State Senator Don Harmon

The Business and Civic Council of Oak ParkJune 26, 2015

•Where we are•Where we have been•Where we are going

The budget process timeline1) February: Governor’s unveils his proposal2) February-May: Legislative budget hearings3) May: General Assembly votes 4) June: Governor signs into law or vetoes5) June-?: If vetoed, negotiations continue6) July: If no agreement, government begins to

shut down, some non-profits close7) August: If governor had not signed, many local

schools would not open or soon close

Gov. Rauner’s proposed budget cuts• 50 percent less funding for local governments,

resulting in less services or higher property taxes• $170 million cut to public transit, resulting in higher

CTA, Metra and Pace fares• More than 30 percent cut to public university

funding, resulting in higher tuition rates• Major cuts to human services programs that help

keep seniors in their own homes, provide health care to the very poor and support people with disabilities and mental illnesses

Governor Rauner’s budget gapCuts that require changes to state law or the Constitution

• Phantom pension changes: $2.2 billion

• Cuts to federally required health care programs: $1.5 billion

• Eliminating health care for retired teachers: $113 million

• Cutting state employee health care: $570 million

• Cutting funding for local governments: $913 million

• Cutting human services required by state or federal law: $492 million

Total Hole:$5.788 billion

Current budget Gov proposal Dem proposal$0.0 $2.0 $4.0 $6.0 $8.0

$10.0 $12.0 $14.0 $16.0 $18.0 $20.0

Required spendingBi

llion

s

Investing in Illinois

Human services P-12 education Higher education Public safety General Services$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

Current budgetGov proposalDem proposalBi

llion

s

By the numbersFiscal Year 2015 Governor’s proposal Democratic

proposal

Required spending $18.6 billion $15 billion (more than $5 billion short)

$19 billion

Human Services $5.5 billion $4.9 billion $5.4 billion

K-12 Education $6.8 billion $7.1 billion $7 billion

Higher Education $1.9 billion $1.6 billion $1.9 billion

Public Safety $1.8 billion $1.8 billion $1.8 billion

General Services $1.2 billion $1.1 billion $1.1 billion

Other FinancialConsiderations

+ $5.8 billionphantom savings

+ $1 billion in Governor’s savings

TOTALS $35.8 billion $37.3 billion $37.2 billion

Cuts made before Rauner

• Spending dropped more than $5 billion between 2000 and 2014

• Medicaid reform saved more than $3 billion• Higher education investment: Down 41%• Health care investment: Down 24%• Human services investments: Down 34%• Other government spending: Down 52%

A balanced approach to education

• Investing more in P-12 education without cutting support for vital programs such as foreign language education and AP

• Manageable cuts to public universities – 6.5% instead of the governor’s 30%

• Increased investment in need-based financial aid

The Middle Class Agenda

• A higher minimum wage• Paid sick time• College tuition tax refund• Free community college• Closing corporate tax loopholes

Potential points of compromise

• Property tax freeze or reduction• Unemployment insurance changes• Workers’ compensation savings• Criminal justice reform• Redistricting reform

Illinois workers’ compensationRates dropped 23% since 2011 reforms, from $3.05 in 2010 to $2.35 in 2014.

1988 (21)

1990 (17)

1992 (14)

1994 (9)

1996 (19)

1998 (18)

2000 (15)

2002 (20)

2004 (23)

2006 (20)

2008 (10)

2010 (3)

2012 (4)

2014 (7)

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$3.58

$4.30

$5.03

$5.48

$3.77

$2.96

$2.62 $2.74 $2.65 $2.69 $2.79

$3.05 $2.83

$2.35

$3.42

$3.80 $4.11

$4.35

$3.54

$2.69

$2.26 $2.42

$2.58 $2.48 $2.26

$2.04

$1.88 $1.85

Illinois Workers' Compensation Premium Rate Comparison 1988-2014

Illinois Premium Rate per $100US Median Rate per $100

Year (Illinois Rank Nationally)

Rate

per

$10

0 of

pay

roll

Pension reformWhat we’ve done

• Established Tier II in 2010, estimated to save $200 billion over 30 years

• Applies to all employees hired after January 1, 2011• Increased retirement age to 67 (60 for employees in

hazardous jobs)• Limited cost-of-living adjustments to the lesser of 3% or the

increase in the CPI• Calculated final salary over eight years instead of four• Tied highest pensionable salary to Social Security Cap• Capped legislators and judges’ pensions at 60% of final

salary rather than 85%

Pension reformWhat we’ve tried to do: SB 1

• Retirement age: For each year an employee is younger than 46, the retirement age increases by 4 months. • Cost-of-living increases: The automatic 3 percent compounded annual increase in retirement income is replaced by a system based on

years of service and tied to inflation.

• Delayed cost-of-living increase: Current Tier 1 employees would miss annual adjustments upon retirement. How many COLAs are missed depends on the age of the employee and ranges from one to five.

• Reduced contribution: Employees would have less taken out of their paychecks. The contribution rate drops by 1 percentage point. • Funding guarantee: If the state doesn’t make the required payment to the pension funds, the pension systems can go to court to force

the state to make the payment. The state retains ability to adjust payment schedule.

• Pension stabilization fast track: Beginning in 2015, the state will contribute 10 percent of the pension savings from this legislation back into the pension systems.

• Fully funded: The new law puts the pension systems on course to be 100 percent funded by 2043, as opposed to the existing law’s goal

of 90 percent in 2045.

• Ruled in violation of the Illinois Constitution’s pension clause on May 8, 2015

Pension reformWhat we have left to do

• Revisit the consideration model:– Original model: Gave Tier I employees a choice:

• Accept Tier II COLA or a COLA delay of five years or until age 67

OR• Give up all future pensionable raises and free health care

– Though court rulings say retiree health care is protected, they do not speak to future raises

– This could be a new basis of choice for younger Tier I employees• Refinance pension debt

– Could reduce pressure on the state budget

19701971

19721973

19741975

19761977

19781979

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

2002$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

Illinois pension contributions1970-2002

Total pension investment 1970-2002: $16.9 billion

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015$0

$1,000,000,000

$2,000,000,000

$3,000,000,000

$4,000,000,000

$5,000,000,000

$6,000,000,000

$7,000,000,000

$8,000,000,000

$9,000,000,000

$10,000,000,000

Illinois pension contributions2003-present

Total pension investment2003-present: $51.9 billion

Illinois pension contributions1970-present

19701972

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20102012

2014$0

$1,000,000,000

$2,000,000,000

$3,000,000,000

$4,000,000,000

$5,000,000,000

$6,000,000,000

$7,000,000,000

$8,000,000,000

$9,000,000,000

$10,000,000,000

Total pension investment 1970-2002: $16.9 billion

Total pension investment2003-present: $51.9 billion

In 1917, the Illinois Pension Laws Commission warned State leaders in a report that the retirement systems were nearing “insolvency” and “moving toward crisis” because of the State’s failure to properly fund the systems. This nearly century old report also recommended action so that the pension obligations of that generation would not be passed on to future generations.

Tax increase revenue Pension payments Overdue bill payments$0.0

$5,000,000,000.0

$10,000,000,000.0

$15,000,000,000.0

$20,000,000,000.0

$25,000,000,000.0

$30,000,000,000.0

$35,000,000,000.0

$40,000,000,000.0

$34,500,000,000.0 $34,300,000,000.0

$6,000,000,000.0

Where did the tax increase go?Where did the tax increase go?

$34.5 billion-$34.3 billion pension payments- $6 billion overdue bill payments-$5.8 billion

Remaining debt:$104.6 billion – Unfunded pension obligations$5 billion – overdue bill payments

How Illinois’ tax rate compares

$0 $50,000 $100,000 $150,000 $200,000 $250,0000.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Kansas 2015MissouriKentuckyIndianaWisconsinIowaIllinois 2015

Income (Single Filer)*Indiana's tax rate includes an average county tax rate of 1.28%

Tax

Rate

IL MI MA NY NJ MN OR CA0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Top tax rates in key states

Personal income – highest rate

Illinois: Open for business• Unemployment at 6% - within ½% of the national average. Down from 11.4% at the

height of the recession.

• Ranked 3rd in country for corporate expansions two years in a row

• Ranked 2nd for business startups in 2014

• Chicago ranked 2nd best city for small business

• Chicago ranked 4th most innovative city

• 20th largest economy in the world when US states are compared to sovereign nations

• 3rd largest manufacturing state in the nation

• Home to 33 Fortune 500 companies and 124 corporate headquarters

Contact information:

Senator Harmon:Oak Park office: 708-848-2002Springfield office: 217-782-8176www.DonHarmon.org