election produced the first politically divided government in over a decade governor-elect ran on...
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Redirecting State Policy
2015 is a NEW Era
• Election produced the first politically divided government in over a decade
• Governor-elect ran on shaking up the status quo
• Few, if any, budgeting tricks remain. It’s time to pay the piper
• Opportunity (necessity) for bipartisan cooperation/solutions
FY15 Budget ConcernsFramework
• Have not made spending changes to prepare for income tax phase down
• Does not make repayment on over $6 billion in old bills
• Revenue estimate increased magically ($857 Million) to allow for higher spending levels
• Budget built on borrowing and fund sweeps which must be repaid
• Ignores best practices to grow the economy and tax revenue
Budget Practices• Borrow money and call it revenue
• Ignore Constitutional mandate to spend only the available revenue: inflate estimated revenue, under value costs of programs
• Underfunded or skipped pension payments to expand other programs
• Continue to manage cash flow on the backs of suppliers – unpaid bills continue to grow, payments can take over a year
• Fund expansion in healthcare and pensions at expense of education….everything else
FY10 FY11 FY12 FY13 FY14 FY5$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$9.87 $10.62 $10.47$11.79 $11.95 $12.27
$2.45
$7.50$7.93 $7.86
$5.79
Tax IncreaseBase Revenue
Higher Income Tax Rates Have Generated $31.5 Billion
Source: Commission on Government Forecasting and Accountability. Fiscal Year 2015 Budget Summary
Income Tax Net Revenues
State Supported Bond Debt*FY15 may increase with additional bond sales
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Revenue 1.91 1.99 2.25 2.34 2.44 2.3 2.21 2.06 2.44 2.25 2.81 2.89 3.03 2.79
General Obligation Bonds 7.63 8.81 9.56 9.89 10.25 9.93 9.46 9.05 11.14 11.43 12.07 12.18 15.09 15.18
Pension Bonds 0 10 10 10 10 10 9.95 9.9 13.31 16.27 15.48 14.68 13.79 12.7
$2.50
$7.50
$12.50
$17.50
$22.50
$27.50
$32.50
$ Billions
$9.5
$20.8$21.8 $22.2 $22.7 $22.2 $21.6 $21.0
$26.9
$29.9 $30.4 $29.8
$31.9$30.7*
10
End of Fiscal Year Fund Balance
FY85
FY 8
6
FY 8
7
FY 8
8
FY 8
9
FY 9
0
FY 9
1
FY 9
2
FY 9
3
FY 9
4
FY 9
5
FY 9
6
FY 9
7
FY 9
8
FY 9
9
FY 0
0
FY 0
1
FY 0
2
FY 0
3
FY 0
4
FY 0
5
FY 0
6
FY 0
7
FY 0
8
FY 0
9
FY 1
0
FY 1
1
FY 1
2
FY 1
3
$(10,000)
$(8,000)
$(6,000)
$(4,000)
$(2,000)
$-
$2,000
$45
$(1
53)
$(5
87)
$(3
35)
$(7
4)
$(5
57)
$(1
,368
)
$(1
,656
)
$(1
,916
)
$(1
,595
)
$(1
,204
)
$(9
51)
$(4
43)
$(2
13)
$(3
03)
$(5
72)
$(1
,365
)
$(2
,948
)
$(4
,166
)
$(2
,495
)
$(3
,064
)
$(2
,970
)
$(4
,171
)
$(4
,035
)
$(7
,422
)
$(8
,818
)
$(8
,010
)
$(9
,078
)
$(7
,334
)
Milli
ons
The Chicago Civic Foundation FY15 Budget analysis predicts a General Funds backlog of $6.4 billion at the end of FY15
Policies to Avoid
• Current fiscal challenges have been caused by: a.) not paying for benefits offered, b.) dishonest/unconstitutional budget practices, c.) shifting costs to “tomorrow”
• Solution to fiscal problems can only be achieved by major structural changes and honest budget practices
Budgetary/Spending Reforms
Don’t spend more than realistic revenue projections
Fully implement enacted Medicaid reforms to ensure all individuals enrolled are truly eligible
Update operating practices for efficiency, reduced cost
Give stability/predictability to taxes and fees
Set priorities; budget for results
Grow the Economy
Establish primary causation for worker’s compensation
Make Research and Development Tax Credit permanent
Abolish corporate franchise taxExtend, permanently, the
manufacturers’ purchase creditAllow fracking with oversight Expand Enterprise Zones authorization
Grow Small BusinessReduce costs of establishing an LLCExpand: STEM education, worker skill
training grants, business coachingFaster permit reviewsReasonable regulations
Source: Regional Economics Applications Laboratory, Department of Economics, University of Illinois.
Total Non-Farm
EMPLOYMENT GROWTH RATE
National
Midwest
Illinois
95.00
100.00
105.00
110.00
115.00
120.00
125.00
130.00
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
National RMW IL
A Look Ahead To FY16 Revenue will decrease by $3.5 billion as
personal income tax phases back to 3.75% and corporate to 5.25%
Expenses for pension, underfunded programs, healthcare, required repayments will increase by over $2.5 billion
Unpaid bills will total over $6 billion
Tough union contract negotiations
Pension reform revisited
Major restructuring of programs
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
Revenue Increases Over Past 10 Years
$bill
ions
Source: Commission on Government Forecasting and Accountability. Economic and Revenue Outlook, February 19, 2014.
21
Medicaid enrollment surpasses 3.2 million individuals in 2015
Historical Medicaid Enrollment
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
(Mil-lions)
1.896 2.021 2.151 2.304 2.433 2.591 2.705 2.777 2.775 2.952 3.219
0.25
0.75
1.25
1.75
2.25
2.75
3.25
Enrollment (Millions)
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 est. FY 2015 proj.$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$8.2$8.7
$9.1$9.7
$10.4 $10.5$9.8
$10.9
$12.7
in $ Billions
$billions
ACA Eligibil-ity
ACA Eligibil-ity
SMART Act
Medicaid Liability
GRF Revenue & Spending
FY 2000
FY 2001
FY 2002
FY 2003
FY 2004
FY 2005
FY 2006
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
FY 2013
FY2014
FY2015$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
GRF Revenue Base GRF Expenditures
Mil
lio
ns
Pension Payments Modified