Comp Board. A task force fund would be created as result of penalties and interest assessed against employers that would be used to administer the investigations. Most of the public did not have access to a copy of the proposal until after the hearing.

The DOL testified that there was already a mechanism for fraud. A web site hosted by the DOL allows for online reporting of any suspected misclassification of workers. The information gets forwarded to the DOR, DWD and the Worker’s Comp board; these agencies then handle each tip accordingly, with all information remaining confidential. It was estimated that there are two to four reports per month. Committee Chair Rep. Doug Gutwein (R-Francesville) did not allow the proposal to be included in the recommendation report of the committee. It is anticipated that Sen. Tallian will draft similar legislation in the upcoming legislative session.

The committee also heard testimony from the Surety & Fidelity Association of America (SFAA) on the pricing of surety bonds on public works projects. As a licensed rating or advisory organization for the states, SFAA develops a manual of rating rules for surety bonds that their members may adopt. Bond companies may either file the rates advised by SFAA or file their own. SFAA serves as the statistical agent in Indiana for reporting premium and loss data to the Department of Insurance. The premium for a bond is based upon the construction contract. The surety’s assessment must take into account the size and scope of the underlying obligation and is designed to prevent defaults on construction projects.

The cost of surety bonds on public work projects is generally between .5% and 3% of the amount of the construction contract. From 2001 to 2014 the surety industry collected $380 million in premiums and assumed a total exposure of about $38 billion. Approximately $85.4 million was incurred in direct losses on those bonds during the same period. Representative Bob Morris (R-Fort Wayne) suggested that Indiana might be able to self-insure on surety bonds and come out financially a little better. No action was taking on his suggestion.

U.S. Senate: Young, Bayh Speak Out in BizVoice

bayh young

BizVoice talked to both men separately this summer, asking them the same questions on policies critical to Indiana Chamber member companies and the business community at-large. (NOTE: The Indiana Chamber’s Congressional Affairs Committee has endorsed Rep. Todd Young in this race.) 

BV: What is your view on the federal tax code … are there areas you feel need attention? If so, what reforms do you see as the most important?

YOUNG: “We need to simplify the tax code. Washington needs to stop picking winners and losers through the tax code. We need to stop the double taxation of overseas income so that hundreds of billions of dollars of U.S. profit can be repatriated and invested in places like Indiana to create jobs and raise wages.

“We need to lower the corporate tax rate; we have the highest rate in the industrialized world – that clearly undermines our competitiveness and has even been causing our major corporations, with all their jobs, to relocate their operations overseas. And we need to lower the individual tax rate so that families and small businesses can participate actively in the economy.”

BAYH: “We need a tax code that is certainly simpler; it costs way too much to comply with it; it’s way too complicated. One of the areas I think we can get some bipartisan agreement on would be in the area of corporate tax reform – to get the tax rate down to make us globally competitive. Currently we have one of the highest corporate tax rates in the world, which leads to a couple of negative consequences. Number one: A lot of businesses that are globally competitive have stranded profits abroad. I think it’s in excess of a trillion dollars. So by making the corporate rate globally competitive, we would allow them to bring those profits home to invest in their U.S. operations.

“Number two: The fact that our tax code is not globally competitive creates an incentive for foreign companies to buy U.S. companies basically as a tax arbitrage (profiting from differences in how income or capital gains are taxed); it also leads to U.S. companies to re-domicile themselves overseas. By getting the tax rate down and making it globally competitive, you do away with that phenomenon.”

Read the full Q&A online.

Chamber to Study Committee: ‘Why Jeopardize Our Tax-Friendly Image?’

The much anticipated study of combined reporting, performed over the summer by the Legislative Services Agency (LSA) Office of Fiscal Management Analysis, was recently outlined to the legislative Interim Committee on Fiscal Policy.

As a refresher: Combined reporting would impact companies here with operations outside of the state. It tasks these businesses with adding together all profits for one report. Indiana’s current system of separate accounting allows for each subsidiary to report independently based on its location.

The study was required by SEA 323, which passed last session. That legislation also directed a study of the related issue of transfer pricing. Both LSA studies were presented to the interim committee and have now been made available to the public.

The combined reporting study, however, was by far the more comprehensive and was the primary subject of discussion at the interim committee meeting. The report includes examples that demonstrate how a switch to mandatory unitary combined reporting would have varying impacts on taxpayers.

Depending on their particular circumstances, some taxpayers would see their tax liability increase while others would see it decrease. The end result being that the overall effect on the tax revenue stream is unpredictable.

Using data from numerous states and applying econometric techniques, the LSA economists estimated that Indiana could see an initial spike in corporate tax revenue but that it would “only be short term and will decline to zero in the long run.” The study also recognized that while the change could be beneficial in addressing some current issues, such as transfer pricing disputes, it would raise a multitude of new administrative burdens and complexities; most notably those associated with the core difficulty, “determination of the unitary group” – exactly which affiliated entities are ultimately to be deemed part of those that must be combined. In other words, going to combined reporting only trades one set of problems for a different challenge of substantial magnitude.

Studying combined reporting is itself a complicated and difficult task. The LSA did a nice job of putting the issues in historical and practical context, identifying the issues and analyzing the potential impacts. What it could not do, because it isn’t really its role, is fully evaluate how a change could disrupt the progress that has been made over the past 15 years in improving our state’s business climate. Governor Robert Orr concluded in 1984 that combined reporting would be “extremely detrimental to Indiana’s economic growth.” In his open letter to all corporate taxpayers, he offered his assurance that Indiana “does not, and will not, require combined reporting.” That position proved significant in attracting the large manufacturing facilities built by multi-national companies that presently employ thousands of Hoosiers across the state.

Why would you want to reverse this course, abandon the certainty that comes with 50 years of tax law and jeopardize our image as the most business-friendly state in the Midwest and among the top in the nation? This was the core of the Indiana Chamber’s testimony to the interim committee. As for those who view a possible change to combined reporting as a means for dealing with what they label a “compliance issue”, the Chamber committed to work with them. We will need to find less drastic ways to address their concerns and identify ways to respond to the situations they believe represent noncompliance.

It should be noted that concerns with transfer pricing issues seem to have served as the impetus for much of the larger discussion of combined reporting. Consequently, focusing on those issues would provide the potential for reaching resolutions, without a major structural conversion to mandatory unitary combined reporting. In fact, Appendix A to the Transfer Pricing study points to several possibilities that deserve further exploration.

View the combined reporting study and transfer pricing study.

Workers’ Comp Rates Being Reduced; Will Save Millions for Indiana Businesses

Earlier this month, Indiana Department of Insurance Commissioner Stephen Robertson announced the approval of a 9.3% reduction for workers’ compensation rates to be effective January 1, 2017. The reduction is the biggest rate decrease Indiana has seen in 25 years.

This reduction will result in savings of approximately $82.7 million dollars for Hoosier businesses.

The Indiana Comprehensive Rating Bureau established this recommended advisory rate by taking a two-year review (2013-2014) and estimating going forward.

Workers’ compensation insurance covers medical costs associated with workplace injuries and provides wage replacement benefits to injured workers for lost work time. The frequency of such claims is down both in the state and nationally. These lower rates are also likely a result of workplaces generally becoming safer.

For many years, the Indiana Chamber has fought for rational, reasonable laws; we are glad to see the Department of Insurance recognize the current climate and take this positive step. The savings are significant and will help encourage additional growth in the business community.

Chamber Endorses Jennifer McCormick for Superintendent of Public Instruction

The Indiana Chamber of Commerce is backing Dr. Jennifer McCormick in the race for state superintendent of public instruction over incumbent Glenda Ritz. The organization has very rarely stepped into statewide races and this marks the first time ever to endorse a challenger in one. McCormick is the current Yorktown Community Schools superintendent.

“Our volunteer leadership voted to take this unusual step because we can’t have four more years of divisiveness and dysfunction from the Department of Education. It’s time to hit the reset button,” says Indiana Chamber President and CEO Kevin Brinegar.

“We need a state superintendent who understands the importance of having a productive working relationship with the stakeholders engaged in the state’s education policy. Glenda Ritz has proven she’s incapable of doing that and has over politicized the system.”

In contrast, the Indiana Chamber notes McCormick’s “positive relationships with both educators and the business community. She will be the constructive, get-things-done type of a superintendent that we need in today’s climate.”

States Dr. McCormick: “I am honored to receive this support from the Indiana Chamber of Commerce. Over the last two decades, I have served at every level in our state’s K-12 public education system, as a classroom teacher, principal and superintendent. I am running for this office because Indiana deserves the best Department of Education in the nation.

“I look forward to working with our state’s dynamic business community and all stakeholders as we strive to put students first and prepare them for careers in our great state.”

The Indiana Chamber has long been involved in education policy because businesses need good, qualified talent to thrive.

“We are well aware of the current workforce challenges that must be addressed by business leaders and educators working together,” Brinegar explains. “We need a superintendent who will roll up her sleeves, and work in tandem with other state agencies and organizations to make the needed progress. That is exactly what we expect Jennifer McCormick to do.”

When it comes to specific policies under Ritz that are of concern, Brinegar is quick to cite several.

“Maintaining the education policies that have improved student outcomes in recent years is at risk,” he states. “Whether that’s our assessments, school and teacher accountability or parental choice of which school is best for their children. Ritz is in favor of none of that.”

Her clear opposition to any type of accountability may be the most troubling for the Indiana Chamber.

“The accountability aspect is so vital because this is what tells parents, students and the community at-large how well their schools and teachers are performing, so that parents can make informed decisions about what school their child attends,” Brinegar stresses.

“Jennifer McCormick believes in the importance of accountability and she demonstrates it every day as a successful superintendent who leads a team in her schools and focuses on what’s best for student learning.”

One of the Indiana Chamber’s top objectives for the 2017 legislative session will be expansion of state-supported pre-K to more students from low-income families.

“Jennifer McCormick realizes that the at-risk group needs to be the focus and she will make effective use of the state’s scarce resources,” Brinegar offers. “We can count on her to administer this important program properly. We can’t risk having what happened to ISTEP happen with pre-K.”

Immigration Discussion Continues; Recommendations on the Horizon

The fifth meeting of the Senate Select Committee on Immigration Issues was recently held. Topics discussed included Indiana demographics, provided by a representative of the Partnership for a New American Economy. The chairman of the 6th congressional district Latino caucus also provided the committee with information about the struggles of Hoosier Latinos in Union City. He further testified to the use of and success of a voluntary emergency ID program for undocumented immigrants in his community. He suggested the idea could possibly be mirrored by the state.

Senator Chip Perfect (R-Lawrenceburg) discussed the quandary for employers that would be presented with an ID/driver’s license that could be used for purposes of the I-9 for hiring but on that document specifically identifies that the person is undocumented. Social work students from Valparaiso University testified to the need to allow for undocumented immigrants to have access to higher education. Senator Mike Delph (R-Carmel) asked committee members to provide thoughts for recommendations to the General Assembly before the next and final meeting on November 10. At that time, we should get a feel for what Sen. Delph will be wanting to do in regards to potential upcoming legislation.

Recruiting the Next Generation of Hoosier Educators

96631972The following is a guest blog by Indiana House Speaker Rep. Brian C. Bosma (R-Indianapolis).

The single most important factor in student success is an outstanding teacher in the classroom. That’s why our schools need a strong hiring pool of high-quality teachers to ensure Hoosier students have the best chance of success.

To help attract and retain top talent, I authored a new law this year establishing the Next Generation Hoosier Educators Scholarship. This program, which received bipartisan support, is designed to incentivize our best and brightest high school graduates to pursue degrees in teaching and work in Indiana’s classrooms.

Beginning Nov. 1, both incoming and current college students studying education can apply for the scholarship, which awards $7,500 per year toward college costs to those who commit to teaching in Indiana’s public or private schools for five years after graduating.

The scholarship is available to 200 students statewide each year who either graduate in the top 20 percent of their class or earn a score in the top 20th percentile on the SAT or ACT. While in college, students must maintain a 3.0 cumulative GPA and complete at least 30 credit hours per year to continue receiving the grant. Graduates must obtain their teaching license and teach in Indiana for five consecutive years. The commission can make special exceptions for life’s unexpected circumstances on a case-by-case basis.

Students interested in applying must be nominated by a teacher and submit their nomination form to the Indiana Commission for Higher Education. Students are encouraged to complete the nomination form before the application period opens.

I applaud the work of the Indiana Commission for Higher Education and Commissioner Teresa Lubbers in implementing this new program and launching a promotional campaign to spread the word about this great opportunity. Students can visit LearnMoreIndiana.org/NextTeacher for information and to submit an application before the Dec. 31 deadline. The commission is also expected to launch TV, radio and digital advertisements this month.

Indiana’s new scholarship program represents a bipartisan effort with input and broad-based support from lawmakers, teachers and education organizations, including the Indiana Department of Education, Indiana Chamber of Commerce, a coalition of Indiana colleges and universities, the Indiana State Teachers Association, the Indiana Catholic Conference and Stand for Children.

This new program will help our schools attract and retain highly qualified teachers – especially for subjects like STEM and special education. Hoosier students hold the keys to Indiana’s future, and we will continue to work together to strengthen our commitment to students, teachers and schools.

Chamber Testimony in Support of Pre-K Expansion Given to Interim Committee


The Indiana Chamber submitted testimony Wednesday to the Interim Study Committee on Fiscal Policy regarding the state-supported expansion of pre-K for children from low-income families. Below is that testimony from Caryl Auslander, the Indiana Chamber’s vice president of education and workforce development:

“I am honored to serve for the Indiana Chamber, but the most important role I play right now is that of being a Mom to two school-aged kids. My youngest started pre-K this fall and she is off to an amazing start to her educational career. But there are thousands of four-year-old Hoosier children from low-income families that are not as fortunate. They risk starting school with a bigger disadvantage of being behind and not being ready to learn.

First and foremost – we would like to thank the Indiana General Assembly. Two years ago, Indiana became the 42nd state to offer direct state aid for preschool tuition to at-risk children. As you know, this pilot program (On My Way Pre-K) provided $10 million for vouchers provided to four year old children in five counties (Allen, Lake, Marion, Jackson and Vanderburgh).

Fast forward two short years later, we are thrilled that both gubernatorial candidates, both superintendent of public instruction candidates and legislative leaders of all four caucuses have committed to making pre-K a priority this upcoming legislative session. But we know that the breakdown comes from the details on the plan and how exactly to pay for it. The Indiana Chamber has been working hard in the interim as a part of the AllIN4PreK coalition focusing on pursuing several key policy points:

  • We are promoting expanding the pilot program to include more 4 year olds from low-income families across the state
  • And if we are going to spend state dollars – we need to do it wisely. These pre-K programs must be high-quality – levels 3 or 4 on the Paths to Quality rating system
  • And these programs need to be accessible to working parents – nearby where they live or work or on public transportation lines. Therefore we suggest supporting a mixed-delivery system – quality providers in centers, public schools, private schools, ministries and homes
  • We want to ensure that we continue data reporting requirements that are now in place within the pilot program to make sure our investments are providing positive results
  • And finally, we want to work with the Legislature to find an appropriate fiscal number to fund this program within the constraints of the budget and reflective of revenue forecasts. We recognize that this is a big investment but it is a worthwhile one – according to the Indiana Department of Education, our state spends nearly $32 million a year on kindergarten remediation and expanding the pilot program could significantly mitigate those costs

Kindergarten is now more like first grade due to the increased rigor of college and career-ready standards. It is imperative that children, specifically those without means, have access to quality early-childhood education to have them ready for kindergarten by the time they walk in the door. It is our hope that attending a quality pre-K program will mitigate the high costs of remediation and have students more prepared to learn in their educational career.

The Indiana Chamber has made expanding pre-K a priority for the 2017 session as we want to grow our own talented workforce in Indiana – and an important pathway to that is starting early with four year olds from low-income families and a quality pre-K program.”

Beyond the Bicentennial: Our Letter on Infrastructure, Energy and Telecommunications

The following is the third in our series of Beyond the Bicentennial letters, addressed to gubernatorial candidates. Read them all at www.indianachamber.com/letters.

Dear Mr. Gregg and Lt. Gov. Holcomb:

For Indiana to be the state we all want it to be – one that inspires business location and expansion, brings good-paying jobs to Hoosiers and allows for a high quality of life – a solid infrastructure framework must be in place that reflects both present conditions and is prepared for future developments.

The Superior Infrastructure economic driver in our Indiana Vision 2025 plan champions that belief, with goals regarding transportation, energy, water and telecommunications – all things sometimes taken for granted but inherently critical to running a business and enjoying the comforts of daily life.

Reliable roads and bridges doesn’t seem like a lot to ask for (especially for the Crossroads of America), yet it takes significant investment to keep them functioning, make enhancements and build anew. Frankly, our state has not done enough in recent years and has thus fallen behind.

In 2016, the state Legislature opted to provide short-term funding with a task force set up for the next phase. We all should know at this point – based on studies, reports and simply travelling across the state – that what Indiana desperately needs is a long-term, sustainable, strategic policy plan. One that lasts decades, not a few years or election cycles. And above all, it must be based on the principles that enough revenue is raised to completely fund both maintenance needs and important new projects, and that every user pays their fair share.

There are a number of strategies that should be on the table – any or all of which the Indiana Chamber could support:

  • Index fuel excise taxes/fees to inflation
  • Raise fuel excise taxes/fees
  • Charge fees for alternative-fuel vehicles (which aren’t subject to the regular fuel tax)
  • Tolling a major interstate
  • Dedicate all of the sales taxes on fuel to infrastructure (the current model allots a penny with the other six cents going to the state’s general fund), and replace the revenue lost to the general fund with another revenue source so that the general fund is left whole

But, realistically, how we get there matters far less than advancing to the point where we have a robust transportation fund. It’s time to finally address this in 2017 – hopefully in a bipartisan way – before it becomes a crisis.

For decades, many companies have located in Indiana because of its adequate, reliable and affordable supply of electricity. But now that coal – Indiana’s most plentiful energy source – has come under frequent attack by the Obama administration, affordability is starting to go out the window. And how long will it be before businesses and jobs go with it?

Unfortunately, Indiana is to some degree at the mercy of the incoming president and the Environmental Protection Agency. However, we can take additional proactive steps at the state level to combat their actions against coal.

One avenue is to focus on diversifying Indiana’s energy mix with an emphasis on clean coal, natural gas, nuclear power and renewables. Development and execution of a statewide energy plan (which does not currently exist) is essential.

Turning the attention to water, we need to finish the good work that stemmed from the Indiana Chamber’s 2014 water resources study and legislation carried by Sen. Ed Charbonneau and others to develop and implement a statewide water resources plan.

We must ensure that future water resources are available – our ability to effectively compete with other states depends on it. And we are approaching the point where research and data collection should soon transition to action. Leadership must be shown by the next Governor to help spearhead the process.

While the need for water has been obvious since the beginning of time, the advent of broadband and its economic significance is a much more recent development. It wasn’t that long ago that broadband was spoken about only in terms of faster and more reliable internet entertainment. But today, and in the future, its business, medical, security and quality of life impacts are paramount.

Legislation in 2015 that created the Broadband Ready Communities Development Center assists rural locales in working through the barriers they might have to broadband investment by a provider.

But not enough is happening and not quickly enough. We must find more ways to bring the most rural parts of Indiana up to date technologically to help reverse their downward population and economic trends.

That sentiment – being more aggressive – easily could be said for all of these infrastructure components. If elected Governor, we strongly encourage you to make that shift and put a greater priority on these vital issues.


Kevin M. Brinegar
President and CEO
Indiana Chamber of Commerce, representing 24,000 members and investors statewide

Chamber Talks Policy at D.C. Fly-in

congressWe are fresh from our return from the Chamber’s D.C. fly-in last week. The group had a policy briefing, dinner with the Indiana delegation and successful meetings on Capitol Hill the following day.

To kick things off, the Chamber’s policy briefing covered trade, transportation funding and tax reform.

U.S. Assistant Trade Representative Ashley Jones of the White House Office of Trade briefed our group on the Trans-Pacific Partnership (TPP). Per the Chamber’s federal position on the matter, we support the establishment of free trade agreements that create free and fair trade for the U.S. – including TPP. We support free trade initiatives because international trade touches all Indiana businesses – large and small – at some level. With Indiana being ranked in the top tiers in manufacturing, life sciences, agriculture, etc., trade is imperative to Hoosier businesses. Selling more manufactured Indiana goods and services around the world is a great way to create, maintain and grow Indiana jobs, help the business community and keep Indiana and the United States ahead of global competitors.

We know and understand that our entire membership is not 100% on board with TPP – and neither are the two major party presidential candidates or some in the Indiana delegation – but we are hopeful that some negotiations will allow for TPP to receive a congressional vote after the November election.

Dennis Faulkenburg, president of APPIAN (a transportation consulting and governmental affairs firm in Indianapolis) and chairman of the Chamber’s Infrastructure Committee, spoke to the group on transportation funding. He explained that it was important to thank the delegation for their support of the federal FAST Act (Fixing America’s Surface Transportation), which passed last December. However, while the FAST Act provides funding through 2020, Congress did not enact a stable, long-term way to pay for highway infrastructure, instead transferring $70 billion from the General Fund to pay for the bill. As the Chamber has advocated before at the state level, it is imperative to have long-term sustainable funding for Indiana infrastructure. It is our hope that the next Congress will make this a priority.

Chamber President Kevin Brinegar gave the group an update on reforming the federal tax code. Kevin reminded everyone that a major overhaul is long overdue – as it has been nearly 30 years since the last major reform. Since that time, the code has been loaded up with hundreds – if not thousands – of new provisions. Overall, the current code is overly complex, unfair, anti-competitive and stifles both economic growth and job creation. Such a reform should include a lowering of the corporate tax rate from 35% (the highest in the world today) to 25% or lower; a lowering of the top personal income tax rate to 25% while reducing the number of brackets; elimination of the alternative minimum tax (AMT) and estate tax; and adoption of a territorial system in which income earned overseas is not taxed twice. Kevin stressed the importance of letting our delegation know that we need to curb federal spending.

The group then enjoyed a dinner while meeting with and hearing from both Sen. Dan Coats and Sen. Joe Donnelly as well as most of our House members. Many spoke about the policies we highlighted earlier in the evening and about the 2016 election year and how historic it has become.

Thursday morning’s political briefing featured Jeff Brantley and Rob Engstrom, political experts from the Indiana Chamber and U.S. Chamber respectively. Both felt that in Indiana Republicans will likely keep their super majorities in the House and Senate. At the national level, Engstrom spoke about polling in the U.S. Senate race and in the 9th Congressional District and how he sees the momentum swinging to the Republicans, albeit noting still a tough road ahead.

The group then moved to meetings on Capitol Hill with the entire delegation or their staff representatives.

A special thank you to this year’s D.C. fly-in sponsors:

  • Zimmer Biomet – dinner sponsor
  • Allegion – breakfast sponsor
  • Build Indiana Council – hospitality sponsor
  • The Boeing Company, Duke Energy, Hartman Global IP Law, the Kroger Company, Old National Bank and Wabash Valley Power – event sponsors

“Zimmer Biomet is proud to be a longtime member of the Indiana Chamber and we were pleased to be a sponsor of this event, as we have been since 2012. … The event was an excellent opportunity for Zimmer Biomet and other Indiana businesses to tell our representatives and senators directly what we need to succeed.” – Stuart Kleopfer, Zimmer Biomet President, Americas