1.28.13 city club presentation
TRANSCRIPT
City Club 2013January 28, 2013
2011• State Budget
2012• Pensions
2013• The State Budget and the Pension Solution
Points of Discussion
1. How the state budget works2. Where we spend our money3. What we have done to tackle
budget pressures4. How we can solve the pension crisis
FY13: All Funds Budget$66 Billion
$33.7 bil-lion51%
$24.1 billion 37%
$8.2 billion12%
General Revenue Funds Other State FundsFederal Funds
Top 15 Other State Fund Balances in FY13$1.254 billion total
Bank and Trust Company Fund$28.2
Downstate Public Transporta-tion $47.4
Downstate Transit Improvement$47.3
Hospital Provider Fund$128.8
Insurance Financial Regulation Fund$34.6Insurance Producer Administration Fund
$37.8Open Space Land Acquisition and Development
Fund$47.3
Personal Property Tax re-placement Fund
$312.5
Real Estate License Administra-tion Fund
$32.4
Secretary of State ID & Theft Prevention
$30.2
State and Local Sales Tax Re-form$74.3
State Lottery $160.7
Supplemental Low-Income Energy Assistance Fund$106.9
Vehicle Inspection$31.90
Water Revolving Fund$133.2
$ in Millions
Projected FY13 balances of ALL Other State Funds: $1.995 billion
Top 15 balances account for 62.8%
FY13: All Funds Budget$66 Billion
$33.7 bil-lion51%
$24.1 billion 37%
$8.2 billion12%
General Revenue Funds Other State FundsFederal Funds
Personal Income Tax
46.0%
Corporate Income Tax 6.3%Sales Tax
19.7%
Other Taxes and Fees
13.8%
Federal Receipts 14.1%
Personal Income Tax - $15.3b
Corporate Income Tax - $2.4b
Sales Tax - $7.3b
Other Taxes and Fees- $4.7b
Federal Receipts - $3.9b
FY13 General Revenue Funds By Source
$33.719 Billion
Illinois Tax History1969
Gov. Ogilvie creates State Income Tax• 2.5%
Personal• 4.0%
Corporate
1983
Gov. Thompson raises rates by 20% for one year• 3.0%
Personal• 4.8%
Corporate
July 1, 1984
Rates return to previous level• 2.5% Personal• 4.0% Corporate
1989
Gov. Thompson approves another temporary tax increase through 1993• 3.0% Personal• 4.8%
Corporate
July 1,1993
Gov. Edgar makes tax increase permanent• 3.0%
Personal• 4.8%
Corporate
January 1, 2011
Gov. Quinn approves a temporary tax increase• 5.0%
Personal• 7.0%
Corporate
$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,0000%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Personal Income Tax Rates of Midwestern States
Illinois
Missouri
Kentucky
Indiana
Wisconsin
Iowa
Illinois - 2015
Income (Married Filing Jointly)*Indiana's tax rate includes an average county tax rate of 1.28%
Tax
Rat
e
Illinois Kentucky Missouri Indiana Wisconsin Iowa0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
7.00%6.00% 6.25%
8.00% 7.90%
12.00%
Top Corporate Income Tax Rates of Midwestern States
Inco
me
Tax
Rat
e
Private Sector Job Growth by Percentage After the Tax Increase
IL IN WI OH NJ
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1.9%
2.9%
-0.2%
3.3%
1.7%
Jan 11 - Nov 12
Illinois gains 91.8 thousand
jobs
Wisconsin loses 5.6 thousand
jobs
FY13 General Revenue Fund Budget: $33.719 Billion
Non-Discretionary
Spending:$17.3 billion
Discretionary Spending:
$16.4 billion
Government Services 3.5%Public Safety and Regulation
4.8%
Human Services15.2%
P-1219.5%
Higher Ed5.9%
Medicaid/Healthcare23.3%
Pensions15.2%
Debt Service on Pension Bonds
4.6%
Debt Service on Capital Bonds
1.8%Statutory Transfers Out
6.1%
FY 2013 General Revenue Fund BudgetDiscretionary and Non-Discretionary Appropria-
tions$33.719 Billion
Government Services - $1,164Public Safety and Regulation - $1,607Human Services - $5,086P- 12 - $6,542Higher Ed - $1,980Medicaid/Healthcare - $7,810Pensions - $5,100Debt Service on Pension Bonds - $1,552Debt Service on Capital Bonds - $616Statutory Transfers Out¹ - $2,052
Operation of State Gov-ernment: $3.9 billion (11.5%)
$ below in millions
Pensions Total: 19.8%
FY 12 Actual FY 13 As Passed FY13 vs. FY12
Revenues: $33,324,000,000 $33,719,000,000 $395,000,000
Non-Discretionary Expenditures Pensions $4,141,040,680 $5,100,000,000 $958,959,320
Group Insurance $1,435,531,900 $1,171,000,000 ($264,531,900)
Debt Service $2,137,000,000 $2,168,000,000 $31,000,000 Transfers Out of GRF Like Subsidies for
Local Governments $2,398,662,000 $2,052,200,000
($346,462,000)Medicaid $6,638,953,200 $6,638,953,200 $0
Pay Old Bills $302,000,000 $1,300,000,000 $998,000,000
Medicaid Match on Old Bills ($151,000,000) ($500,000,000)($349,000,000)
Permanent Lapse ($802,000,000) ($650,000,000) $152,000,000
difference: $1,179,965,420
Non-Discretionary Expenditures: FY12 vs. FY13
The “SMART Act”(Saving Medicaid Access and Resources Together)
The SMART ACT is a comprehensive , $2.4 billion package of cuts, revenues, utilization controls, provider rate changes, and anti-fraud measures designed to slim down and promote efficiency in Medicaid while preserving access and quality of care.
“Scrubs the rolls” to remove ineligible clients•$360 million in savings
Reduces optional Medicaid services•$1 billion in savings
2.7% - 3.5% rate cut for certain providers•$240 million in savings
Strengthens
provisions against provider and
client fraud
New payment systems for
hospitals and nursing homes
$1.6 billion in total savings
SMART ACT: New Revenue• The tax on cigarettes will be increased by $1
per pack; taxes on other tobacco products will be doubled.
• Smoking-related conditions are the cause of at least $1.4 billion in Medicaid spending each year.
• The tobacco tax is projected to generate $350 million per year in federally match-able revenue; $50 million from the enhanced hospital assessment tax will be matched, for a total of $800 million in state and federal funds.
Federal Match
•$400 million
Tobacco tax
•$350 million
Hospital
Assessment•$50 million
The American Lung Association predicts the new tax will persuade 59,400 smokers to quit and 77,600
youths not to start smoking.
Discretionary Expenditures: FY12 vs. FY13
FY 12 Actual FY 13 As Passed FY13 vs. FY12
Revenues: $33,324,000,000 $33,719,000,000 $395,000,000
Discretionary Expenditures
Human Services $5,286,218,914 $5,085,945,980 ($200,272,934)
Public Safety $1,714,706,151 $1,662,900,200 ($51,805,951)
General Services $1,242,075,211 $1,165,014,734 ($77,060,477)
K-12 Education $6,751,429,955 $6,541,837,830 ($209,592,125)
Higher Ed $2,092,410,002 $1,979,809,800 ($112,600,202)
difference: ($651,331,689)
FY13: Budget Accomplishments
• Balanced• Dedicates revenue to paying old bills• Makes the pension payment• Cuts discretionary spending as a
means to meet spending pressures• Hold Medicaid spending flat through
cost controls and other measures
Education and Pension Funding
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY 13$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
$5,000.0
$6,000.0
$7,000.0
$8,000.0
0%
5%
10%
15%
20%
25%
30%
GRF Contribution Contribution as % of Total GRF
GRF P-12 Expenditures as % of Total GRF Expenditures($ in millions)
Lottery Contribution Local, State, Federal Share$0
$5,000,000,000
$10,000,000,000
$15,000,000,000
$20,000,000,000
$25,000,000,000
$30,000,000,000
$35,000,000,000
$40,000,000,000
$45,000,000,000
$600,000,0001.63%
$36,300,000,000 98.37%
P-20 Education Funding:State, Local and Federal
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY 13$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$5.8$6.1
$6.5
$7.1$7.4 $7.3
$7.1$6.8
$6.5
$1.3
$0.8$1.2
$1.6
$2.2
$3.5$3.7
$4.1
$5.1
GRF Spending HistoryP-12 Education Funding vs. State Pension Contribu-
tions$ in billions
P-12 Education Funding Pension Contribution
A Look at the Upcoming Pension Payment
$ whole numbers
GRF Pension Certification
System FY13 FY14Increase Over
FY13 SERS $1,041,371,800 $1,097,360,220 $55,988,420 JRS $88,210,000 $126,808,000 $38,598,000 GARS $14,150,000 $13,856,000 ($294,000)SURS $1,252,800,000 $1,509,766,000 $106,966,000 TRS $2,702,278,000 $3,438,000,000 $735,722,000 Subtotal $5,098,809,800 $6,185,790,220 $1,086,980,420
Recent Pension Reform
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
$0.0
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
$30,000.0
Required State Pension Contributions ($ in millions)
Baseline State ContributionSB 1946 State Contribution
•Reforms pension benefits for all public pension systems •Increases the retirement age to 67 •Ends the 3% annual cost of living adjustment for (future) retirees•Requires that a retiree’s benefit be calculated over an 8 year period. •Establishes a cap to final average salary that mirrors Social Security.
SB 1946 is estimated to reduce required State contributions by $71.1 billion.
SB 1946 is estimated to reduce the Systems' total liability by over $250 billion through 2045. (COGFA)
Pension Clause: Article XIII, Section 5 of the Illinois Constitution
“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumental thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
(Article XIII, Section 5 of the Illinois Constitution)
Pension Clause: Article XIII, Section 5 of the Illinois Constitution
• The pension clause makes a public employee’s pension an enforceable contractual relationship which cannot be unilaterally changed by the legislature
• Therefore, pension benefits are contractual and can be modified through contract principles of offer, consideration, and acceptance
Cost of Living Comparison
60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$121,363
$95,000
State Employee Retiree Starting with a $50,000 Annuity
3% Compounded
3% Simple
Age
Under current law, a SERS employee who retires at age 60 can receive a compounded COLA. The compounding factor entitles the retiree to $252,633 in additional benefits that would not accumulate were the COLA non-compounded.
Senate Bill 1A Top Priority
Part A
• Part A of the bill is the pension proposal offered by House Leader Tom Cross and Rep. Elaine Nekritz in early January, 2013
• The proposal would unilaterally reduce the pension benefits of current employees and retirees
• Specifically, the existing 3% compounded COLA would be replaced with a COLA of no more than $600 or $750, depending on whether the person receives Social Security
Part A
• Also, no one would receive a COLA until after January 1, 2017
• Employees would need to contribute an additional 2% of salary to the pension system.
• Finally, pensions could only be based on salaries below Social Security’s wage base (currently $113,000)
Part B
• Part B is the proposal negotiated by the Governor and four caucuses last spring, and uses a contract approach to change pension benefits
• The Senate passed a version of this proposal for two of the state’s five pension systems (SERS and GARS) twice last year
Part B
Part B asks employees and retirees to make one of two
choices:
Part B: Choice 1• Agree to a lower 3% simple COLA,
delayed five years, instead of the current 3% compounded COLA
• Receive access to the state’s retiree healthcare program
• See future salary increases counted for pension purposes
Part B: Choice 2• Reject the offer and keep the current 3%
compounded COLA• Lose access to the state’s retiree
healthcare program• Any future salary increases will not be
counted for pension purposes
Part B: Savings
• Reduce the $309 billion the state is estimated to contribute to the pension system over the next 30 years by $66 billion to $88 billion
• Reduce current unfunded liabilities by up to $17 billion immediately
So there you have it
1. How the state budget works2. Where we spend our money3. What we’ve done to tackle budget
pressures4. How we can solve the pension crisis
www.IllinoisSenateDemocrats.com