forum on fiscal integrity august 3rd, 2010
DESCRIPTION
Forum on Fiscal Integrity August 3rd, 2010. J. Thomas Johnson, President Taxpayers’ Federation of Illinois (217) 522-6818 [email protected]. Illinois Fiscal Crisis. The Illinois is Broke Campaign. Illinois is Facing a Financial Crisis. FY2011 Cumulative Debt: $160 BILLION. - PowerPoint PPT PresentationTRANSCRIPT
Forum on Fiscal IntegrityAugust 3rd, 2010
J. Thomas Johnson, PresidentTaxpayers’ Federation of Illinois(217) [email protected]
Illinois Fiscal Crisis
The Illinois is Broke Campaign
Illinois is Facing a Financial Crisis
•FY2011 Cumulative Debt:
•$160 BILLION
More than 80% of Illinois’ debt is retirement obligations related to State workers
* Unfunded pension obligations
* Pension notes and bonds
* Unfunded retiree health care
obligations
FY2011 Cumulative Retirement Obligations:
$130+ BILLION
Burden of Retirement Obligations
Illinois is the Worst in the Nation
Source: “The Trillion Dollar Gap Underfunded State Retirement Systems and the Roads to Reform,” The Pew Center on the States, February 2010
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10
20
30
40
50
60
70
80
90
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ B
illio
ns
Unfunded Pension Liability Pension Obligation Bonds Short Term Borrowing
Historical unfunded liability data from Senate GOP staff. “Pension Modernization Task Force Report,” COGFA, November 2009; “Monthly Briefings,” COGFA, January 2010
State Unfunded Pension Liability and Pension Obligation Bonds
6
State Unfunded Pension Liability and Pension Obligation Bonds
7
* Required payments were reduced by legislation for FY2006 & 2007.+ Estimate# Assumes 3.5% growth rate in tax collections
Source: Own-source revenue estimates from Taxpayers’ Federation of Illinois; pension contributions and POB payments from various reports of the Commission on Government Forecasting and Accountability.
Required Pension Payments as a Percentage of
Big Three State Taxes(Individual and Corporate Income and Sales
Taxes)
• State retirement plans for current employees are too expensive.
• Retirement age of 55 (after 30 years of service)
• Pension guarantees of up to 80% of salary (with sufficient years of service)
• Automatic cost of living increases
• 100% subsidy of health care premiums (after 20 years of service) for state employees
A Plan Illinois Cannot Afford
• 97% of plans set retirement at age 65• Cost of living adjustments are virtually non-existent
Private Sector Pension Benefits: Dramatically Different
Source: Hewitt Associates, LLC database of large employer plan specifications, covering over 1,000 major employers and including 80% of Fortune 500
2009
Source: Kaiser/Hewitt 2006 Survey on Retiree Health Benefits, December 2006; “State of Illinois Employee Health Insurance Plans: Analysis and Recommendations for Cost Containment,” Civic Federation, April 2007.
Private Sector Retiree Health Care:More Cost-Sharing
• 90% of private sector retirees pay part of their health care premiums.
• More than 90% of Illinois state retirees pay 0% of their health care premiums. (Teachers participate in a different plan that requires them to pay part of their premiums.)
• In April, Governor Quinn signed legislation to change benefits for future employees:• Raising retirement age to 67• Adjusting cost of living increases• Preventing “double-dipping”
• Problem: Illinois won’t realize real cost savings for years.
First Steps in the Right Direction
The Operating Budgetand
The Structural Deficit
12
General Funds Cumulative Deficit
$32 Billion Spending Base(Billions)
13
Acknowledged TFI *
2008 or Prior $ .9 $ .9 2009 2.8 3.2
2010 2.2 2.8
Total $ 5.9 $ 6.9
2010 Pension Obligation Bonds $3.5
Federal Stimulus through 2010 $3.4
*Inclusion of Refund Fund Deficit
Total: $4,712 million
Source: Illinois Office of the Comptroller
State of Illinois, Backlog of Unpaid Bills as of June 30, 2010 (in $ millions)
Fiscal Year 2011-Budget DeficitCash (Billions)
Proposed by Governor $4.7
Spending Reductions Included in Budget 2.0
Acknowledged 2011 Structural Deficit $6.7
Refund Fund Shortfall .4
$7.1
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Proposed Funding Sources for 2011 DeficitCash (Billions)
Inter-Fund Borrowing $1.0
Securitization of Tobacco Settlement 1.2
Pension Borrowings 4.1
Amnesty .3
Refund Fund – Borrowings .4
Total $7.0
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Accumulated DeficitCash(Billions)
17
Acknowledged TFI
2010 Accumulated Deficit $ 5.9 $ 6.9 2011 Structural Deficit 6.7 7.1
Total Accumulated Deficit $ 12.6 $ 14.0
Accrual View of Structural Deficit(Billions)
2011 Structural Deficit $7.1
Unfunded portion of Interest on Pension Debt 4.7
Unfunded Interest on Retirement Healthcare Benefit 2.2
$15.0
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Potential 2012 Structural DeficitCash(Billions)
2011 Structural Deficit $7.1
Eliminate Remaining Federal Stabilization Funds .9
Repay Interfund Borrowing 1.0
$9.0
Revenue Growth from Base 1.0
$8.0
Potential Spending Growth ?
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Big Three Taxes(Personal, Corporate Income Taxes & Sales
Taxes) $ Billions
20
Actual or Historical Growth Projected Rate
2008 $19.4 $19.4
2009 17.7 20.2
2010 16.0 21.0
Projected 2011 16.5 21.9
$69.6 $82.5
Difference $12.9
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“Big Three” Tax Revenue Since 2000
(individual and corporate income and sales taxes)$ Billions
*estimate
Source: COGFA
% Change N/A N/C -4.7 -1.4 +9.2 +1.9 +8.9 +7.0 +6.0 -8.8 -9.7 +2.5
Potential Budget Cuts $
BillionsK-12 Education $7.3 billion
General State Aid $4.5 billionReduce Foundation Level 20% .6Reduce Poverty Grant 20% .2Reduce Double Whammy Property Tax Relief 50% .4
Special Education $1.4 billionReduce 25% .35
Other Categoricals (Early Childhood, Transportation, etc) $1.4 billionReduce 25% .35
Higher Education $2.2 billion
Reduce Support for State Universities 20% .3Reduce Tuition Scholarships 20% .08Reduce Community College Support 20% .08
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Potential Budget Cuts $ Billions
Medicaid General Revenue $9 billionCut utilization of hospitals, eliminate non-core programs,increased generic drugs 10% savings* .7
Human Services $5.5 billionDiscontinue Non Corp Grants - Departments of Human
Services, Public Health, Aging, DCEO, Agriculture .4Human Services – Human Capital Development Rationalization
.1
Corrections and Juvenile Justice $1.2 billionReduce Minimum Security-Drug offenses 12% reduction
.15
*Reductions only reduce state deficit by 40%, during stimulus, 50% thereafter, requiring gross – up of these numbers
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Potential Budget Cuts $ Billions
Employee/Retiree Healthcare $1.8 billionEliminate PPO—all HMO
.15Retirees—25% premium .15
Pension Reform $4.0 billion going on $5.2 billion
New employees only 0
Freeze existing employees at current salaries 1.0
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Potential Budget Cuts $
Billions
Mass Transit Operating Support $.5 billionReduce 20% .1
Local Government Revenue Sharing $3 billionReduce 10% .3
Fund the Following out of Road Funds & Increased Fees .4State PoliceSecretary of State
Total Cuts $ 5.8
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Tax Changes That Could be ConsideredIncome Tax
$ Billion
Tax Retirement Income 1.0For those under 65 .6
In Excess of $50,000 plus FederalExempt Social Security .7
In Excess of $100,000 .3
Eliminate 5% Property Tax Credit .5
Increase Personal Income Tax Rate 1%* 3.0
Increase Corporate Income Tax 1%* .3
Net Increase $4.8
*Currently, 10% is distributed to counties & cities.
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Tax Changes That Could be ConsideredSales/Excise Taxes
$Billion
Reimpose Sales Tax on Food (exempt prescription drugs) 1.0
Eliminate Exemption for Exempt Organizations .5
Sales Tax on Services – at current 5% state rate*All Services 7.3All Services excluding Business to Business (BtoB) 3.6All Services excluding BtoB and Medical
2.8
Lower Overall Tax Rate by 1%Food & Drug & All Services<2.9>Food & Drug & All Services excluding BtoB<2.1>Food & Drug & All Services excluding BtoB and Medical<1.2>
*In addition, cities and counties’ tax base would be expanded generating 50% of the state revenue estimate.
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Tax Changes That Could be ConsideredOther Excise Taxes
$ BillionCigarette Taxes
Increase Tax $1 per pack (currently $.98) .4
Utilities TaxesIncrease rates 10% .1
Gaming
More Boats/More Positions ?
Video Gaming at Tracks .1
? ? ? Gross Increase $4.5 – 8.8
Net Increase $3.1 – 5.9
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