1.28.13 city club presentation

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1.28.13 city club presentation

  1. 1. City Club 2013 January 28, 2013
  2. 2. 2011 2013• State • The State Budget Budget and the Pension Solution2012• Pensions
  3. 3. Points of Discussion1. How the state budget works2. Where we spend our money3. What we have done to tackle budget pressures4. How we can solve the pension crisis
  4. 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. 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 $47.3Projected FY13 balances of Hospital Provider FundALL Other State Funds: $128.8$1.995 billion Insurance FinancialTop 15 balances account for Open Space Land Regulation Fund62.8% Acquisition and Insurance Producer $34.6 Development Fund Administration Fund $47.3 $37.8
  6. 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. 7. FY13 General Revenue Funds By Federal Source Receipts 14.1% $33.719 BillionOther 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. 8. Illinois Tax History1969 July 1,1993Gov. Ogilvie Gov. Edgarcreates makes taxState increaseIncome 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. 9. Personal Income Tax Rates of Midwestern States 10% 9% 8% 7% 6% IllinoisTax 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) *Indianas tax rate includes an average county tax rate of 1.28%
  10. 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. 11. Jan 11 - Nov 12Private 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. 12. FY13 General Revenue Fund Budget: $33.719 Billion Non-Discretionary Spending:$17.3 billion Discretionary Spending: $16.4 billion
  13. 13. FY 2013 General Revenue Fund BudgetDebt 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. 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 $31,000,000Transfers 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. 15. The “SMART Act”(Saving Medicaid Access and Resources Together)The SMART ACT is a comprehensive , $2.4 billion package ofcuts, revenues, utilization controls, provider rate changes, and anti-fraud measures designed to slim down and promote efficiency inMedicaid while preserving access and quality of care.
  16. 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. 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 $395,000,000Discretionary 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: ($651,331,689)
  18. 18. FY13: Budget Accomplishments• Balanced• Dedicates revenue to paying old bills• Makes the pension payment• Cuts discretionary spending as a means to meet spending pressures• Hold Medicaid spending flat through cost controls and other measures
  19. 19. Education and Pension Funding
  20. 20. GRF P-12 Expenditures as % of Total GRF Expenditures ($ 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. 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. 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. 23. A Look at the Upcoming Pension Payment $ whole numbers GRF Pension Certification Increase OverSystem FY13 FY14 FY13SERS $1,041,371,800 $1,097,360,220 $55,988,420JRS $88,210,000 $126,808,000 $38,598,000GARS $14,150,000 $13,856,000 ($294,000)SURS $1,252,800,000 $1,509,766,000 $106,966,000TRS $2,702,278,000 $3,438,000,000 $735,722,000Subtotal $5,098,809,800 $6,185,790,220 $1,086,980,420
  24. 24. Required State Pension Contributions ($ in millions) $30,000.0 Recent Pension Reform $25,000.0•Reforms pension benefits for allpublic 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 becalculated over an 8 year period. $10,000.0•Establishes a cap to final averagesalary that mirrors Social Security. $5,000.0SB 1946 is estimated to reducerequired 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. 25. Pension Clause: Article XIII, Section 5 of the Illinois Constitution“Membership in any pension or retirementsystem of the State, any unit of localgovernment or school district, or any agencyor instrumental thereof, shall be anenforceable contractual relationship, thebenefits of which shall not be diminished orimpaired.” (Article XIII, Section 5 of the Illinois Constitution)
  26. 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. 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. 28. Senate Bill 1A Top Priority
  29. 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. 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. 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. 32. Part BPart B asks employees and retirees to make one of two choices:
  33. 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. 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. 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. 36. So there you have it1. How the state budget works2. Where we spend our money3. What we’ve done to tackle budget pressures4. How we can solve the pension crisis
  37. 37. www.IllinoisSenateDemocrats.com

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