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FUTURE PRESSURES

CENTER FOR TAX AND BUDGET ACCOUNTABILITY 70 E. Lake Street  Suite 1700  Chicago, Illinois 60601  direct: 312.332.1049  Email: rbaiman@ctbaonline.org Public Policy and Pensions: A Budgetary Analysis For: Thursday, May 19, 2011; 3: 15 pm

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FUTURE PRESSURES

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  1. CENTER FOR TAX AND BUDGET ACCOUNTABILITY70 E. Lake Street  Suite 1700 Chicago, Illinois 60601 direct: 312.332.1049 Email: rbaiman@ctbaonline.org Public Policy and Pensions: A Budgetary Analysis For: Thursday, May 19, 2011; 3: 15 pm Illinois Association of School Business Officials (IASBO0 Pheasant Run Resort 4051 E. Main St., St. Charles, IL 60174 Presented by:Ron Baiman, Director of Budget and Policy Analysis

  2. FUTURE PRESSURES

  3. Source: CGFA, Financial Condition of the IL State Retirement Systems, Chart 1, p. 24

  4. THE RAMP

  5. Despite Recent Tax Increase, The FY 2012 Budget has an Operating Revenue Shortfall of over $ 1 Billion But a Remaining Operating Deficit of Over $ 1 Billion

  6. GRF Deficit = $7 Billion Lack of Revenue Still an Issue

  7. Proposed options : • Borrowing from financial institutions to pay overdue bills and cover operating costs • Continued deferment of payments owed providers • Further cutting FY2012 appropriations for services • Raising Revenue: • Expanding sales tax to services. • taxing some retirement income • a progressive income tax. Options

  8. FY 2012 Proposed Nominal Dollar Change from FY 2011 Human Services would suffer $471 M (-8.7%) cut if FY 2011 $260 M supplemental to Human Services is passed.

  9. FY 2012 Proposed Appropriations Compared to FY2000 Actual Appropriations Adjusted for Inflation and Population Growth ($ in Millions) Every Major Category of Real Funding for Current Public Services has been Cut Since FY 2000

  10. Three Agencies Provide Human Services: Change in Proposed General Revenue Fund Appropriations to Human Service Agencies One agency bears all the cuts: DHS

  11. Cuts in specific Department of Human Services Programs In 2008 Illinois was 13th in per capita income but 34th in per capita human services funding

  12. ONE SIZE DOES NOT FIT ALL – WHEN IT COMES TO PENSION REFORM! SOLVING THE UNFUNED PENSION LIABILITY IS WELCHING ON PUBLIC PENSION PROMISES AN OPTION FOR ILLINOIS? “There is no moral exemption for any man or body of men that breaks contracts. Nor is there any hope of public or private respect for a contract breaker. A contract breaker is an utter misfit as a citizen or a business man.” —Franklin MacVeagh, former President of the Commercial Club of Chicago and U.S. Secretary of Treasury • Section 5 of Article XIII of the Illinois Constitution states that “membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” (This clause is commonly referred to as the “pension protection clause.”) Source: Eric Madiar “Is Welching on Public Pension Promises an Option for Illinois?” An analysis of Article XIII, Section 5 of the Illinois Constitution.. March 2011.

  13. House Pension “Reform” Proposal • Would offer three options: • Tier 1: increase employee contributions for existing pension benefits, from current 8% -11.5% to 13% - 25% of salaries • Tier 2: Reduced Pension Benefits • Tier 3: 401K defined Contribution

  14. CTBA State Bond Holders “Reform” Proposal • Would offer three options: • Tier 1: To maintain exiting “benefits” (or debt service payments) for future use of your capital you will need to make payments to the state • Tier 2: Accept Reduced “Benefits” or Debt Service Payments • Tier 3: No more defined “benefits”. You will receive a fixed share of whatever payment the state, depending on market conditions, is able to make.

  15. Revenue + Pensions = Sustainable SOLVING THE UNFUNED PENSION LIABILITY

  16. 69% of Revenue from Top 20% of Filers 2007 Illinois Individual Income Tax By Income Bracket

  17. Illinois Needs A More Progressive Tax System • Of 41 states with an income tax, Illinois was tied for 4th lowest Individual tax rate on top income bracket. • 2011 top rates in other states: CA 9.3%, NY 8.97%, MN 7.85%, IA 8.98%, NJ 8.97%, WI 7.75% . • In 2007 the bottom 20% of households in Illinois paid 13.0% of their income in sales, property, and income taxes, the third highest share in the country and more than 3x the share paid by the top 1% (4.1%).

  18. For More Information: Center for Tax and Budget Accountability www.ctbaonline.org Bukola Bello, M.A. Director of the Illinois retirement security initiative (IRSI) (312) 332-1103 bbello@ctbaonline.org Ron Baiman, Ph.D.Director of Budget and Policy Analysis (312) 332-1480 rbaiman@ctbaonline.org Further Information

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