forum on fiscal integrity august 3rd, 2010

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Forum on Fiscal Integrity August 3rd, 2010 J. Thomas Johnson, President Taxpayers’ Federation of Illinois (217) 522-6818 [email protected] Illinois Fiscal Crisis

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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 Presentation

TRANSCRIPT

Page 1: Forum on Fiscal Integrity August 3rd, 2010

Forum on Fiscal IntegrityAugust 3rd, 2010

J. Thomas Johnson, PresidentTaxpayers’ Federation of Illinois(217) [email protected]

Illinois Fiscal Crisis

Page 2: Forum on Fiscal Integrity August 3rd, 2010

The Illinois is Broke Campaign

Page 3: Forum on Fiscal Integrity August 3rd, 2010

Illinois is Facing a Financial Crisis

•FY2011 Cumulative Debt:

•$160 BILLION

Page 4: Forum on Fiscal Integrity August 3rd, 2010

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

Page 5: Forum on Fiscal Integrity August 3rd, 2010

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

Page 6: Forum on Fiscal Integrity August 3rd, 2010

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10

20

30

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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

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State Unfunded Pension Liability and Pension Obligation Bonds

Page 7: Forum on Fiscal Integrity August 3rd, 2010

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* 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)

Page 8: Forum on Fiscal Integrity August 3rd, 2010

• 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

Page 9: Forum on Fiscal Integrity August 3rd, 2010

• 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

Page 10: Forum on Fiscal Integrity August 3rd, 2010

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.)

Page 11: Forum on Fiscal Integrity August 3rd, 2010

• 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

Page 12: Forum on Fiscal Integrity August 3rd, 2010

The Operating Budgetand

The Structural Deficit

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Page 13: Forum on Fiscal Integrity August 3rd, 2010

General Funds Cumulative Deficit

$32 Billion Spending Base(Billions)

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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

Page 14: Forum on Fiscal Integrity August 3rd, 2010

Total: $4,712 million

Source: Illinois Office of the Comptroller

State of Illinois, Backlog of Unpaid Bills as of June 30, 2010 (in $ millions)

Page 15: Forum on Fiscal Integrity August 3rd, 2010

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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Page 16: Forum on Fiscal Integrity August 3rd, 2010

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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Page 17: Forum on Fiscal Integrity August 3rd, 2010

Accumulated DeficitCash(Billions)

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Acknowledged TFI

2010 Accumulated Deficit $ 5.9 $ 6.9 2011 Structural Deficit 6.7 7.1

Total Accumulated Deficit $ 12.6 $ 14.0

Page 18: Forum on Fiscal Integrity August 3rd, 2010

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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Page 19: Forum on Fiscal Integrity August 3rd, 2010

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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Page 20: Forum on Fiscal Integrity August 3rd, 2010

Big Three Taxes(Personal, Corporate Income Taxes & Sales

Taxes) $ Billions

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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

Page 21: Forum on Fiscal Integrity August 3rd, 2010

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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

Page 22: Forum on Fiscal Integrity August 3rd, 2010

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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Page 23: Forum on Fiscal Integrity August 3rd, 2010

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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Page 24: Forum on Fiscal Integrity August 3rd, 2010

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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Page 25: Forum on Fiscal Integrity August 3rd, 2010

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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Page 26: Forum on Fiscal Integrity August 3rd, 2010

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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Page 27: Forum on Fiscal Integrity August 3rd, 2010

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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Page 28: Forum on Fiscal Integrity August 3rd, 2010

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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