Forum on Fiscal Integrity

1. Forum on Fiscal Integrity Kristina Rasmussen Executive Vice President Illinois Policy Institute August 3, 2010

2. Who Are We? • Illinois Policy Institute • Non-partisan research organization • Support free market principles and liberty-based public policy initiatives • Offices in Springfield and Chicago

3. Who Cares? • Policy Changes Lives.

4. The Problem

5. How Do We Compare? • ALEC-Laffer State Economic Competitiveness Review • Illinois ranks 48th in economic performance • same as last year • 47th in economic outlook • down from 44th place last year

6. 38th in Personal Income Per Capita Source: American Legislative Exchange Council

7. 48th in Absolute Domestic Migration Source: American Legislative Exchange Council

8. 48th in Non-farm Payroll Employment Source: American Legislative Exchange Council

9. Broken Budget • Adjusted year-end General Revenue Fund balance was a negative $4.69 billion, a record. • The backlog of unpaid bills at fiscal year end was $4.7 billion, a record. • It now takes the comptroller’s office 153 working days to issue bill payments compared to 99 days last year, a record.

10. Illinois is in Rough Shape • The state’s bond rating is 2nd lowest in nation. • Illinois has overtaken California as the worst credit risk. • Investors rate Illinois's debt as slightly riskier than Iceland's or Latvia’s. • Not quite as big a gamble as Iraq's. • Pension plans for public employees are woefully underfunded • liability of over $80 billion • could go belly up in 2018

11. State Budget • Illinois state government continues to significantly spend more than in brings in with revenue. • In 2008, state government received a record amount of revenues. • Spent every dime, and then some.

12. Deficits Are Nothing New Source: Civic Federation

13. Revenues Source: Civic Federation

14. Expenditures Source: Civic Federation

15. Increase in State Spending • State spending in Illinois increased 26 percent – after inflation – from 2000 to 2009. Source: Illinois Policy Institute

16. In 2000, state spending per resident was $3,983 (inflation adjusted), while ten years later state spending per resident was $4,730. Source: Illinois Policy Institute

17. Medicaid Spending • One of the biggest drivers of budget growth. • Between 2003 and 2008, the Medicaid population in Illinois grew at an average rate of 7.8 percent a year. • Illinois’s population only grew 0.5 percent during that time period. Source: Taxpayer Action Board

18. Medicaid • From 1993 to 1999, Illinois’s Medicaid liabilities grew at a rate of 1.4 percent. • Over the last 10 years, state Medicaid liabilities grew at a rate of 6.9 percent a year. Source: Taxpayer Action Board

19. Education • During the 2008-09 school year, real inflation-adjusted per pupil spending in Illinois schools was at an all-time high. • According to the State Board of Education, combined spending in Illinois public schools totaled $12,363 per pupil.

20. Education Source: Civic Federation

21. Higher Education Source: Civic Federation

22. Wheee! • When you’re trying to get out of a hole, at the very least you should stop digging. • In 2009, Illinois designated $400 million in the capital bill for “high speed” rail. • The state has no real plan to pay for future operating and maintenance expenses, which will be in the tens of millions of dollars.

23. End Result: Debt Source: Civic Federation

25. The Solutions

26. Tax Hike?

27. “We’re going to pass a tax increase in January. We expect it is going to be substantial.” • David Vaught, Quinn Budget Director, July 28, 2010, Bloomberg News

28. Already Paying High Taxes • Illinoisans spend on average 101 days—January 1 through April 11—working to pay their combined tax burden. • Illinois the 14th highest in number of days spent working each year to pay federal, state, and local government taxes. • Illinois is 14th highest in state and local tax burden on a per-capita basis, at $4,346. Source: Tax Foundation

29. Sales Taxes? • Illinois has the 6th-highest combined state and average local sales tax rate at 8.4 percent

30. Property Taxes? • 7th highest in median real estate taxes paid in 2008, at $3,384. • 6th highest property taxes as a percentage of median home value. • 5th highest property taxes as a percentage of homeowner income. Source: Tax Foundation

31. Excise Taxes? • 5th highest state gas tax at 39 cents per gallon. • Illinois has high taxes on beer, wine, and spirits compared to nearby states. • With a $1 tobacco tax increase, we’d have a higher rate than four of our neighboring states. Source: Tax Foundation

33. Income Tax? • Moderate income tax (3 percent of income). • Governor Quinn: • 2010: 33% income tax hike • 2009: 50 % income tax hike

34. Where to Cut?

35. About That Tax Hike • Income tax hike from 3 percent to 5 percent on individuals would bring in about $6 billion. • It would take 100,000 Illinoisans making $60,000 a year to turn all of their salary over to the state in taxes each year to bring in $6 billion. • Six million Illinoisans – nearly half the state's population – would have to pay $1,000 more each in state income taxes a year to generate $6 billion.

36. In more than 750 occupations in Illinois, the total annual income earned by everyone in that field doesn't reach $6 billion. • School bus drivers, making about $28,000 annually, earned $505.3 million • Police and sheriff's officers, earning $66,000 a year, collectively brought in $2.07 billion • Lawyers, making about $137,000 annually on average, collected a little more than $4 billion

38. Jobs • American Legislative Exchange Council • states with no individual income tax created 89 percent more jobs, and had 32 percent faster personal income growth, than did states with the highest income tax rates.

40. Our Alternative Budget

42. Budget Solutions 2011

43. Principles Behind Budget Solutions 2011 • Setting Priorities • Transparency and Accountability • Spending Fairness • Last In, First Out

44. Budget Solutions 2011

45. Budget Solutions 2011

46. What Happened? • Compared to the legislature-approved appropriations bill, Governor Quinn reduced 2011 expenditures by just $155 million. • Reduction of less than one half of one percent. • On average, Quinn cut the the 2011 budget by $12 per Illinois citizen. • In 2010, the state spent $2,040 per Illinoisan. • The governor vetoed only 1 item from a 2,134-page bill. • 26 programs—out of hundreds—had their allocations reduced. • No plan for the $4 billion pension payment.

47. Pension Funding & Fairness Act

48. Pension Funding & Fairness Act • Instituting a Spending Growth Index of inflation plus population growth. • This allows state spending to grow each and every year in a predictable way, helping policymakers provide services efficiently and effectively. • Requiring that the first appropriation each year be to the annually required public employee pension payment. • Allocate remaining general funds to core government priorities.

49. Pension Funding &Fairness Act • Revenues that come in beyond index flow to: • Past Due Paydown Fund • Eliminate old operating debt by 2014 • Budget Stabilization Fund • 8 percent of budget in reserves • Taxpayer Relief Fund • Pro rata refunds begin in 2015

50. Economic Growth • Jobs, Jobs, Jobs.