Health and medicine forum - martire

CENTER FOR TAX AND BUDGET ACCOUNTABILITY
70 E. Lake Street  Suite 1700  Chicago, Illinois 60601  direct: 312.332.1049  Email: rmartire@ctbaonline.org

“The State’s Fiscal Crisis:
Changing our Collective Response”
g g p
For:
Monday, June 14, 2010; 1:10 pm
Health & Medicine Policy Research Group
UIC Student Center West, Chicago Rooms
Chicago, IL

Presented by:
Ralph Martire
Executive Director

1
© 2010, Center for Tax and Budget Accountability

Illinois FY2011 Operating and Total Budget
Remaining under HB859, SA 1, 2 and 3
Spending

Carry Forward of Unpaid Bills $6.0 B
Repayment of Debt/Prior Fund Transfers $4.61 B
General Fund Approps $26.32 B
Required Pension Payment $ 3.52 B
Total Revenue Needed $40.45 B

Revenue

Recurring
Estimated 2011 Own Source Gen Fund Revenue $21.412 B
Estimated 2011 Federal Transfers $5.295 B
THE REAL PROBLEM

Total Recurring Revenue $26.707 B

FY 2011 Operating Deficit (-$13.743 B)

Operating Deficit as % of Total GRF Approps 52.2%

One-Time, Nonrecurring Revenue/Debt
Securitization of Tobacco Litigation Proceeds $1.2 B
Tax Amnesty Program $.250 B
Raiding Special Funds $1.0 B
Carry Forward of Federal ARRA Transfers $0.0 B
Total One-Time Nonrecurring Revenue $2.45 B

One-Time Revenue as % of Total GRF 9.3%

Minimum Remaining Deficit (-$11.293 B)

As Percentage of Total GRF Approps 42.9%

2

1

The Context:

BIG ‘N RICH
• In 2008, Illinois ranked
fifth nationally with a
Gross State Product in
excess of $633 billion
ILLINOIS’ ECONOMY

(BEA).

• That would be the 27th
RGE

largest economy of any
nation in the world-
IS LAR
E

greater than Egypt, Saudi
E S
Arabia, Colombia, Belgium,
Sweden, Greece, Ireland,
Portugal, Norway and
Nigeria, to name a few.

3

Illinois GDP
Growth Lags
But, IL Gross State Product Grew Less than U.S. or Midwest
States, 1990-2007
THE ILLINOI ECONOMY

71.7%
80.0%
70.0%
60.0% 49.4% 48.1%

50.0%
40.0%
IS

30.0%
20.0%
10.0%
0.0%
US Midwest States Illinois

Source: Bureau of Economic Analysis, US Dept. of Commerce

4

2

For over two decades now:
 Loss of high paying/good benefit jobs

 All job growth in Illinois came in the
service sector.
LOW-END SERVICE
JOBS GROW

 For the most part, service sector jobs
part
G

that pay less than manufacturing

 On average, most of these service jobs
LOW-

pay 29% less than the manufacturing
jobs they replace

5

 Employer-provided
health insurance
benefits have been
steadily declining in
Illinois since 1980.
ED

 By 2008, over 43% of
OYER-PROVIDE

the workforce didn’t
have employer provided
insurance
BENEFITS

 Hispanics especially
hard hit–over 57% do
OYER-

not have employer-
provided insurance
B
EMPLO

 B 2009 30% of the
By 2009,
Illinois population is
either on Medicaid or
uninsured

6

3

Why the Economic and ongoing Deficit
Problems—Not Wasteful Spending
ATE?
Category FY 2000 FY2000 FY2010 Difference FY2000 - Difference
Actual Adjusted Enacted FY2000 - FY2010 FY2000 -
IS ILLINO PROFLIGA

to
t FY2010 FY2010 ECI & FY2010
for CPI & CPI & Population ECI &
Population Population Population
General $21.294 B $29.551
Fund

-Pension (- $1.230 B) (- $3.587)
OIS

General $20.064 B $26.608 $ 25.964 (-$644 M) $ 28.085 B (- $ 2.089 B)
Fund/
Current
Services

7

Over $9 out of $10 of G.F.
are spent on:
• Education
(k-12,
(k-12 plus Higher Ed) 35%

• Healthcare 30%

• Human Services 21%

• Public Safety 5%
91%

8

4

THE REAL IMPACT: $4.4 BILLION LOST
Amount by Which Illinois General Fund State Spending on Human
Service Programs Falls Short of Keeping Pace with Inflationary
Costs and Population Growth From FY2002 to FY2010

$0
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY2010

($168)
($100)

($393) ($384) ($377)
($200) ($413)
($454) ($434)
($457)

($300) ($270)

(millions)
($400) ($33)
($68) ($105)

($500) By failing to account for annual inflationary costs,
Illinois cut human service funding in real terms by ($145) ($310)
a cummulative $3.1 B from FY2003 to FY2010. By ($186) ($235)
failing to account for population growth, Illnois
($600) further shorted human service funding by
approximately $1.4 B from FY2003 to FY2010. In
total, state funding of human services over this
period was approximately $4.4 B less than what
($700) was needed to maintain FY2002 service levels,
adjusting for inflation and population growth.

($800)

Note: Commission on Government Forecasting and Accountabiity, Budget Summaries for FY2002 to FY2010. Final General Revenue appropriations for the Illinois
Departments of Aging, Children & Family Services, and Human Services. Appropriations shortfalls necessary to maintain real value of FY2002 appropriation based on
Mid-West CPI (MWCPI). MWCPI for FY2010 is assumed to be 0%, in all likelihood understateng the shortfall. Population growth estimate from Illinois Department of
Commerce and Economic Opportunity.
Key: Red Bar - MWCPI Shortfall; Blue Bar - Population Adjustment Shortfall

9

AS FOR HEALTHCARE, WELL…….

Medicaid Spending by Funding Source
(Federal, State and Local)

$16

$13.9B
$14
$12.5B
$12 5B
$12 $11.4B
$10.5B $11B
$6.6
$10 $9.6B
$6.0
(billions)

$5.5
$8 $5.5
$5.5
$4.5

$6 $2.9
$2.3
$2.1
$1.5 $1.7 $2.4
$4

$2 $3.8 $4.2 $4.4
$3.6 $3.3 $3.1

$0
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008
State General Funds Other State and Local Contribution Federal Funds

Data Source: National Association of State Budget Officers, Annual State Expenditure Reports.

P.S. After inflation and population, own
source revenue spending increased by just
$42 M to $154 M over this five-year period.
10

5

• Why the Economic Problems?
– NOT TAX BURDEN

• Illinois’ total state AND local tax burden,
ILLINO IS LOW TAX
X

as a percentage of personal income ranks
only 46th in the nation (through 2007).
OVERALL

• This is the lowest comprehensive tax
burden in the Midwest.
OIS
O

• Illi i also ranks only 45th i state
Illinois l k l in
spending as a percentage of GDP among
the states (BEA data).

11

Education now matters more
than ever to economic
prosperity:
TION
EXHIBIT “A” IS EDUCAT

Generally: unemployment rates
are highest for those with the
least education.
“

 The Change is Wages!

12

6

Wages for Minorities
lag Whites
Real wages for Whites increased modestly
between 1980 and 2007, but :
FERENCES

The White-Hispanic wage gap is larger in amount,
but increased by a smaller percentage, growing
from $3.82 in 1980 to $5.34 in 2007, an increase of
39.7% over 1980
Real wages for African-Americans declined. The
hourly wage gap between Whites and African-
African
WAGE DIFF

Americans grew from $1.52 in 1980 to $3.44 in
2007, an increase of 126.3% over 1980

13

Percentage of African-American Students in
High and Low Poverty Schools
RS
RACE MATTER

60.0% 55.04%
50.0%

40.0%

30.0%

20.0% Highest Poverty districts
Low est Poverty Districts
10.0%
1.28%
R

0.0%

14

7

A SNAPSHOT OF WHAT IS

ANCE Illinois State & Local Revenue
• In 2007 (the most recent national
comparison available), state and local
PROPERTY TAX RELIA

revenue came from the following
sources:

PROPERTY TAX 37.18%
SALES TAX 16.6%
EXCISE and Utilities TAXES 17.2%
INDIVIDUAL INCOME TAX 17.1%
OTHER 6.7%
CORPORATE INCOME TAX 5.3%

SOURCE: Federal Tax Administrators Data

15

WHY – EDUCATION
ANCE

• Illinois ranks 49th out of 50 states in
the portion of education funding
PROPERTY TAX RELIA

covered by state – versus local –
revenuejust 28% of the cost.

• Illinois is the most reliant state on
property taxes to fund schools in the
nation.

(National Education Association Data)

16

8

Illinois Property Tax Revenue Growth vs. State
Median Income Growth
UGH”
60.0%
53.71%
Property Tax Revenue Grow th
50.0%
URDEN IS TOU

State Median Income Grow th
40.0%

30.0%
23.21%
20.0%

10.0% 4.92%

0.0%
“THE BU

-10.0% -5.33%
1990-2007 2000-2007

17

The Priorities Under
HB859, SA 1, 2 and 3

1 Education $9.35 B
$ 35%
(K-12 $7.15B, 27%)
(Higher Ed $2.18 B, 8%)
PRIORITIES

2 Health Care (DPH & HFS) $7.068 B 27%

3 Human Services (DHS, Aging & DCFS) $3.436 B 13%

4 Public Safety $1.147 B 4%
PR

5 Governor’s Discretionary Allocations $3.466 B 13%

18

9

Consider the Story
for Education
Category FY2000 FY2000 Adj FY2011 DIFF FY2000 Adj DIFF
Actual to FY2011 Enacted to FY2011
CPI and ECI and
Population Population

K-12 Ed $5.542 B $6.347 B $7.150 B* $803 M $7.253 B (- $103 M)
$6.550 B $203 M (-$703 M)

Higher Ed $2.379 B $2.819 B $2.180 B (- $639 M) $3.322 B (-$1.042 B)
-32%

Human $4.599 B $6.025 B $3.436 B (- $2.589 B) $ 6.885 B (-$ 3.449B)
Services -50.1%

*Note, K-12 funding will be subject to a $600 M ‘hold back” in
FY2011, that will result in a cut if the state does not pass new
revenue. This increases the K-12 funding cut in FY2011 from
1.4% to 10%.

19

OPENING ARGUMENT:
OOK BAD IN 20 . . .

Illinois' State FY2010
Budget Breakdown
010.

APPROPRIATIONS $26.08 B*
ONE-TIME, NONRECURRING REVENUES
Debt Proceeds from issuance of five- $3.466 B
year Pension Notes
Federal Stimulus $1.966 B
Fund Sweeps $ .352 B
Debt Restructuring $ .475 B
TOTAL NONRECURRING REVENUE $6.259 B**
* Note: The FY2010 budget figure does NOT include at least
$
$4.0 B in past due, unpaid bills carried forward from FY2009. The
p , p
THINGS LO

Appropriation figure also does not include the $3.466 B in Pension
Note proceeds used to fund state pensions though pension
payments have historically been included in General Fund
appropriations.
**Note: That means over 21% of the $29.55 B FY2010 budget
($26.08 B plus $3.466 B in Pension Fund payments) is covered
with one-time, nonrecurring revenues not available in FY2011.

20

10

Illinois FY2011 Operating and Total Budget
Remaining under HB859, SA 1, 2 and 3
Spending

Carry Forward of Unpaid Bills $6.0 B
Repayment of Debt/Prior Fund Transfers $4.61 B
General Fund Approps $26.32 B
Required Pension Payment $ 3.52 B
Total Revenue Needed $40.45 B

Revenue

Recurring
Estimated 2011 Own Source Gen Fund Revenue $21.412 B
Estimated 2011 Federal Transfers $5.295 B
THE REAL PROBLEM

Total Recurring Revenue $26.707 B

FY 2011 Operating Deficit (-$13.743 B)

Operating Deficit as % of Total GRF Approps 52.2%

One-Time, Nonrecurring Revenue/Debt
Securitization of Tobacco Litigation Proceeds $1.2 B
Tax Amnesty Program $.250 B
Raiding Special Funds $1.0 B
Carry Forward of Federal ARRA Transfers $0.0 B
Total One-Time Nonrecurring Revenue $2.45 B

One-Time Revenue as % of Total GRF 9.3%

Minimum Remaining Deficit (-$11.293 B)

As Percentage of Total GRF Approps 42.9%

21

WHAT SHOULD BE:
ELEMENTS OF A SOUND AND


FAIR FISCAL SYSTEM
M

FAIR PROGRESSIVE
OG SS V
D

RESPONSIVE  TO MODERN ECONOMY

STABLE  DURING POOR
ECONOMIES

EFFICIENT  DOESN T
DOESN’T DISTORT
TS
F

PRIVATE MARKETS

BUT ISN’T
22

11

WHICH CREATES:
The Illinois Structural Deficit
(How Revenue Growth Will Not Keep Pace With The Cost of Current Services)
$49 Billion
Revenue

Expenditures
CIT
$44 Billion
TURAL DEFICI

$39 Billion

$34 Billion

$29 Billion
STRUCT

$24 Billion

*Adjusts solely for historic rates of inflation and
population growth, and assumes normal economic
growth. 23

Fair? Responsive?
Income Growth in the United States 1979-1999
(Real 1999 Dollars)
*Source U.S. Census Data
TY
INCOM INEQUALIT

Percent Change
e

100% 93.4%

80%

60%
50.20%
33.20
40% %
ME

20%
5%
0%

-20% -6%

Next Top Top Top
Bottom 60% 20% 20% 15% 1%

24

12

Illinois Tax Burden 2007

Income Lowest Second Middle Fourth Top 20%
Group 20% 20% 20% 20% Next 15% Next 4% TOP 1%
MORE REGRESSIVE
E

Income Less than $18,000 – $36,000 – $58,000 – $95,000 – $196,000 – $500,000
Range $18,000 $36,000 $58,000 $95,000 $196,000 $500,000 or more

Average Income in Group $10,100 $26,600 $47,000 $74,700 $128,900 $300,700 $2,084,700
Sales & Excise Taxes 6.9% 5.5% 4.4% 3.6% 2.7% 1.7% 0.8%
General Sales—Individuals 3.5% 3.0% 2.5% 2.2% 1.7% 1.1% 0.5%
Other Sales & Excise—Ind. 1.7% 1.0% 0.7% 0.6% 0.4% 0.2% 0.1%
Sales & Excise on Business 1.7% 1.4% 1.1% 0.9% 0.6% 0.4% 0.2%
Property Taxes 4.8% 3.6% 3.7% 3.7% 3.9% 3.1% 1.5%
Property Taxes on Families 4.7% 3.4% 3.6% 3.5% 3.7% 2.7% 0.6%
Other Property Taxes 0.1% 0.2% 0.2% 0.2% 0.3% 0.3% 0.8%
Income Taxes 1.2% 1.9% 2.3% 2.4% 2.4% 2.4% 2.6%
E

Personal Income Tax
Ta 1.2%
1 2% 1.9%
1 9% 2.2%
2 2% 2.3%
2 3% 2.3%
2 3% 2.3%
2 3% 2.2%
2 2%
Corporate Income Tax 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.4%
TOTAL TAXES 13.0% 11.0% 10.4% 9.7% 9.0% 7.2% 4.9%
Federal Deduction Offset –0.0% –0.1% –0.3% –0.5% –0.8% –0.7% –0.8%
TOTAL AFTER OFFSET 13.0% 10.9% 10.1% 9.2% 8.2% 6.5% 4.1%
Note: Table shows 2007 tax law updated to reflect permanent changes in law enacted through October 2009.

25

INCOME TAX
INCREASE
3%  5%
SB750/HB174
4

3%  2% = 5%

2/3 = 67%

*Note, corporate rate goes up from 4.8% to 8%,
but―overall corporate tax burden goes down!

26

13

Revenues of Goods and Services as a Percent of
Gross State Product: Illinois
SE (SIC: 1965 - 1996, NAICS: 2007)

70%
SALES TAX BAS

60%
60%
59%
50% 53%
Services as a
40% 41% percent of GSP
36% Goods as a
30%
percent of GSP
20% 32% 26%
20% 18%
SA

10% 13%

0%
1965 1975 1985 1996 2007
Year

27

For More Information:
ation

Center for Tax and Budget Accountability
www.ctbaonline.org
Further Informa

Ralph M. Martire
Executive Director
(312) 332-1049
rmartire@ctbaonline.org

Ron Baiman, Ph.D.
Director of Budget and Policy Analysis
(312) 332-1480
rbaiman@ctbaonline.org
F

Yerik Kaslow
Research Associate
(312) 332-2151
ykaslow@ctbaonline.org

28

14

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