Forum on Fiscal Integrity

Kristina RasmussenExecutive Vice President

Illinois Policy Institute

August 3, 2010

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

Who Cares?

• Policy Changes Lives.

The Problem

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

38th in Personal Income Per Capita

Source: American Legislative Exchange Council

48th in Absolute Domestic Migration

Source: American Legislative Exchange Council

48th in Non-farm Payroll Employment

Source: American Legislative Exchange Council

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.

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

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.

Deficits Are Nothing New

Source: Civic Federation

Revenues

Source: Civic Federation

Expenditures

Source: Civic Federation

Increase in State Spending

• State spending in Illinois increased 26 percent – after inflation – from 2000 to 2009.

Source: Illinois Policy Institute

• 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

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

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

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.

Education

Source: Civic Federation

Higher Education

Source: Civic Federation

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.

End Result: Debt

Source: Civic Federation

The Solutions

Tax Hike?

• “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

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

Sales Taxes?

• Illinois has the 6th-highest combined state and average local sales tax rate at 8.4 percent

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

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

Income Tax?

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

Where to Cut?

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.

• 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

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.

Our Alternative Budget

Budget Solutions 2011

Principles Behind Budget Solutions 2011

• Setting Priorities• Transparency and Accountability• Spending Fairness• Last In, First Out

Budget Solutions 2011

Budget Solutions 2011

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.

Pension Funding & Fairness Act

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.

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

Economic Growth

• Jobs, Jobs, Jobs.

Economic Reform Agenda• Sunshine Commission: appoint members• Spending Reform: spending growth limit• Regulatory reform: up/down vote on barriers to

business• Supermajority Vote for Tax and Fee Increases:

3/5 majority to pass tax/fee increase• Budget Transparency: 7 days to review final

budget before vote• Legislative Openness: 1/3 of members

sponsoring a bill gets floor vote

Transparency

• IllinoisOpenGov.org– Department of Commerce: $2,520 on hot sauce– Statewide: $574,759 on registration fees and

other conference expenses– Department of Commerce: $10,000 on “Dark

Knight” Batman movie gala– Department of Transportation: $5,398.92 on XM

Satellite Radio

Transparency

• Also allows comparisons– In 2008, state government cooks earned an

average $42,348 while the income of all Illinois “cooks, institution and cafeteria” averaged $23,480.

– State government auto mechanics: $55,555; auto mechanics statewide: $40,600.

– State government non-supervisorial janitors: $41,965; statewide average: $25,510.

Liberty Leaders

• Want to get involved in public policy or politics? Are you interested in making Illinois a better place for all of its citizens?

• Liberty Leaders to work for better, more accountable government in Illinois.

• Contact Brian Costin at bcostin@illinoispolicy.org or 630-589-9240.

We Care Because…

Contact me

krasmussen@illinoispolicy.org@kmrasmussen217-528-8800