Presented by:Jim Muschinske, Revenue Manager

Commission on Government Forecasting and Accountability703 Stratton Office Building; Springfield, Illinois 62706

September 7, 2011

Presented to:

Budgeting for Results CommissionFY 2012 Economic Forecast and Revenue

EstimateFY 2011 Revenue Review

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CGFA Commission Members

Senate

Senator Jeffrey M. SchoenbergCo-Chair

Senator Michael FrerichsSenator Matt MurphySenator Suzi Schmidt

Senator Dave SyversonSenator Donne Trotter

Dan R. LongExecutive Director

Jim MuschinskeRevenue Manager

Dan HankiewiczPension Manager

House of Representatives

Representative Patricia R. Bellock

Co-Chair

Representative Kevin McCarthy

Representative Elaine NekritzRepresentative Raymond Poe

Representative Al RileyRepresentative Mike Tryon

Trevor J. ClatfelterDeputy Director

Edward H. Boss, Jr.Chief Economist

http://www.ilga.gov/commission/cgfa2006/home.aspx

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CGFA Background & Responsibilities

• Bi-Partisan, joint legislative commission, provides the General Assembly with information relevant to the Illinois economy, taxes and other sources of revenue and debt obligations of the State.

• Preparation of annual revenue estimates with periodic updates;

• Analysis of the fiscal impact of revenue bills;

• Preparation of State Debt Impact Notes;

• Periodic assessment of capital facility plans;

• Annual estimates of the liabilities of the State’s group health insurance program and approval of contract renewals promulgated by the Department of Central Management Services;

• Implement the provisions of the State Facility Closure Act;

• Annual estimates of public pension funding requirements and preparation of pension impact notes.

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CHANGE IN REAL GDP

As shown in Chart 1, economic activity continued to grow throughout the four quarters of FY 2011, albeit at modest pace for this stage in an economic recovery, with weakening in the latest two quarters.

This followed modest growth in each quarter of FY 2010 with the nation now completing 24 months of expansion following the longest recession in the post-WWII period.

CHANGE IN REAL GDPFiscal Years

1234123412341234123412341234123412341234123402 03 04 05 06 07 08 09 '10 '11 '12

0

5

10

-5

Percent

CHART 1

CGFA

Est.

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CONSUMER ATTITUDES

• The sector, which generally accounts for two-thirds or more of total spending in the economy, has shown modest improvement.

• Retail sales rose for the tenth consecutive month in April, before falling in May. As auto production improved in June following improvement in the delivery of Japanese auto parts following the severe earthquakes, sales rose modestly again in June.

• As shown in Chart 2, consumer attitudes as measured by either the University of Michigan’s Consumer Sentiment Index or the Conference Board’s Consumer Confidence Index have improved from the lows reached in early in 2009.

• Consumer Sentiment (1966=100), while initially showing signs of erratic improvement reached 77.5 in January, its highest rate in three years, but since has traded lower. The preliminary reading in July showed an index of 63.8 to the lowest level since early 2009.

• At the same time the Conference Board Index (1985 = 100) registered a reading of 70.4 in February, its best showing since February 2008, but also softened, trading at 58.5 in June.

• It is important to note their levels remain well below those seen during the first seven years of this decade.

 

CONSUMER ATTITUDES

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

10

30

50

70

90

110

130

CHART 2

Consumer Confidence1985 = 100

Conference Board

Consumer Sentiment1966 = 100University of

Michigan

Index

CGFA

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NEW HOME PRICES

One of the major factors behind the lack of confidence is the sharp decline in home prices during the recession that started at the end of 2007 and the softness that has continued through the first two years of the current recovery.

To most consumers the value of their home is the most important asset, and the sharp falloff in value, many to levels below what they owe, indeed is depressing their outlook of events.

About the best that can be said from the chart is that at least the price data appear to be leveling out so that the worst of the decline may be behind us.

U.S. NEW HOME PRICES

CGFA *data are yearly average except 2011 which is May

1970 75 80 85 90 95 '00 05 20110

50

100

150

200

250

300

350Thousands of dollars

Average Price

Median Price

CHART 3

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ILLINOIS BUILDING PERMITS

• The depressed level of new home prices not only erodes confidence, but also has been a major factor in the rising level of unemployment in the construction industry.

• A precursor to what may lay ahead can be found in the level of new building permits, which are issued before construction begins.

• As illustrated in Chart 4, while new building permits in Illinois appear to have bottomed, they are at extremely low levels with no signs of any near-term improvement.

ILLINOIS BUILDING PERMITSSingle-Family

CGFA

'00 '02 '04 '06 '08 '10 '110

1

2

3

4

5

6Seasonally-Adjusted

Thousands

CHART 4

trends

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PURCHASING MANAGERS INDEX

• While the consumer accounts for the majority of spending in the economy and has shown modest improvement, business spending has been gaining strength for some time. This has been helped in part by the continuing rise in corporate profits.

• There has been significant improvement in both the national and Chicago rate. As Chart 5 shows, the index of manufacturing has expanded now for 20 consecutive months after 12 consecutive months of contraction that ended in mid-2009.

• Unlike consumer attitudes that, while rising, remains at lower levels than earlier in the decade, manufacturing activity has traded around its high, although it weakened this summer, contributing to the soft patch the economy currently appears to be in.

PURCHASING MANAGERS INDEX50% = Expansion

SOURCE: Institute for Supply Management CGFA

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan00 01 02 03 04 05 06 07 08 09 '10 '11

20

25

30

35

40

45

50

55

60

65

70

75

80

CHART 5

U.S.

CHICAGO

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NON-MANUFACTURING INDEX

A growing share of business is in the non-manufacturing, or service sector. Chart 6 takes a look at this growing sector of the economy.

Economic activity in the non-manufacturing sector which had declined for 11 straight months through October 2009, steadily worked its way back to neutral, or the 50% level, by January 2010.

The index continued to expand, hitting 59.7 in February 2011, the highest level since mid 2007. Since then its strength has weakened, reaching 53.4 in June. Nevertheless, it still represents 19 months of continuous expansion.

NON-MANUFACTURING INDEX50% = Expansion

SOURCE: Institute for Supply Management CGFA

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan .2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

25

30

35

40

45

50

55

60

65

70

75

CHART 6

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ILLINOIS EXPORTS

• As major uplift to the Illinois economy had been its renewed growth in exports. Illinois ranks fifth in the nation in terms of exports.

• As shown in Chart 7, as the worldwide recession took hold, demand for U.S. goods plunged to levels not seen since the fall of 2006.

• However, with recovery now well underway exports have rebounded and are up 75% from the recent low in April 2009 and 16.5% above the previous peak reached 3 years earlier.

ILLINOIS EXPORTS

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan .99 00 01 02 03 04 05 06 07 08 09 10 11

1

2

3

4

5

6

Billions of Dollars

CHART 7

CGFA

TRENDS

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ILLINOIS EMPLOYMENT

• Illinois employment, like the U.S., is also showing some gains as illustrated in Chart 8.

• Payroll employment in Illinois is up a slight 2.3% from its late 2009 low and the household series, which often leads, is up 2.0% over the same time period.

• Comparing Illinois to the nation, however, the more comprehensive establishment, or payroll, employment data for the nation had recovered its pre-recession level following the 2001 recession by early 2005. In contrast, Illinois never did recoup all the jobs lost during the recession before the next recession began, making the gap to reach a new high much more difficult.

ILLINOIS EMPLOYMENTSeasonally-Adjusted

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan00 01 02 03 04 05 06 07 08 09 10 11

5500

5700

5900

6100

6300

6500

CGFA

CHART 8

Establishment Survey

Household Survey

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UNEMPLOYMENT RATES

• As shown in Chart 9, as a result of job losses during the recession, the unemployment rate rose from a low of 4.4% in early 2007 to a high of 10.1% by October 2009.

• The recovery that began in mid-2009 has shown only a modest reduction in the unemployment rate some 2 years into a economic recovery and the unemployment rate remains exceptionally high.

• In April, the national rate rose to 9% and again to 9.1% in May and 9.2% in June whereas the rate in Illinois dropped to 8.7% in April before rising to 8.9% in May and matching the nation by at 9.2% in June.

• With economy hitting a soft patch there is little doubt that unemployment will continue to be a major concern for some time.

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan00 01 02 03 04 05 06 07 08 09 10 11

2

4

6

8

10

12

UNITED STATES

UNEMPLOYMENT RATES

CGFA

CHART 9

Percent

ILLINOIS

CONSUME PRICE INDEX

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• While monetary policy is in position to stimulate the economy, there remains the potential that inflationary pressures could reemerge. Too often in the past the Federal Reserve has overstayed its easy policy stance only to have to make severe corrections later.

• As shown in Chart 10, inflation concerns have been on the back burner. Even so, in June, consumer prices were 3.6% higher than a year earlier while the core rate, which excludes the volatile food and energy sectors, was up a lesser1.6%.

• Even so, the Federal Reserve is unlikely to veer away from an overall stimulative policy. While the economy has been recovering for two years now it has hit a soft patch and unemployment has risen again and remains extremely high. At the same time housing has yet to recover from severe retrenchment, and many currency uncertainties both in the U.S. and abroad remain.

CONSUMER PRICE INDEXChange from a year ago

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0

2

4

6

-2

CHART 10

CGFA

Percent

CPI

CORE

MISERY INDEX

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• The disappointing economic data being released recently has caused the Federal Reserve to lower its forecast for both 2011 and 2012. While most forecasters would agree with the latest data revisions that project somewhat slower growth and higher unemployment, fewer would likely agree with the projected significant slowing in inflation.

• In June consumer prices were 3.6 % higher than a year earlier. It has been the combination of a rising unemployment rate and higher prices that has revived the concept of the “Misery Index”.

• As shown in Chart 11, the Misery Index was at a reading of 12.8 in June, with a 3.6% inflation rate and 9.2% unemployment rate. This was higher than the peak of 12.6 during the last recession and in a range of 6-7 prior to the last recession.

MISERY INDEXUnemployment Rate Plus Inflation

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan2001 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

3

5

7

9

11

13

Percent

CHART 11

CHANGE IN REAL GDP

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• Chart 12 shows three alternative forecasts of the U.S. economy in the years FY 2011 through FY 2013. The BASELINE shows the most likely solution with a 55% chance of occurrence. This forecast has the economy continuing to rise but only at a modest pace.

• A more OPTIMISTIC scenario, with a 20% chance of happening, shows stronger gains in FY 2012 and continuing through FY 2013. (A so-called V shaped recovery).

• Finally a PESSIMISTIC alternative is provided, with a 25% chance, whereby the economy slows and briefly turns negative again by the first quarter of FY 2012, followed by modest growth in FY 2013. (A so-called W shaped recovery).

CHANGE IN REAL GDPFiscal Years

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 406 07 08 09 10 11 12 13

0

5

10

-5

Percent

actual baseline pessimistic optimistic

CHART 12

CGFA

CHART 13 and Text Goes Here

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REAL (2005 $) FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013Actual Actual Actual Actual Estimated Estimated

Gross Domestic Product 2.0 -2.8 0.7 2.7 2.6 2.5Personal Consumption 1.4 -1.7 0.4 2.3 2.4 1.9 Durable 1.5 -8.9 4.3 8.9 6.9 5.0 Nondurable 0.7 -2.3 1.2 2.7 2.1 1.2 Services 1.6 -0.2 -0.4 1.3 1.7 1.6

Fixed Investment -3.7 -20.3 -2.1 10.6 7.8 8.3Exports 10.8 -6.4 3.4 9.4 9.2 9.0Imports 0.5 -10.5 -0.4 9.4 4.3 4.6Government 2.2 2.6 1.0 0.3 -2.6 -1.9 Federal 4.6 7.0 5.2 3.2 -2.1 -3.6 State & Local 0.9 -0.4 -1.3 -1.6 -2.9 -0.8

OTHER MEASURESPersonal Income (Current $) 5.3 0.5 0.3 4.1 4.2 3.6Personal Consumption (Current $) 4.8 -0.2 1.7 4.0 4.5 3.6Before Tax Profits (Current $) -10.4 -17.7 26.5 15.9 4.1 1.1

Consumer Prices 3.7 1.4 1.0 2.0 2.5 1.8

Unemployment Rate (Average) 5.0 7.6 9.7 9.3 8.7 8.3

CHART 13: BASELINE FORECAST - JULY 2011($ Change from prior year levels)

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Calendar 2008 2009 2010 2011 2012 2013Years Actual Actual Actual Estimated Estimated Estimated

Total Employment (Ths) 5,949.7 5,929.8 5,963.6 6,029.0 6,075.7 6,120.4 % Change -0.5 -5.1 0.6 1.1 0.8 0.7

Population (Ths) 12,744.6 12,798.1 12,849.5 12,899.2 12,949.5 13,000.8 % Change 0.4 0.4 0.4 0.4 0.4 0.4

Personal Income (Bil $) 554.8 540.4 552.9 579.6 598.3 623.5 % Change 3.9 -2.6 2.3 4.8 3.2 4.2

OTHER MEASURES

Private Housing Starts 21.7 10.6 10.3 10.9 16.1 24.4

Unemployment Rate Avg.6.4 10 10.2 8.8 8.6 8.4

CHART 14: ILLINOIS FORECASTS

SOURCE: Global Insight July 2011

CHART 15: STATE TAX RECEIPTS SURVEY

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• As shown in Chart 15, State revenues have improved sharply in recent months following an all time low Index number of 9 reached in July 2009.

• The Index is based upon data from 16 states, including Illinois, that have diverse geographic and population characteristics.

• In April the Index reached 53.5, the highest level since September 2007, the peak just prior to the last recession. Even so, these levels are still well below those reached at this stage of expansion following the previous recession. Moreover, the Index leveled out in June at 55.6, virtually unchanged from May’s level of 55.7.

STATE TAX RECEIPTS SURVEY(Index based on inflow of income and sales taxes)

SOURCE: ISI (International Strategy & Investment) CGFA

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

0

20

40

60

80

CHART 15

REVIEW OF FY 2011 REVENUES

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For the fiscal year, base revenues grew $3.398 billion. Obviously, the tax changes enacted halfway through the fiscal year played the key role in the increase, as did the tax amnesty program which occurred in the fall. The magnitude of the effect of those items often served to mask the underlying improvements in the economic sources that was happening simultaneously with the tax changes.

$267

$765

$370

$1,998

$397 $528

$1,220

$1,789

-$250

$250

$750

$1,250

$1,750

$2,250

$2,750

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

FY 2011 General Funds Performance by Quarter*Compared to Same Prior Year Quarters

($ in millions)

With Federal Funds Without Federal Funds

* Figures exclude short-term borrowing and Budget Stabilization Fund transfers.

Gen. Funds w/ Federal Funds Cumulative Gain: $3.398 billion

Gen. Funds w/o Federal Funds Cumulative Gain: $3.932 billion

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Due to tax Hike [Net] $2,326Due to Base Growth [Big Three-PIT, CIT, Sales] $1,093Due to Amnesty [Net] $315Net Other taxes -$100Net transfers $298Federal sources -$534Total $3,398

($ Million)*

*This breakdown is attempt to assign value to various elements that comprised the change in FY'11 general funds revenue. These figures represent CGFA's estimates at this point in time and may change when updated data becomes available.

Breakdown of FY 2011 Growth

REVIEW OF FY 2011 REVENUE ASSUMPTIONS

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Actual Enacted July-- 2010 $ %Revenue Sources FY 2011 Revenues FY 2011 Difference DifferenceState Taxes Personal Income Tax $12,301 $9,624 $2,677 27.8% Corporate Income Tax $2,277 $1,902 $375 19.7% Sales Taxes $6,833 $6,290 $543 8.6% Tax Amnesty Proceeds Incorporated into above $250 N/A N/A Public Utility Tax $1,147 $1,144 $3 0.3% Cigarette Tax $355 $350 $5 1.4% Liquor Gallonage Taxes $157 $161 ($4) -2.5% Vehicle Use Tax $30 $26 $4 15.4% Inheritance Tax (gross) $122 $56 $66 117.9% Insurance Taxes & Fees $317 $350 ($33) -9.4% Corporate Franchise Tax & Fees $207 $205 $2 1.0% Interest on State Funds & Investments $28 $35 ($7) -20.0% Cook County Intergovernmental Transfer $244 $243 $1 0.4% Other Sources $404 $346 $58 16.8% Subtotal $24,422 $20,982 $3,440 16.4%

Transfers

Lottery $632 $636 ($4) -0.6% Riverboat transfers and receipts $324 $428 ($104) -24.3% Proceeds from sale of 10th license $0 $0 $0 N/A Other $1,226 $652 $574 88.0%

Total State Sources $26,604 $22,698 $3,906 17.2%

Federal Sources $5,386 $6,227 ($841) -13.5%

Total Federal & State Sources $31,990 $28,925 $3,065 10.6%

Nongeneral Funds Distribution:

Refund Fund Personal Income Tax [8.75%] ($1,076) ($938) ($138) 14.7% Corporate Income Tax [17.5%] ($426) ($332) ($94) 28.3%

Subtotal General Funds $30,488 $27,655 $2,833 10.2%

Other Financial Sources Assumed in FY'11 Budget

Short-Term Borrowing $1,300 $1,300 $0 0.0%Pension Obligation Bond Proceeds $3,684 $3,700 ($16) -0.4%Tobacco Revenue Liquidation $1,250 $1,200 $50 N/AInter Fund Borrowing Plan Incl. w/ Other Transfers $964 N/A N/ATotal General Funds $36,722 $34,819 $1,903 5.5%

NOTE: Totals exclude Budget Stabilization transfers, and other cash flow transfers.CGFA

Actual vs. FY 2011 Enacted July 2010 Budget Assumptions(millions)

The accompanying table illustrates that total general funds revenues in FY 2011 grew $1.903 billion over the initial assumptions used to craft the enacted FY 2011 budget approximately one year ago. Obviously, the changes made in the income tax rates mid-fiscal year comprise the bulk of the differences. Those gains were able to offset significant variance in federal sources expected in FY 2011. However, some of that shortage has been made up with non-general funds reimbursable spending and related receipts.

REVIEW OF MOST RECENT REVENUE ESTIMATES

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The table below demonstrates how the February/March estimates of CGFA and GOMB performed relative to actuals. As shown, actual base revenues ended up being only $7 million higher than the CGFA’s March estimate, or a difference of only .02 percent. Net income taxes fell just $35 million short of expectations, a feat made all the more impressive given the magnitude of tax changes made midyear. Sale taxes finished $137 million higher than expected, while other receipts also overachieved by $61 million. However, all news wasn’t positive, as overall transfers fell short of estimates by $36 million, and federal sources were off by $120 million. Overall, actual FY 2011 revenues performed remarkably similar to CGFA expectations. The lack of any significant variance reinforces that views presented in the March estimate remained largely relevant. In comparison, actual revenues fell $125 million short of GOMB estimates presented in February. Net income taxes failed to reach expectations by a combined $275 million. However, sales tax revenues exceeded GOMB estimates by $319 million. Other tax receipts overachieved by $77 million, while overall transfers fell short of estimates by $126 million. GOMB was expecting $120 more in federal sources than what eventually occurred.

FY 2011 Actuals vs. Estimates: CGFA and GOMB ($ millions)

DIFFERENCE DIFFERENCECGFA EST. ACTUALS GOMB EST. ACTUALS

ACTUAL Mar-11 FROM Feb-11 FROMRevenue Sources FY 2011 FY 2011 ESTIMATE FY 2011 ESTIMATE

Net Income Tax [Personal & Corporate] $13,076 $13,111 ($35) $13,351 ($275) Sales Taxes $6,833 $6,696 $137 $6,514 $319 Other Receipts $3,011 $2,950 $61 $2,934 $77 Transfers $2,182 $2,218 ($36) $2,308 ($126) Federal Sources $5,386 $5,506 ($120) $5,506 ($120)

Subtotal General Funds $30,488 $30,481 $7 $30,613 ($125)

FY 2012 REVENUE RELATED BUDGET HIGHLIGHTS

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In early March, the House passed HR 110 which essentially established the estimate of general revenues that was to be utilized in crafting the spending plan for FY 2012. As shown, HR 110 which was developed by the House Revenue and Finance Committee, estimates FY 2012 revenues to be $33.173 billion. That figure represents an increase of $2.685 billion over FY 2011, primarily reflecting growth associated with the annualizing of the January 2011 income tax increase. The accompanying table compares CGFA’s July 2011 estimate and that assumed under HR 110. As shown, CGFA estimates that FY 2012 revenues will exceed HR 110 projections by $764 million. CGFA’s projections of the economically related sources are measurably higher due to the incorporation of actual FY 2011 receipts into the estimate and slightly updated growth expectations. However, CGFA’s estimate of federal sources is significantly lower, reflecting the final reimbursable spending limits which were reduced by the General Assembly during the appropriation process and again by the Governor via amendatory veto.  It should be noted that the House also approved HR 158 which states that any revenues in excess of those adopted under HR110, should be applied towards the payment of overdue bills.

FY'12 FY'12CGFA HR 110 $

Revenue Sources July-11 March-11 DifferenceState Taxes Personal Income Tax $16,997 $16,389 $608 Corporate Income Tax $2,874 $2,435 $439 Sales Taxes $6,840 $6,586 $254 Public Utility (regular) $1,111 $1,082 $29 Cigarette Tax $355 $355 $0 Liquor Gallonage Taxes $157 $162 ($5) Vehicle Use Tax $30 $32 ($2) Inheritance Tax (gross) $188 $182 $6 Insurance Taxes & Fees $320 $318 $2 Corporate Franchise Tax & Fees $208 $204 $4 Interest on State Funds & Investments $30 $25 $5 Cook County Intergovernmental Transfer $244 $244 $0 Other Sources $385 $365 $20

Subtotal $29,739 $28,379 $1,360

Transfers

Lottery $645 $645 $0 Riverboat transfers and receipts $324 $426 ($102) Proceeds from sale of 10th license $75 $75 $0 Other $794 $664 $130

Total State Sources $31,577 $30,189 $1,388

Federal Sources $4,350 $4,844 ($494)

Total Federal & State Sources $35,927 $35,033 $894

Nongeneral Funds Distribution:

Refund Fund Personal Income Tax [8.75%] ($1,487) ($1,434) ($53) Corporate Income Tax [12.5%] ($503) ($426) ($77)

Subtotal General Funds $33,937 $33,173 $764

NOTE: Totals exclude Budget Stabilization transfers, and other cash flow transfers.CGFA

FY 2012 Estimate Comparison: CGFA July-11 vs. HR 110(millions)

FY 2012 CGFA and GOMB FORECASTS

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On August 10th, GOMB published a FY 2012 Budget Review document that contained updated revenue figures. The accompanying table illustrates the differences between it and CGFA’s July forecast. As shown, CGFA’s estimate is $813 million higher than that of GOMB, with the bulk of the differences being found in personal income tax and sales tax. It is likely that the difference in personal income tax stem from CGFA’s view that due to a natural implementation delay of the January 2011 tax increase, FY 2012 should benefit by approximately $500 million in higher final payments as a result of that timing. This view is reinforced by the performance of CGFA’s FY 2011 estimate which was only 0.7% less than actuals [compared with GOMB’s FY’11 estimate that was 2.1% higher than actuals]. In terms of sales taxes, CGFA’s higher estimate is more a function of what appears to be a dated GOMB estimate. Sales tax did surprisingly well during the second half of FY’11. In fact, actuals surpassed CGFA’s estimate by 2%, and the GOMB’s estimate by 4.7%. While the impact of tax amnesty will serve to significantly lower overall sales tax growth in FY’12, it doesn’t appear that the August GOMB estimate incorporated FY’11 actuals. In fact, to reach the GOMB estimate, receipts would have to fall 3.3% for the year. Further, since sales tax has continued to perform well early this fiscal year, sales tax receipts would have to fall 6.1% over the remaining ten months. Even factoring in the impact of last year’s amnesty program, that rate of decline seems unlikely.

FY'12 FY'12CGFA GOMB $

Revenue Sources July-11 Aug-11 DifferenceState Taxes Personal Income Tax $16,997 $16,500 $497 Corporate Income Tax $2,874 $2,853 $21 Sales Taxes $6,840 $6,610 $230 Public Utility (regular) $1,111 $1,082 $29 Cigarette Tax $355 $355 $0 Liquor Gallonage Taxes $157 $162 ($5) Vehicle Use Tax $30 $32 ($2) Inheritance Tax (gross) $188 $182 $6 Insurance Taxes & Fees $320 $318 $2 Corporate Franchise Tax & Fees $208 $204 $4 Interest on State Funds & Investments $30 $25 $5 Cook County Intergovernmental Transfer $244 $244 $0 Other Sources $385 $365 $20 Subtotal $29,739 $28,932 $807

Transfers

Lottery $645 $645 $0 Riverboat transfers and receipts $324 $426 ($102) Proceeds from sale of 10th license $75 $75 $0 Other $794 $664 $130

Total State Sources $31,577 $30,742 $835

Federal Sources $4,350 $4,325 $25

Total Federal & State Sources $35,927 $35,067 $860

Nongeneral Funds Distribution:

Refund Fund Personal Income Tax [8.75%] ($1,487) ($1,444) ($43) Corporate Income Tax [17.5%] ($503) ($499) ($4)

Subtotal General Funds $33,937 $33,124 $813

NOTE: Totals exclude Budget Stabilization transfers, and other cash flow transfers.CGFA

FY'12 Estimates CGFA July-11 vs. GOMB Aug-11(millions)

FY 2012 REVENUE ASSUMPTION

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Full-year of Tax Increase Enough to Offset Falloff in Federal Sources

Economic SourcesWhile a full year of the higher personal income tax rate will significantly boost receipts, so too will a timing element valued at over $500 million related to the mid-year implementation of the new rate. Those items, combined with a modest base growth estimate of approximately 2.1%, gross personal income tax is estimated to grow $4.696 billion or $4.285 billion, net of refunds. In the case of corporate income tax, a full year of the higher tax rate as well as suspension of the net operating loss deduction coupled with base growth expected to be over 7%, is expected to result in gross receipting rising $597 million or $520 million, net of refunds. It should be noted that the estimates of personal and corporate income tax have been decreased a net $600 million [approximately 46% personal and 54% corporate] due to federal depreciation provisions that the State elected not to decouple from. It should be noted that the impact of last year’s tax amnesty program has also been incorporated into the estimates of income tax. Base sale taxes, after experiencing higher than expected growth in FY 2011, is expected to return to more modest levels of approximately 2.5%. However, the accelerated effects of the FY 2011 tax amnesty program will result in sales tax only growing $7 million in FY 2012.

TransfersOverall transfers are expected to fall a net $344 million. While a gain is expected from Lottery and riverboat related transfers, a significant drop off in other transfers due to last year’s $496 million of interfund borrowing will cause a significant year over year decline.

Federal SourcesAs mentioned earlier, reimbursable spending was a focus of the General Assembly and the Governor during the appropriation process. While provider rates have not yet been changed, the decision to extend the payment cycle essentially translates into less reimbursable spending and subsequent federal source receipts. Couple the lower spending with a return to a lower match rate on what spending does take place, and federal sources are expected to fall $1.036 billion from last year’s levels.

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FY 2012 FY 2012FY 2010 FY 2010 Enacted Revised FY 2011 Proposed Enacted

Unaudited Actuals July 1, 2010 Feb. 2011 Unaudited Feb. 2011 FY 2012Actuals-2/11 [June 2011] FY 2011 FY 2011 Actuals 8/11 FY 2012 Aug-11

Revenues [GOMB] $27,090 $27,366 $27,655 $30,613 $30,487 $33,932 $33,124GOMB GOMB GOMB GOMB GOMB GOMB GOMB

Appropriations* $26,354 $26,354 $25,831 $26,071 $25,845 $26,733 $24,991less unspent approp ($1,189) ($896) ($891) ($1,757) ($450) ($802) ($500)

Net Approp Spending $25,165 $25,458 $24,940 $24,314 $25,395 $25,931 $24,491

Pension Contributions $0 $3,466 $4,157 $3,919 $3,680 $4,594 $4,230Savings from Pension Stabilization $0 $0 $0 $0 $0

Statutory Transfers Outapprox. Legislatively Required Transfers $976 $1,067 $1,823 $2,061 $1,509 $2,317 $2,065

Pension Obligation Bond Debt Service $564 $564 $1,754 $1,734 $1,667 $1,559 $1,605Debt Service transfer for Capital Projects $670 $670 $645 $570 $540 $578 $563Debt Service on FY10 Medicaid Borrowing $63 $63 $183 $189 $189 $0 $0Debt Service on FY'11 Restructuring bonds $98 $0 $403 $0Reduced Transfer to LGDF $0 $0 $0 $0 $0 $0 $0Tranfers Payable at Year End $1,267 $940 $890 $0 $0Interfund Borrowing Repayments/BSF $781 $10 $0 $623

Total Transfers Out $3,540 $3,304 $4,405 $5,433 $4,805 $4,857 $4,856

Total Operating Spending and Transfers Out $28,705 $32,228 $33,502 $33,666 $33,880 $35,382 $33,577

Operating Deficit (Surplus) ($1,615) ($4,862) ($5,847) ($3,053) ($3,393) ($1,450) ($453)

Short-term Borrowing $1,250 $1,250 $1,300 $1,300 $1,300 $0 $0Repay of Short-term Borrowing [w/ interest] ($2,276) ($2,276) ($1,317) ($1,317) ($1,322) $0 $0Pension Obligation Bonds $0 $3,466 $3,700 $3,680 $3,680 $0 $0Tobacco Liquidation $1.2b/Interfund borrow $1.0b $0 $0 $1,200 $1,250 $1,250 $0 $0Interfund Borrowing (per Emergency Budget Act) $964 $0 $0 $0 $0Voucher Payment Notes $0 $0 $0 $0 $0Proposed FY'11 GO Restucturing Bond $4,000 $0 $1,450 $0

Budget Deficit (Surplus) ($2,641) ($2,422) $0 $5,860 $1,515 $0 ($453)

Budgetary Basis to Begin Year ($3,674) ($3,673) ($6,475) ($6,315) ($6,095) ($21) ($4,580)

Budget Deficit at End of Year ($6,315) ($6,095) ($6,475) ($455) ($4,580) ($21) ($5,033)

General Funds Budget Plan --FY 2010 to FY 2012$ millions

Sources: GOMB Feb. 2012 Budget Book; previous Preliminary Official Statements* See GOMB's FY 2012 Budget Book and latest Official Statements for detailed explanations.

FY 2010 FY 2011

HIGHLIGHTS OF 96-1496 (INCOME TAX INCREASE)

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In January 2011, P.A. 96-1496 was signed into law creating the first significant revenue-producing enactment in many years. Highlights of the new public act are as follows:

• Increase Individual Income Tax Rate. Increases the personal income tax rate from 3% to 5% in tax year 2011; to 3.75% in tax year 2015; and, to 3.25% in tax year 2025.

• Increase Corporate Income Tax Rate. Increases the corporate income tax rate from 4.8% to 7% in tax year 2011; to 5.25% in tax year 2015; and, to 4.8% in tax year 2025.

• Reinstates Estate Tax. There was no federal or State estate tax during calendar year 2010. P.A. 96-1496 reinstates the Illinois estate tax for calendar 2011 and thereafter. The Illinois estate tax exempts the first $2 million of an estate, which is less than the current $5 million federal exemption.

• Temporarily Eliminate Net Operating Loss Deduction. In the case of a corporation (other than a Subchapter S corporation), P.A. 96-1496 provides that no carryover deduction shall be allowed for tax years 2011, 2012, and 2013; provided that, for purposes of determining the taxable years to which a net loss may be carried, no taxable year for which a deduction is disallowed shall be counted.

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Total Amount to Net Revenues Net Revenues TotalNew Refund from Pers. from Corp. New Net

Revenues Fund Tax Increase Tax Increase* Revenues

FY 2011 $2,551 $245 $2,100 $206 $2,306FY 2012 $8,179 $813 $6,448 $918 $7,366FY 2013 $8,175 $833 $6,233 $1,109 $7,342FY 2014 $8,427 $857 $6,443 $1,127 $7,570FY 2015 $5,885 $582 $4,668 $635 $5,303FY 2016 $2,982 $279 $2,528 $174 $2,703FY 2017 $3,051 $286 $2,587 $178 $2,765FY 2018 $3,121 $292 $2,646 $183 $2,829FY 2019 $3,193 $299 $2,707 $187 $2,894FY 2020 $3,266 $306 $2,769 $191 $2,960FY 2021 $3,341 $313 $2,833 $195 $3,028FY 2022 $3,418 $320 $2,898 $200 $3,098FY 2023 $3,497 $328 $2,965 $205 $3,169FY 2024 $3,577 $335 $3,033 $209 $3,242FY 2025 $2,524 $237 $2,137 $150 $2,287FY 2026 $1,159 $101 $1,058 $0 $1,058

* Includes revenues from suspension of net operating loss deduction (valued at $313M, net of refunds).

Individual and Corporate New Revenues Under P.A. 96-1496 (SB 2505) as Compared to Previous Law

Note: The income tax increase became effective January 1, 2011. However, because the enactment date was January 13, 2011, January withholding payments (and some of February withholding payments) were not able to be adjusted in time to reflect the new tax rate. Because of this, these withholding taxes owed (valued at approximately $548M) will be made up as final payments and collected in FY 2012 instead of FY 2011. The FY 2011 and FY 2012 amounts above reflect this timing adjustment. (ESTIMATES UPADATED AUGUST 2011)

Denotates Transition Years of Scheduled Rate Reductions

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General Funds Annual $ Change

FY 1992 $14,032 $771

FY 1993 $14,750 $718

FY 1994 $15,586 $836

FY 1995 $17,002 $1,416

FY 1996 $17,936 $934

FY 1997 $18,854 $918

FY 1998 $19,984 $1,130

FY 1999 $21,674 $1,690

FY 2000 $23,250 $1,576

FY 2001 $24,106 $856

FY 2002 $23,379 -$727

FY 2003 $22,786 -$593

FY 2004 $25,428 $2,642

FY 2005 $26,160 $732

FY 2006 $27,359 $1,199

FY 2007 $28,640 $1,281

FY 2008 $29,659 $1,019

FY 2009 $29,144 -$515

FY 2010 $27,090 -$2,054

FY 2011 $30,488 $3,398

FY 2012 (est.) $33,937 $3,449

General Funds Annual $ Change

FY 1992 $14,217 $956

FY 1993 $15,050 $833

FY 1994 $16,186 $1,136

FY 1995 $17,302 $1,116

FY 1996 $18,136 $834

FY 1997 $18,854 $718

FY 1998 $19,984 $1,130

FY 1999 $21,674 $1,690

FY 2000 $23,250 $1,576

FY 2001 $24,106 $856

FY 2002 $23,605 -$501

FY 2003 $24,987 $1,382

FY 2004 $27,049 $2,062

FY 2005 $28,183 $1,134

FY 2006 $28,635 $452

FY 2007 $30,272 $1,637

FY 2008 $33,838 $3,566

FY 2009 $32,120 -$1,718

FY 2010 $30,329 -$1,791

FY 2011 $33,797 $3,468

FY 2012 (est.) $34,213 $416

(in millions)

(in millions)

$771 $718 $836

$1,416

$934 $918$1,130

$1,690 $1,576

$856

-$727 -$593

$2,642

$732$1,199 $1,281

$1,019

-$515

-$2,054

$3,398 $3,449

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

FY1992

FY1993

FY1994

FY1995

FY1996

FY1997

FY1998

FY1999

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012(est.)

Excludes Budget Stabilization Fund and Pension Contribution Fund Transfers, Short-Term Borrowing, and Related Transfers

General Funds Revenue History: Annual $ ChangeFY 1992 - FY 2012 (est.)

(in millions)

$956 $833$1,136 $1,116

$834 $718

$1,130

$1,690 $1,576

$856

-$501

$1,382

$2,062

$1,134

$452

$1,637

$3,566

-$1,718-$1,791

$3,468

$416

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

FY1992

FY1993

FY1994

FY1995

FY1996

FY1997

FY1998

FY1999

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012(est.)

Includes Budget Stabilization Fund and Pension Contribution Fund Transfers, Short-Term Borrowing, and Related Transfers

Total General Funds Revenue History: Annual $ ChangeFY 1992 - FY 2012 (est.)

(in millions)

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General Funds Annual $ Change % Change

FY 1990 $12,841 - -

FY 1991 $13,261 $420 3.3%

FY 1992 $14,032 $771 5.8%

FY 1993 $14,750 $718 5.1%

FY 1994 $15,586 $836 5.7%

FY 1995 $17,002 $1,416 9.1%

FY 1996 $17,936 $934 5.5%

FY 1997 $18,854 $918 5.1%

FY 1998 $19,984 $1,130 6.0%

FY 1999 $21,674 $1,690 8.5%

FY 2000 $23,250 $1,576 7.3%

FY 2001 $24,106 $856 3.7%

FY 2002 $23,379 -$727 -3.0%

FY 2003 $22,786 -$593 -2.5%

FY 2004 $25,428 $2,642 11.6%

FY 2005 $26,160 $732 2.9%

FY 2006 $27,359 $1,199 4.6%

FY 2007 $28,640 $1,281 4.7%

FY 2008 $29,659 $1,019 3.6%

FY 2009 $29,144 -$515 -1.7%

FY 2010 $27,090 -$2,054 -7.0%

FY 2011 $30,488 $3,398 12.5%

Cash Balance June 30th Lapse Spending

Balance on Budgetary

Basis (After Lapse)

FY 1990 $395 $586 ($191)

FY 1991 $100 $766 ($666)

FY 1992 $131 $1,018 ($887)

FY 1993 $172 $802 ($630)

FY 1994 $230 $652 ($422)

FY 1995 $331 $672 ($341)

FY 1996 $426 $718 ($292)

FY 1997 $806 $761 $45

FY 1998 $1,202 $846 $356

FY 1999 $1,351 $848 $503

FY 2000 $1,517 $740 $777

FY 2001 $1,126 $826 $300

FY 2002 $256 $1,476 ($1,220)

FY 2003 $317 $1,411 ($1,094)

FY 2004 $182 $592 ($410)

FY 2005 $497 $971 ($474)

FY 2006 $590 $881 ($291)

FY 2007 $642 $777 ($135)

FY 2008 $141 $975 ($834)

FY 2009 $280 $3,594 ($3,674)

FY 2010 $130 $6,224 ($6,094)

FY 2011 $469 N/A N/A

(in millions)

GENERAL FUNDS BALANCE INFORMATION

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

FY1990

FY1991

FY1992

FY1993

FY1994

FY1995

FY1996

FY1997

FY1998

FY1999

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

General Funds Revenue History: FY 1990 - FY 2011Excludes Budget Stabilization and Pension Contribution Fund Transfers, Short-Term

Borrowing, and Related Transfers(in millions)

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

FY1990

FY1991

FY1992

FY1993

FY1994

FY1995

FY1996

FY1997

FY1998

FY1999

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

General Funds Balances - Cash Basis FY 1990 - FY 2011

(in millions)

Cash Balance June 30th Balance on Budgetary Basis (After Lapse)

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Actual Actual Actual Actual Actual Actual Actual Actual ActualReceipts Receipts Receipts Receipts Receipts Receipts Receipts Receipts Receipts

Revenue Sources FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

State Taxes Personal Income Tax $7,979 $8,235 $8,873 $9,568 $10,424 $11,187 $10,219 $9,430 $12,301 Corporate Income Tax (regular) 1,011 1,379 1,548 1,784 2,121 2,201 2,073 1,649 2,277 Sales Taxes 6,059 6,331 6,595 7,092 7,136 7,215 6,773 6,308 6,833 Public Utility Taxes (regular) 1,006 1,079 1,056 1,074 1,131 1,157 1,168 1,089 1,147 Cigarette Tax 400 400 450 400 350 350 350 355 355 Liquor Gallonage Taxes 123 127 147 152 156 158 158 159 157 Vehicle Use Tax 34 35 32 34 33 32 27 30 30 Inheritance Tax (Gross) 237 222 310 272 264 373 288 243 122 Insurance Taxes and Fees 313 362 342 317 310 298 334 322 317 Corporate Franchise Tax & Fees 142 163 181 181 193 225 201 208 207 Interest on State Funds & Investments 66 55 73 153 204 212 81 26 28 Cook County Intergovernmental Transfer 355 428 433 350 307 302 253 244 244 Other Sources 349 439 468 441 449 442 418 431 404

Subtotal $18,074 $19,255 $20,508 $21,818 $23,078 $24,152 $22,343 $20,494 $24,422

Transfers Lottery 540 570 614 670 622 657 625 625 632 Gaming Fund Transfer [and related] 554 661 699 689 685 564 430 431 324 Other 589 1,159 918 746 939 679 538 828 1,226

Total State Sources $19,757 $21,645 $22,739 $23,923 $25,324 $26,052 $23,936 $22,378 $26,604

Federal Sources $3,940 $5,189 $4,691 $4,725 $4,703 $4,815 $6,567 $5,920 $5,386

Total Federal & State Sources $23,697 $26,834 $27,430 $28,648 $30,027 $30,867 $30,503 $28,298 $31,990

Nongeneral Funds Distribution:

Refund Fund Personal Income Tax ($638) ($964) ($894) ($933) ($1,016) ($867) ($996) ($919) ($1,076) Corporate Income Tax (273) (442) (376) (356) (371) (341) (363) (289) (426)

Subtotal General Funds $22,786 $25,428 $26,160 $27,359 $28,640 $29,659 $29,144 $27,090 $30,488Change from Prior Year ($593) $2,642 $732 $1,199 $1,281 $1,019 ($515) ($2,054) $3,398

Percent Change -2.5% 11.6% 2.9% 4.6% 4.7% 3.6% -1.7% -7.0% 12.5%

Short-Term Borrowing $1,675 $0 $765 $1,000 $900 $2,400 $2,400 $1,250 $1,300

Tobacco Liquidation Proceeds $0 $0 $0 $0 $0 $0 $0 $0 $1,250HPF and HHSMTF Transfers $0 $0 $982 $0 $456 $1,503 $0 $0 $0

Budget Stabilization Fund Transfer $226 $226 $276 $276 $276 $276 $576 $1,146 $535

Pension Contribution Fund Transfer $300 $1,395 $0 $0 $0 $0 $0 $843 $224

Total General Funds $24,987 $27,049 $28,183 $28,635 $30,272 $33,838 $32,120 $30,329 $33,797

Change from Prior Year $1,382 $2,062 $1,134 $452 $1,637 $3,566 ($1,718) ($1,791) $3,468

Percent Change 5.9% 8.3% 4.2% 1.6% 5.7% 11.8% -5.1% -5.6% 11.4%

CGFA

DETAILED GENERAL FUNDS REVENUE HISTORY FY 2003 - FY 2011($ million)