1. City Club 2013
January 28, 2013

2. 2011 2013
• State • The State
Budget Budget and
the Pension
Solution
2012
• Pensions

3. Points of Discussion
1. How the state budget works
2. Where we spend our money
3. What we have done to tackle
budget pressures
4. How we can solve the pension
crisis

4. FY13: All Funds Budget
$8.2 billion
$66 Billion
12%
$33.7 billion
$24.1 billion 51%
37%
General Revenue Funds Other State Funds Federal Funds

5. Top 15 Other State Fund Balances in FY13
$1.254 billion total Supplemental Low-
Income Energy
State Lottery Assistance Fund
$160.7 $106.9
State and Local Sales Tax
Reform Vehicle Inspection
$74.3 $31.90
Water Revolving Fund
Secretary of State ID & $133.2
Theft Prevention
$30.2
Real Estate License
Administration Fund
Bank and Trust
$32.4
Company Fund
$28.2
Downstate Public
Transportation
Personal Property Tax $47.4
replacement Fund
$312.5 Downstate Transit
Improvement
$ in Millions $47.3
Projected FY13 balances of Hospital Provider Fund
ALL Other State Funds: $128.8
$1.995 billion
Insurance Financial
Top 15 balances account for Open Space Land Regulation Fund
62.8% Acquisition and Insurance Producer $34.6
Development Fund Administration Fund
$47.3 $37.8

6. FY13: All Funds Budget
$8.2 billion
$66 Billion
12%
$33.7 billion
$24.1 billion 51%
37%
General Revenue Funds Other State Funds Federal Funds

7. FY13 General Revenue Funds By
Federal
Source
Receipts
14.1%
$33.719 Billion
Other Taxes
Personal
and Fees
Income Tax
13.8%
46.0%
Personal Income Tax - $15.3b
Sales Tax Corporate Corporate Income Tax - $2.4b
19.7% Income Tax Sales Tax - $7.3b
6.3% Other Taxes and Fees- $4.7b
Federal Receipts - $3.9b

8. Illinois Tax History
1969 July 1,1993
Gov. Ogilvie Gov. Edgar
creates makes tax
State increase
Income Tax July 1, 1984 permanent
• 2.5% Rates return to • 3.0%
Personal previous level Personal
• 4.0% • 2.5% Personal • 4.8%
Corporate • 4.0% Corporate Corporate
1983 1989 January
Gov. Gov. Thompson 1, 2011
Thompson approves Gov. Quinn
raises rates another approves a
by 20% for temporary tax temporary
one year increase tax increase
• 3.0% through 1993 • 5.0%
Personal • 3.0% Personal Personal
• 4.8% • 4.8% Corporate • 7.0%
Corporate Corporate

9. Personal Income Tax Rates of Midwestern States
10%
9%
8%
7%
6%
Illinois
Tax Rate
Missouri
5%
Kentucky
Indiana
4%
Wisconsin
Iowa
3% Illinois - 2015
2%
1%
0%
$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000
Income (Married Filing Jointly)
*Indiana's tax rate includes an average county tax rate of 1.28%

10. Top Corporate Income Tax Rates of Midwestern
States
14.00%
12.00%
12.00%
10.00%
Income Tax Rate
8.00% 7.90%
8.00% 7.00%
6.00% 6.25%
6.00%
4.00%
2.00%
0.00%
Illinois Kentucky Missouri Indiana Wisconsin Iowa

11. Jan 11 - Nov 12
Private Sector Job 3.5% 3.3%
Growth by
2.9%
Percentage After 3.0%
the Tax Increase
2.5%
2.0% 1.9%
Illinois 1.7%
gains 91.8
thousand 1.5%
jobs
1.0%
Wisconsin 0.5%
loses 5.6
thousand
jobs 0.0%
IL IN WI
-0.2% OH NJ
-0.5%

12. FY13 General Revenue Fund Budget:
$33.719 Billion
Non-
Discretionary
Spending:
$17.3 billion
Discretionary
Spending:
$16.4 billion

13. FY 2013 General Revenue Fund Budget
Debt Service on
Discretionary and Non-Discretionary
Capital Bonds Statutory Transfers Out
1.8%
Appropriations
6.1%
Debt Service on $33.719 Billion Operation of State
Government:
Pension Bonds Government Services
Public Safety and $3.9 billion (11.5%)
4.6% 3.5%
Regulation
4.8%
Pensions Total: 19.8%
Pensions
15.2%
Human Services
15.2%
$ below in millions
Government Services - $1,164
Public Safety and Regulation - $1,607
Human Services - $5,086
P- 12 - $6,542
Higher Ed - $1,980
Medicaid/Healthcare - $7,810
Pensions - $5,100
P-12
19.5% Debt Service on Pension Bonds - $1,552
Medicaid/Healthcare Higher Ed Debt Service on Capital Bonds - $616
23.3% 5.9% Statutory Transfers Out¹ - $2,052

14. Non-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
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
$2,398,662,000 $2,052,200,000
Local Governments ($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

15. 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.

16. 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
Hospital •$50 million at least $1.4 billion in Medicaid spending
Assessment 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
Tobacco a total of $800 million in state and federal
tax funds.
•$350 million
Federal Match
•$400 million
The American Lung Association
predicts the new tax will persuade
59,400 smokers to quit and 77,600
youths not to start smoking.

17. 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)

18. 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

19. Education and Pension
Funding

20. GRF P-12 Expenditures as % of Total GRF Expenditures
($ in millions)
$8,000.0 30%
$7,000.0
25%
$6,000.0
20%
$5,000.0
$4,000.0 15%
$3,000.0
10%
$2,000.0
5%
$1,000.0
$0.0 0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY 13
GRF Contribution Contribution as % of Total GRF

21. P-20 Education Funding:
$45,000,000,000
State, Local and Federal
$40,000,000,000 $36,300,000,000
98.37%
$35,000,000,000
$30,000,000,000
$25,000,000,000
$20,000,000,000
$15,000,000,000
$10,000,000,000
$5,000,000,000 $600,000,000
1.63%
$0
Lottery Contribution Local, State, Federal Share

22. GRF Spending History
P-12 Education Funding vs. State Pension
Contributions
$ in billions
P-12 Education Funding Pension Contribution
$8.0
$7.4 $7.3
$7.1 $7.1
$7.0 $6.8
$6.5 $6.5
$6.1
$5.8
$6.0
$5.1
$5.0
$4.1
$4.0 $3.7
$3.5
$3.0
$2.2
$2.0 $1.6
$1.3 $1.2
$0.8
$1.0
$0.0
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY 13

23. A Look at the Upcoming Pension
Payment
$ whole numbers
GRF Pension Certification
Increase Over
System FY13 FY14 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

24. Required State Pension Contributions
($ in millions)
$30,000.0
Recent Pension
Reform $25,000.0
•Reforms pension benefits for all
public pension systems SB 1946 is estimated to
$20,000.0
•Increases the retirement age to 67 reduce the Systems' total
•Ends the 3% annual cost of living liability by over $250
billion through 2045.
adjustment for (future) retirees $15,000.0 (COGFA)
•Requires that a retiree’s benefit be
calculated over an 8 year period.
$10,000.0
•Establishes a cap to final average
salary that mirrors Social Security.
$5,000.0
SB 1946 is estimated to reduce
required State contributions by
$71.1 billion. $0.0 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
Baseline State Contribution
SB 1946 State Contribution

25. 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)

26. 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

27. Cost of Living Comparison
State Employee Retiree Starting with a $50,000 Annuity
$130,000
$120,000 $121,363
3% Compounded
$110,000 3% Simple
$100,000
$95,000
$90,000
Under current law, a SERS
$80,000 employee who retires at age 60
can receive a compounded
COLA. The compounding factor
$70,000 entitles the retiree to $252,633 in
additional benefits that would not
accumulate were the COLA non-
$60,000
compounded.
$50,000
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
Age

28. Senate Bill 1
A Top Priority

29. 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

30. 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)

31. 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

32. Part B
Part B asks employees and
retirees to make one of two
choices:

33. 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

34. 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

35. 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

36. So there you have it
1. How the state budget works
2. Where we spend our money
3. What we’ve done to tackle
budget pressures
4. How we can solve the pension
crisis

37. www.IllinoisSenateDemocrats.com