Presented by:Bobby Otter, Budget Director

R E P R E S E N T A T I V E A R T H U R T U R N E R

T O W N H A L L M E E T I N G

M o n d a y , M a r c h 2 3 , 2 0 1 5

March 23, 2015© 2015, Center for Tax and Budget Accountability

The Illinois State Budget, Revenue, and Pensions

70 East Lake Street

Suite 1700

Chicago, IL 60601

www.ctbaonline.org

What’s Wrong with Illinois’ Budget? Key Points

March 23, 2015

The state has a structural deficit i.e. the revenue system does not keep pace with inflationary

cost of maintaining delivery of same level of service from year-to-year

For decades the state dealt with the structural deficit by underfunding the pension systems

Lots up in the air for FY2015

FY2016 Proposed Budget is Full of Holes

© 2015, Center for Tax and Budget Accountability

FY2015 General Fund AppropriationsRelative to FY2000, in Nominal Dollars and

Adjusted for Inflation and Population Growth (excluding Group Health)

January 21, 2015© 2015, Center for Tax and Budget Accountability

Sources: House Bills 6093, 6094, 6095, 6096, and 6097 of the 98th General Assembly for FY2015 appropriations. Appropriations for FY2000 from Illinois Economic

and Fiscal Commission, FY2002 Budget Summary (Springfield, IL: September 2001) and Illinois Economic and Fiscal Commission, Fiscal Year 2001 Report on the

Liabilities of the State Employees' Group Insurance Program (Springfield, IL: March 2000), 2. FY2000 appropriations adjusted using ECI, Midwest Medical Care CPI

(for Healthcare), Midwest CPI from the BLS as of July 2014, and historic year-to-year population growth from the Census Bureau as of Jan. 2014.

3

Over-Spending on Services Isn’t A Problem

March 23, 2015© 2015, Center for Tax and Budget Accountability

Change in Net General Fund Budgeted Appropriations

What did TABSA Do?

March 23, 2015

Taxpayer Accountability and Budget Stabilization Act (TABSA) – Public Act 96-1496

Signed into law 1/13/2011

Temporarily increased the personal and corporate income tax rates

Personal went from 3% to 5%,

Set to decline to 3.75% on 1/1/2015 and then 3.25% on 1/1/2025

Corporate went from to 4.8% to 7%

Set to decline to 5.25% on 1/1/2015 and then 4.8% on 1/1/2025

© 2015, Center for Tax and Budget Accountability

Hard Costs (Appropriations/Budgeted Figures)

March 23, 2015© 2015, Center for Tax and Budget Accountability

Notes: Legislation passed in 2005 cut the state’s pension contributions for fiscal years 2006 and 2007 In 2010 the state used Pension Obligation Bonds to pay its pension contribution In 2011, the state also used Pension Obligation Bonds. AS such, while the state budgeted for $4.2 billion in General Fund pension contributions the actual General Fund pension contribution in

2011 was $0 2015 statutory transfer is artificially low because it exclude $600 million Healthcare Provider Relief Fund transfer, which took place in 2014 instead (that $600 million IS NOT reflected in the 2014

figure) 2016 statutory transfer does NOT reflect the $650 million repayment of inter-fund borrowing that will take place in 2015

What About Pension Benefits? Not the Problem

March 23, 2015© 2015, Center for Tax and Budget Accountability

-$1

$8 $9

$16 $17

$45

-$10

$0

$10

$20

$30

$40

$50

Salary Increases Benefit Increases Changes inAssumptions

Other Factors Investment Losses Borrowing fromContributions

$ B

illi

on

s

Change in Unfunded Liabilities 1985-2013 48%

7%

Temporary Tax Increases Phase Down:Illinois' Fiscal Cliff

March 23, 2015© 2015, Center for Tax and Budget Accountability

Source: GOMB, 2014 Three Year Projection (Springfield, IL: January 1, 2014).

The Illinois General Fund—Roughly $35 B

January 21, 2015

9

© 2015, Center for Tax and Budget Accountability

Has Two Primary Elements:

(i) Hard Costs—No Discretion (Approx. $11 B)Approx. %

of Total

Debt Service 26%

Pension Contributions 56%

Statutory Transfers Out 18%

(ii)Current Service Expenditures—Discretion Varies

(Approx. $24 B)

Education (PreK, K-12, Higher-Ed) 35%

Healthcare 30%

Human Services 21%

Public Safety 5%

91%

+Group Health 5%

+Everything Else 4%

100%

FY2015 General Fund Budget ($ billions)

March 23, 2015© 2015, Center for Tax and Budget Accountability

Category Appropriation

Total General Fund Appropriation (Net) $35.67

(i)

(ii) Total Hard Costs $10.76

Debt Service (Pension & Capital Bonds) $2.21

Statutory Transfers Out $2.38

Pension Contributions $6.16

(iv) General Fund Service Appropriations (Gross) $25.27

Healthcare (including Medicaid) $7.45

K-12 Education $6.61*

Higher Education $1.99

Human Services $4.81

Public Safety $1.62

Group Health Insurance $1.57

Other $1.22

(v) “Unspent Appropriations” $0.95

(vi) Net General Fund Service Appropriations $24.32

*Figure excludes $200 million in non-General Funds for General State Aid

FY2015 Estimated Accumulated Deficit ($ Billions)

March 23, 2015

CategoryNew COGFA Revenue

Estimate

(i) Projected FY2015 Revenue $34.10

(ii) Projected FY2015 Hard Costs $10.76

(iii) Projected Deficit Carry Forward from FY2014 ($6.48)

(iv)Projected Net FY2015 General Fund Revenue

Available for Services$16.87

(v)Projected Net General Fund Service

Appropriations$24.32

(vi)Estimated Minimum FY2015 General Fund

Deficit($7.44)

(vii)Estimated Deficit as a Percentage of General

Fund Service Appropriations-27.3%

© 2015, Center for Tax and Budget Accountability

FY2015 General Fund Service Appropriations Relative to FY2000, in Nominal Dollars and Adjusted for Inflation and Population Growth (excluding Group Health)

© 2015, Center for Tax and Budget Accountability

CategoryFY2000

(Nominal)FY2015

FY2000

(Adj. for

Inflation and

Pop)

$

Difference

%

Difference

Healthcare (including

Medicaid)$5.04 $7.45 $9.54 ($2.09) -21.9%

PreK-12 Education* $4.84 $6.60 $7.61 ($1.01) -13.3%

Higher Education $2.15 $1.99 $3.38 ($1.39) -41.1%

Human Services $4.66 $4.81 $7.32 ($2.51) -34.3%

Public Safety $1.39 $1.62 $2.18 ($0.56) -25.7%

Other $1.64 $1.21 $2.57 ($1.36) -52.9%

Total Spending (Gross) $19.72 $23.68 $32.60 ($8.92) -27.4%

• FY2015 appropriation for K-12 Education excludes $200 million from the Fund for Advancement of Education that is appropriated for General State Aid. The

Illinois State Board of Education includes that $200 million in its FY2015 General Fund budget report.

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January 21, 2015

March 23, 2015

ItemImpact on Deficit

Decrease/(Increase)Deficit

Carryover Accumulated Deficit from FY2015 N/A ($7.4)

Loss in Recurring Annual Revenue From Phase-Down of the Income

Tax Rates($4.7) ($12.1)

Proposed General Fund Revenue Increases

Eliminate Income Tax Revenue Deposit to the Fund for

Advancement of Education & Commitment to Human Services Fund$0.9 ($11.2)

Eliminate Utility Tax Revenue Deposit to Low-Income Energy

Assistance Fund and Other State Funds$0.2 ($11.1)

Proposed General Fund Spending Cuts

Reduced Pension Contribution and Elimination of State Contribution

to Retiree Healthcare for Teachers and Community Colleges$2.2 ($8.9)

Cuts to Statutory Transfers $0.9 ($8.0)

Cut to Net General Fund Services (Comparing FY2016 to FY2015) $1.2 ($6.8)

Reduction in Federal Revenue Due to Cuts to Medicaid ($1.1) ($7.9)

Estimated End Year FY2016 Deficit ($8.9)

Note: numbers do not round due to rounding© 2015, Center for Tax and Budget Accountability

FY2016 Proposed General Fund Deficit Walk-Down

Proposed FY2016 Revenue Increases fromSpecial State Funds

March 23, 2015

Tax Impacted Proposed Change

FY2016 General

Fund Revenue

Increase

($ Millions)

Income Taxes

Eliminate Income Tax Revenue Deposit to the

Fund for Advancement of Education and

Commitment to Human Services Fund

$878

Utility Taxes

Eliminate Utility Tax Revenue Deposit to Low-

Income Energy Assistance Fund and Other

State Funds

$175

Total $1,053

© 2015, Center for Tax and Budget Accountability

[i] CTBA calculation of revenue difference between “Maintenance” and “Forecast” revenue in GOMB, Illinois State Budget: Fiscal

Year 2016 (Springfield, IL: February 18, 2015), CH. 2-23.[ii] GOMB, Illinois State Budget: Fiscal Year 2016 (Springfield, IL: February 18, 2015), CH. 2-23.

FY2016 Hard Costs: Current Law Compared with Governor’s Proposal ($ Billions)

March 23, 2015

Hard Cost

FY2016

Current

Law

FY2016

Governor’s

Proposal

Difference between

Governor’s Proposal

and Current Law

Pension

Contributions$6.62 $4.47 ($2.15)

Statutory Transfers $2.48 $1.57 ($0.91)

Debt Service $2.13 $2.13 $0

Total $11.23 $8.17 ($3.06)

© 2015, Center for Tax and Budget Accountability

[i] Calculated by comparing the forecasted pension contributions and retiree healthcare contributions in GOMB’s “Operating Budget Detail,” February 2015,

Excel file with the certified contributions for pensions in COGFA, Special Pension Briefing (corrected) (Springfield, IL: November 2014), 7 and assuming

contributions to the Teachers’ Retirement Insurance Program, College Insurance Program, and Chicago Teachers’ Pension Fund to tal $117 million. [ii] Comparison of FY2016 statutory transfers required under current law versus Governor Rauner’s proposed FY2016 statutory transfers. Source: GOMB, Illinois

State Budget: Fiscal Year 2016 (Springfield, IL: February 18, 2015), CH. 2-23.

FY2016 General Fund Appropriation Proposal Compared to FY2015

March 23, 2015

CategoryFY2015

Appropriation

FY2016

Proposed

$ Difference

(Nominal)

%

Difference

K-12 Education $6,505 $6,769 $263 4.0%

Early Education $300 $325 $25 8.4%

Higher Education $1,991 $1,593 ($399) -20.0%

Human Services $4,806 $4,743 ($63) -1.3%

Healthcare $7,446 $6,431 ($1,015) -13.6%

Public Safety $1,620 $1,799 $178 11.0%

Group Health $1,565 $1,195 ($370) -23.6%

Other $1,218 $1,091 ($126) -10.4%

Sub Total $25,452 $23,946 ($1,506) -6.3%

Less Unspent

Appropriations($334) ($653)

Net Appropriations $25,118 $23,293 ($1,825) -7.3%

© 2015, Center for Tax and Budget Accountability

[i] Figure for FY2015 includes appropriation from the Fund for Advancement of Education.

Going Forward: Illinois Still Has a Structural Deficit

January 21, 2015© 2015, Center for Tax and Budget Accountability

17

For More Information

March 23, 2015

Center for Tax and Budget Accountability

www.ctbaonline.org

© 2015, Center for Tax and Budget Accountability

Bobby OtterBudget Director(312) 332-2151botter@ctbaonline.org