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Review of the State Budget
and the Pension Crisis
Points of Discussion
1. How the state budget works
2. Where we spend money
3. The rising costs of non-discretionary spending such as Medicaid and Pensions
4. What we’ve done to lower cost
5. Proposals for pension reform
Individual Income Tax46.0%
Corporate Income Tax 6.3%
Sales Tax 19.7%
Other Taxes and Fees13.8%
Federal Receipts 14.1%
Individual Income Tax - $15.3
Corporate Income Tax - $2.4
Sales Tax - $7.3
Other Taxes and Fees¹ - $4.7
Federal Receipts - $3.9
FY13 Projected General Revenue Funds by Source
$33.719 Billion
Government Services 3.5% Public Safety and Regulation4.8%
Human Services15.2%
P-1219.5%
Higher Ed5.9%
Medicaid/Healthcare23.3%
Pensions15.2%
Debt Service on Pension Bonds
4.6%
Debt Serivce on Capital Bonds
6.1% Statutory Transfers Out6.1%
FY 2013 GRF Budget$33.719 Billion
Government Services - $1,164
Public Safety and Regulation - $1,607
Human Services - $5,086
P- 12 - $6,542
Higher Ed - $1,980
Medicaid/Healthcare - $7,810
Pensions - $5,100
Debt Service on Pension Bonds - $1,552
Debt Service on Capital Bonds - $616
Statutory Transfers Out¹ - $2,052
Operation of State Government consists of $3.9 billion (11.8%).
FY13: All Funds Budget
General Revenue Funds:$33,719.0
Other State Funds: $24,136.0
Federal Funds: $8,210.2
FY13 Budget Making Process
• Estimate available revenues• Determine what costs must come “off of
the top” like paying off bonds, or contributing to the state’s pension systems
• Allocate all other resources to “discretionary” items like money for K-12 and social service programs
Government Services 3.5%
Public Safety and Regulation4.8%
Human Services15.2%
P-1219.5%
Higher Ed5.9%
Medicaid/Healthcare
23.3%
Pensions15.2%
Debt Service
on Pension Bonds4.6%
Debt Serivce on
Capital Bonds6.1% Statutory Transfers Out
6.1%
FY 2013 GRF Budget$33.719 Billion
Government Services - $1,164
Public Safety and Regulation - $1,607
Human Services - $5,086
P- 12 - $6,542
Higher Ed - $1,980
Medicaid/Healthcare - $7,810
Pensions - $5,100
Debt Service on Pension Bonds - $1,552
Debt Service on Capital Bonds - $616
Statutory Transfers Out¹ - $2,052
Operation of State Government con-sists of $3.9 billion (11.8%).
FY13 GRF Budget: $33.719 Billion
Non-Discre-tionary Spend-
ing:$17,280.0
Discretionary Spending: $16,439.0
FY 12 Actual FY 13 As Passed FY13 vs. FY12
Revenues: $33,324,000,000 $33,719,000,000 $395,000,000
Non-Discretionary Expenditures Pensions $4,141,040,680 $5,100,000,000 $958,959,320
Group Insurance $1,435,531,900 $1,171,000,000 ($264,531,900)
Debt Service $2,137,000,000 $2,168,000,000 $31,000,000 Transfers Out of GRF Like Subsidies for Local
Governments $2,398,662,000 $2,052,200,000 ($346,462,000)
Medicaid $6,638,953,200 $6,638,953,200 $0 Pay Old Bills $302,000,000 $1,300,000,000 $998,000,000
Medicaid Match on Old Bills ($151,000,000) ($500,000,000)($349,000,000)
Permanent Lapse ($802,000,000) ($650,000,000) $152,000,000
difference: $1,179,965,420
Non-Discretionary Expenditures: FY12 vs. FY13
Discretionary Expenditures: FY12 vs. FY13
FY 12 Actual FY 13 As Passed FY13 vs. FY12
Revenues: $33,324,000,000 $33,719,000,000 $395,000,000
Discretionary Expenditures Human Services $5,286,218,914 $5,085,945,980 ($200,272,934)K-12 Education $6,751,429,955 $6,541,837,830 ($209,592,125)
Higher Ed $2,092,410,002 $1,979,809,800 ($112,600,202)Public Safety $1,714,706,151 $1,662,900,200 ($51,805,951)
General Services $1,242,075,211 $1,165,014,734 ($77,060,477)difference: ($651,331,689)
FY13: Major Budget Issues
• Keeping up with K-12 Funding Demands• Paying Down Old Bills• Medicaid Reform and Controlling Rising
Healthcare Costs• Pension Costs Continuing to Climb
Education Funding
$0 $10,000,000,000 $20,000,000,000 $30,000,000,000 $40,000,000,000
P-20 Education Funding: State, Local and Federal
Lottery Contribution to P-20 Education $600 Million, 1.63% P-20 Funding¹ $36.3 Billion, 98.4%
FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$5,783$6,094
$6,504
$7,079$7,402 $7,265
$7,019$6,750
($ in
mill
ions
)
Preschool - Grade 12 Funding
Accounts Payable
Paying the State’s Obligations
Accounts Payable
• As of August 31, 2012, backlog of bills totaled $5.4 billion and the majority of those bills were on-hand for less than 60 days
• In January 2010, then-Comptroller Hynes reported that the state owed various sources more than $9 billion
Medicaid and
Healthcare Reform
Controlling Rising Costs
“…there are 47 percent …who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it -- that that's an entitlement. And the government should give it to them.
I'll never convince them they should take personal responsibility and care for their lives."
Medicaid Full Benefits Enrollment
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 (est.)
FY13 (est.)
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
1.51.6
1.8
1.9
2.0
2.2
2.3
2.4
2.6
2.7
2.9
3.0
En
roll
men
t
Medicaid Full Benefits Enrollment – Type of Enrollees
FY2008 FY2009 FY2010 FY12 (est.) FY13 (est.)0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
1,455,172 1,553,255 1,630,291 1,745,109 1,838,782
237,750244,598
252,795266,722
275,022520,838563,068
608,283668,961
717,384
147,649152,894
161,088
173,297180,802
Children Disabled Adults Other Adults Seniors
Recipients Costs0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
61.60%
26.00%
22.70%
18.20%
9.60%
37.50%
6.00%
18.20%
Medicaid: Distribution of FY10 Full Benefit Enrollment and Costs
Seniors (65+)
Adults with Disabilities (19-64)
Other Adults (19-64)
Childern (0-18)
Save Medicaid Access and Resources Together Act of 2012
• Cuts $1.13 billion in spending from the Medicaid program by making changes to eligibility and usage
• Saves $230 million by instituting a plan to better check Medicaid eligibility
• Brings in $800 million in additional revenues through a $1/pack increase in the cigarette tax, and enhancing a program which taxes hospitals
• Cuts certain Medicaid provider rates by 3%
Pension Costs
Rising Pension Costs Mean Less Revenues for Discretionary
Spending
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
State Pension Appropriations FY96 - FY13
($ in millions; All Funds)
( in
mil
lio
ns)
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY 13$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
$5,000.0
$6,000.0
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
GRF Pension Expenditures as % of Total GRF Expenditures($ in millions)
GRF Contribution Contribution as % of Total GRF
TRS: $2,702.3
SERS: $1,041.37
SURS: $1,252.8
JRS: $88.2
GARS: $14.1
FY13 GRF Pension Contributions to 5 State SystemsTOTAL: $5.1 billion
($ in millions)
Current Unfunded Liabilities for the State’s Pension Systems
Assets LiabilitiesUnfunded Liabilities
Current Funding Ratio
1970 Funding Ratio
Teachers $37.4 B $81.2 B $43.8 B 46% 40%
State Universities $14.2 B $31.5 B $17.20 B 45.3% 47%
State Employees $10.9 B $31.3 B $20.4 B 34.9% 43%
Legislators $60.4 M $298.4 M $238 M 20.2% 68.5%
Judges $606 M $1.9 B $1.3 B 31% 32.2%
Totals: $63.3 B $146.4 B $83.0 B 43.30% 41.80%
“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.”
(Article XIII, Section 5 of the Illinois Constitution)
30-Year COLA Comparison
60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$121,363
$95,000
State Employee Retiree Starting with a $50,000 Annuity
3% Compounded
3% Simple
Age
Under current law, a SERS employee who retires at age 60 can receive a compounded COLA. The compounding factor entitles the retiree to $252,633 in additional benefits that would not accumulate were the COLA non-compounded.
The Election Procedure
Choice 1
•Receive a lower Tier II COLA (3% simple or 1/2 of CPI, whichever is less) and have that lower COLA rate kick-in the earlier of 5 years after retirement or at age 67
•Guarantee that future salary increases are pensionable
•Remain eligible for state sponsored healthcare
•Gain eligibility into the optional cash balance planChoi
ce 2
•Maintain current 3% compounded COLA•Freeze current salary for pension purposes•Become ineligible to participate in a state sponsored healthcare plan•Be unable to participate in a newly established optional retirement plan (the cash balance plan)
Cost Savings Through 2045
• Benefit changes have the potential to reduce the projected $309 billion owed to the pension systems over the next 30 years by $66 to $88 billion
The TRS Anomaly“The teacher pension system is set up like a restaurant where everyone picks up the tab for the person to his or her left.”
-Illinois Policy Institute
Local Responsibility
• The state will save $27 to $29 billion over 30 years through the cost shift to school districts, community colleges, and public universities
• The Teachers Retirement System’s costs to the state alone will be reduced by over $20.5 billion
So there you have it
1. How the state budget works
2. Where we spend money
3. The rising costs of non-discretionary spending such as Medicaid and Pensions
4. What we’ve done to lower cost
5. Proposals for pension reform
www.IllinoisSenateDemocrats.comwww.IllinoisSenateDemocrats.com