Ralph martire slide show 4 14-11

© 2011, Center for Tax and Budget Accountability

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CENTER FOR TAX AND BUDGET ACCOUNTABILITY70 E. Lake Street Suite 1700 Chicago, Illinois 60601 direct: 312.332.1049 Email: [email protected]

Tax Increases, Spending Caps

and the FY2010 General Fund Budget in Illinois

For:

Campus Facility Association

University of Illinois (Urbana-Champaign)

UIUC YMCA

1001 S. Wright Street, Champaign, IL

Presented by:Ralph Martire, Executive Director

Thursday, April 14, 2011; 4:00 pm


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Illinois’ Worst Fiscal Crises Since Great DepressionTh

e S

tart

ing

Poin

tRevenue Shortfall Entering FY2012

Without the January, 2011, Tax Increases (i) Revenues Amount*

Projected State Own Source Revenue (pre-tax increase) $20.026 B

Projected Federal Revenue $ 4.844 B

Other Projected Transfers In $ 1.810 B

TOTAL FY2012 PROJECTED REVENUE (without the tax increase)

$26.680 B

(ii) Hard Costs Entering FY2012

Carry Forward Unpaid Bills from FY2011 $6.05 B**

One-Time Revenue Used in FY2011 $3.00 B

Debt Service FY2012 $2.137 B

Pension Payment FY2012 $4.829 B***

Transfers Out FY2012 $2.317 B

SUBTOTAL HARD COSTS $18.333 B

(iii) Cost of Flat Funding Nominal Dollar Amount of FY2011 GF Appropriations for Services in FY2012

$24.313 B

(iv) TOTAL FY2012 REVENUE NEEDED TO PAY HARD COSTS & MAINTAIN FLAT FUNDING OF SERVICES

$42.646 B

(v) INITIAL FY2012 REVENUE SHORTFALL (Before 1/13/2011 tax increases)

(-$15.966 B)

* All data from the FY2012 Budget Book and GOMB 1/20/2011 plan, except as noted in *** below.

** FY2012 Budget Book, Chap. 2-14, Footnote 3

*** The pension contribution is from the March 10, 2011, update to the “Supplemental Digest to Retirement Systems’ Audits” issued by the State Auditor General.


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Causal Factors

•Flawed Tax Policy• Irresponsible Fiscal

practices•The “Great Recession”

of 2008-2009

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Knowing this, Springfield Passed The Taxpayer Accountability

and Budget Stabilization Act (P.A. 96-1496), which:

1.Raises Taxes

2.Limits Spending


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New Annual Revenue Under P.A. 96-1496

Item New Annual Revenue to

General Fund Inc rease Personal Income Tax Rate from 3% to 5% $6.05 B

Increase Corporate Income Tax Rate from 4.8% to 7% $770 M

Decouple from the Federal Repeal of the Estate Tax $182 *

Temporarily Suspend the Net Operating Loss Carry Forward for Corporations $250 M

Annual Net to General Fund $7.252 B **

* In FY2013 and FY2014, GOMB increases this estimate to $240 M.

**NOTE: in FY2011 GOMB estimates the aforesaid tax increases will generate $2.88 B in new General Fund revenue.


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Capitalist Tax Policy Should Be:

FAIR PROGRESSIVE

RESPONSIVE TO MODERN ECONOMY

STABLE DURING POORECONOMIES

EFFICIENT DOESN’T DISTORTPRIVATE MARKETS

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WHY DID ILLINOIS NEED A TAX INCREASE?

BUT ILLINOIS ISN’T


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WHICH CREATES:Illinois Structural Deficit

Assuming FY2000 to FY2008 Economic Conditions and FY 2000 Balanced Budget Appropriation (adjusted for Inflation and Population Growth)


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That $15.9 B shortfall entering FY2012 was a real problem

because……Over $9 out of $10 of G.F. are spent on:

• Education (k-12, plus Higher Ed) 35%

• Healthcare 30%

• Human Services 21%

• Public Safety 5% 91%

HIS

TO

RIC

AL

LY

:

HIS

TO

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LY

:


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But why’d Illinois Raise Taxes Rather than Cut

Spending?


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IS I

LL

INO

IS P

RO

FL

IGA

TE

?IS

IL

LIN

OIS

PR

OF

LIG

AT

E?

WELL - - - - - -The ongoing Deficit Problems were Not Caused by Wasteful Spending

Categor y FY 2000 Actual

FY2000 Adjusted to FY2011 for CPI &

Population

FY2011 Enacted

Difference FY2000 -FY2011 CPI &

Population

FY2000 -FY2011 ECI &

Population

Difference FY2000 -FY2011 ECI &

Population

Gener al Fund

$21.29 B $28.46

-Pension (- $1.23 B) (- $3.520)

Gener al Fund/Cur r ent Ser vices

$20.06 B $26.29 $24.94 (-$1.348 B)

(-5.1%)$29.98 B (- $5.035 B)

(-16.8%)

*NOTE: That after accounting for Inflation and Population Growth, the FY2011 GF of $24.94 B was 5% less than GF spending in FY1995, under Governor Jim Edgar


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HE

AD

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AS FOR HEALTHCARE, WELL…….

Medicaid spending by Funding Source(Federal, State and Local)


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Amount by Which Illinois General Fund State Spending on Human Service Programs Falls Short of Keeping Pace with Inflationary

Costs and Population Growth From FY2002 to FY2010

($393) ($413)($384)

($457) ($454) ($434)

($168)

($377)

($33)

($68) ($105)

($145)($186) ($235)

($270)

($310)

($800)

($700)

($600)

($500)

($400)

($300)

($200)

($100)

$0

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY2010

(mil

lio

ns)

By failing to account for annual inflationary costs, Illinois cut human service funding in real terms by a cummulative $3.1 B from FY2003 to FY2010. By failing to account for population growth, Illnois further shorted human service funding by approximately $1.4 B from FY2003 to FY2010. In total, state funding of human services over this period was approximately $4.4 B less than what was needed to maintain FY2002 service levels, adjusting for inflation and population growth.

Note: Commission on Government Forecasting and Accountabiity, Budget Summaries for FY2002 to FY2010. Final General Revenue appropriations for the Illinois Departments of Aging, Children & Family Services, and Human Services. Appropriations shortfalls necessary to maintain real value of FY2002 appropriation based on Mid-West CPI (MWCPI). MWCPI for FY2010 is assumed to be 0%, in all likelihood understateng the shortfall. Population growth estimate from Illinois Department of Commerce and Economic Opportunity. Key: Red Bar - MWCPI Shortfall; Blue Bar - Population Adjustment Shortfall

THE REAL IMPACT: $4.4 BILLION LOSTH

UM

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RV

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S


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CORPORATE TAX RATES

Who’s Gonna Move?

Illinois: 7% until 2015, then 5.25%

Midwest Big States Iowa: 6 – 12% (12% @ $250,000) Pennsylvania: 9.99%

Indiana: 8.5% New Jersey: 9%

Wisconsin: 7.9% California: 8.84%

Missouri: 6.25% New York: 7.1%

Kentucky: 4.6% Florida: 5.5%

Michigan: 4.9%

CO

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IL State Own-Source Revenue Under Neighboring State Revenue Shares FY2008 Current $ Billions

State Own-Source Revenue as a

Percentage of Personal Income

Increase or Decrease in IL GF Revenue if Illinois Had Equal State-Based Tax Burden as a Percentage of State Income

Illinois 7.6%

Indiana 9.7% + $11.16 B

Iowa 9.7% + $11.16 B

Kentucky 10.7% + $16.48 B

Missouri 7.6% $0

Wisconsin 10.1% + $13.29 B

Sources: 1) 2008 State Revenue as a Percentage of Personal Income, Federation of Tax Administrators, updated July 19, 2010. 2) Increases based on BEA 2008 Illinois Personal Income of $531.591 B

Meanwhile, Pre-Tax Increase


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Meanwhile, “Post-Tax Increase”

Share Own-Source Revenue as a Percentage

of Personal Income

Increase or Decrease in IL GF Revenue Revenue if Illinois Had Equal State-Based Tax Burden as a

Percentage of State Income

Illinois* 8.8%

Indiana 9.8% $5.5

Iowa 9.7% $5.0

Kentucky 10.7% $10.5

Missouri 7.6% ($6.7)

Wisconsin 10.1% $7.2

2) Increases based on BEA 2008 Illinois Personal Income.

* This overstates the actual new tax burden.

Sources:

IL State Own-Source Revenue Under Neighboring State Revenue Shares FY 2008 Current $ Billions After Passage of

the 2011 Tax Increase

1) 2008 State and Local Revenue as a Percentage of Personal Income, Federation of Tax Administrators, updated July 19, 2010.


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SPENDING CAPS LIMIT OF 2% GROWTH, YEAR-TO-YEAR

Fiscal Year Total CAP Increment Available

Under CAP 2012 $36.82 B ----- 2013 $37.55 B $730 M 2014 $38.31 B $760 M 2015 $39.07 B $760 M

*NOTE: ALL numbers have been rounded up or down to the ten million dollar line

LOOKING FORWARD. . . .


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Projected Annual Revenue Shortfalls Under Spending Caps

(Current $ in Billions)

Revenues 2012 2013 2014 2015 State Own Source 1 $22.18 $22.34 $22.98 $23.39 Federal 1 $4.84 $5.13 $5.44 $5.77

Individual Income Tax 2 $6.05 $6.22 $6.39 $2.40 Corporate Income Tax 3 $0.77 $0.80 $0.84 $0.17 Estate Tax 4 $0.18 $0.24 $0.24 $0.24 Suspension of Net Operating Loss Carryover 4 $0.25 $0.25 $0.25 $0.25 Loss of Federal Medicaid Match 4 ($0.20) ($0.30) ($0.40) ($0.40) Loss of Tobacco Litigation Proceeds 4 ($0.14) ($0.14) ($0.14) ($0.14)

Total Revenue projected to be available 5 $33.93 $34.55 $35.61 $31.68

Annual Spending Caps $36.82 $37.55 $38.31 $39.07

Annual Revenue Shortfall ($2.89) ($3.00) ($2.70) ($7.39) Notes: See Appendix

Which is Funny — Because:


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Estimated FY 2012 Revenue with Tax Increase

$7.3

Bil

lion

in N

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even

ue

$7.3

Bil

lion

in N

ew R

even

ue

from

Tax

In

crea

sefr

om T

ax I

ncr

ease

Projected FY2012 Revenue ($ in Millions)

Revenue Source FY2012 GOMB Estimate from Budget Book

(i) Without 1/13/2011 Tax Increase

Pre-Existing Own-Source Revenue $20,026 *

Transfers In ** $1,810

Federal Sources $4,844

Subtotal State AND Federal Sources Before 1/13/2011 Tax Increases

$26,680

(ii) New Revenue from 1/13/2011 Tax Increases

Increase in Individual Income Tax Rate from 3% to 5% $6,050

Increase in Corporate Income Tax Rate from 4.8% to 7% $770

Decoupling from Federal Repeal of Estate Tax $180***

Temporary Suspension of Net Operating Loss Carry-forward for Corporations

$250

Subtotal of New Revenue $7,250

(iii) Total FY2012 Revenue from All Sources $33,930

* Total Own-Source Revenue calculation based on reconciliation of the FY2012 Budget Book and Governor’s Spending Plan published on January 20, 2011.

** Transfers-In include items such as Lottery and Gaming.

*** GOMB estimates that this amount will increase to $240 M annually in FY2013 and FY2014.

**** Note, Figure 2 does not include any debt proceeds from the proposed bond issuance filed under SB 3, because that bill has not passed.

Which Brings us to FY2012


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Despite Recent Tax Increase, The FY 2012 Budget has an Operating Revenue Shortfall

of over $ 1 Billion

Bu

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pera

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g B

ut a

Rem

ain

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Ope

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Def

icit

of

Ove

r $

1 B

illi

onD

efic

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ver

$ 1

Bil

lion

FIGURE 3 FY2012 Operating Deficit Walk Down

($ in Millions) Category Amount*

(i) Spending

General Fund Appropriations for Current Services

$25,931

Pension Payments** $4,829

Statutory Transfers Out *** $2,317

Pension Obligation Bonds $1,559

Capital Projects Debt Service $578

Total Proposed Expenditures

$35,214

(ii) Total Projected Revenue $33,930

(iii) Base Operating Deficit (-$1,284)

* All data from the FY2012 Budget Book, except pension payments.

** This pension contribution amount is from the March 10, 2011, update to the “Supplemental Digest to Retirement Systems’ Audits” issued by the State Auditor General.

*** Statutory Transfers Out include items such as the Local Government Distributive Fund, the Common School Fund, and the General Obligation Bond Retirement and Interest Fund.


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Lack o

f R

even

ue

Sti

ll a

n I

ssu

e

GRF Deficit = $7 Billion

FY2012 Minimum Accumulated Deficit Walk Down ($ in Millions)

Category Amount Deficit as % of

Revenue

FY2012 Proposed Expenditures $35,214

Total Projected Revenue $33,930

Initial Operating Deficit (-$1,284) -3.8%

Carry-Forward Deficit from FY2011 (unpaid bills)

$6.05

TOTAL FY2012 REVENUE SHORTFALL (-$7,334) -21.6%


22Hu

man

Ser

vice

s w

ould

su

ffer

$ 4

71 M

H

um

an S

ervi

ces

wou

ld s

uff

er $

471

M

(-8.

7%)

cut i

f F

Y 2

011

$ 26

0 M

su

pple

men

tal

(-8.

7%)

cut i

f F

Y 2

011

$ 26

0 M

su

pple

men

tal

to H

um

an S

ervi

ces

is p

asse

d.

to H

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an S

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is p

asse

d.

FY 2012 Proposed Nominal Dollar Change from FY 2011

Category FY2012 Proposed

FY2011 Revised (Feb 2011)4

Diff FY2012 Proposed –

FY2011 Revised

% Change FY2011 Enacted Approp

(July 2010) General Fund Excluding Pension $25,931 $24,313 $1,618 6.7% $24,940 PreK-12 Education $7,245 $7,020 $225 3.2% $6,997 Higher Education $2,149 $2,124 $25 1.2% $2,116 Health Care1 $7,749 $7,134 $615 8.6% $7,777 Human Services2 $4,917 $5,128 ($211) -4.1% $4,929 Public Safety3 $1,553 $1,391 $162 11.6% $1,403 Notes: 1) DPH and DHFS

2) Aging, DCFS and DHS 3) Corrections and State Police 4) FY2011 Revised Budget assumes that the Fiscal Stabilization Fund will be replenished and $505 M of interfund borrowing repaid in FY2011.

Source: FY2012 GOMB Proposed Budget Book (2/17/2011)


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Ch

an

ge in

Pro

posed

Gen

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un

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to H

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Serv

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gen

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s Three Agencies Provide Human Services:

Category FY2011 Enacted

FY2012 Proposed $ Change

% Change

Department of Aging $628 $798 $170 27.1%

Department of Child and Family Services $836 $843 $7 0.8%

Department of Human Services $3,663 $3,274 (-$389) (-10.6%)

Total Across Agencies $5,128 $4,917 (-$211) (-4.1%)

Data from GOMB FY2012 Operating Budget

One agency bears all the cuts:

DHS


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In 2

008

Illi

noi

s w

as 1

3th in

per

cap

ita

inco

me

bu

t 34

th in

per

cap

ita

hu

man

ser

vice

s fu

nd

ing Cuts in specific Department of Human

Services Programs

Category FY 2012

Proposed FY 2011 Enacted % Change $ Change

Circuit Breaker Pharmaceutical Credit $0 $24 -100.0% ($24) Addiction Treatment and Services $41 $97 -57.4% ($56) Child Care Services $285 $618 -53.9% ($333) Domestic Violence Shelters $9 $11 -19.2% ($2) Teen Parent Services $1 $3 -51.0% ($1) Mental Health Grants $112 $146 -23.0% ($33)

Total Across Programs $449 $899 -50.1% ($450)

Data Source: GOMB FY2012 Operating Budget.


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Eve

ry M

ajor

Cat

egor

y of

Rea

l E

very

Maj

or C

ateg

ory

of R

eal

Fu

ndi

ng

for

Cu

rren

t Pu

blic

Ser

vice

s F

un

din

g fo

r C

urr

ent P

ubl

ic S

ervi

ces

has

bee

n C

ut S

ince

FY

200

0 h

as b

een

Cu

t Sin

ce F

Y 2

000

Category FY2012 Proposed

FY2000 Adj (ECI and Pop

Growth) 4

Diff FY2012-FY2000 Adj

(ECI and Pop Growth) 4

% Change

General Fund Excluding Pensions

$25,931 $30,829 ($4,898) -15.9%

PreK-12 Education $7,245 $7,443 ($198) -2.7%

Higher Education $2,149 $3,306 ($1,157) -35.0%

Health Care1 $7,749 $8,952 ($1,203) -13.4%

Human Services2 $4,917 $7,066 ($2,150) -30.4%

Public Safety3 $1,553 $2,075 ($522) -25.2%

Notes: 1) Department of Public Health and Healthcare and Family Services(Public Aid in 2000 and 2012)

2) Aging, Department of Children and Family Services and Department of Human Servcies

3) Corrections and State Police

4) Index value for FY2000 has been approximated by using 2001 and 2001 ECI. For Health Care Medical Care Midwest CPI (MCMWCPI) has been used.

Sources: COGFA Illinois State Budget FY2000, and GOMB Illinois State Budget FY2012.

FY 2012 Proposed Appropriations Compared to FY2000 Actual Appropriations Adjusted for Inflation and Population Growth

($ in Millions)


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Accrued Net Unfunded FundedSystem Liability Assets Liability Ratio

TRS $77,293.2 $31,323.8 $45,969.4 40.5%

SERS $29,309.5 $9,201.8 $20,107.6 31.4%

SURS $30,120.4 $12,121.5 $17,998.9 40.2%

JRS $1,819.4 $523.3 $1,296.2 28.8%

GARS $251.8 $54.7 $197.1 21.7%

TOTAL $138,794.3 $53,225.1 $85,569.2 38.3%

($ in Millions)FY 2010

Summary of Financial ConditionState Retirement Systems Combined

Assets at Market Value / Without Asset Smoothing

SOURCE: Commission on Government Forecasting and Accountability. The funded ratios for each of the five State retirement systems may be compared to the aggregate funded ratio of 38.3% for the five systems combined. Although the Judges' Retirement System and the General Assembly Retirement System have the poorest funded ratios, these two systems are much smaller and their unfunded liabilities are thus more manageable than the three larger systems.

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The "Ramp" before the 2008 Economic meltdown!Required Yearly Pension Payments:

FY 2006 - FY 2045

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

$ in

Mill

ion

s

TH

E R

AM

PT

HE

RA

MP


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Making up the Revenue Shortfall By Cutting Services = $ 7.3 B (or 28.3%) cut in $26 B appropriation

Op

tion

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JOB

LO

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JOB

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Divorced from RealityP

relim

inary

An

aly

sis

of

Illin

ois

S

en

ate

GO

P B

ud

get

Pro

posal

They Claim: “approximately $ 5B in spending reductions and

economic expansion will allow lawmakers to restore the income tax to historic levels.” (p. 2)

Our Analysis Shows:• FY 12 deficit without $7.3 B tax increase was

$16.0 B • Existing state revenue barely covers current

general funds Expenditures – even with the tax increase

• $5B in cuts are not a replacement for $7.3 B in increased revenue and not enough to pay back $16 B in accumulated deficit.


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Proposed Reforms Do More Harm Than Good

Pre

lim

inar

y A

nal

ysis

of

Illi

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OP

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rop

osal

They Propose:$1.3 B savings from Medicaid cuts by shifting costs to

recipients and reducing eligibility “to bring Medicaid eligibility into line with the National Average” (p. 10)

Resulting in:• the State forgoing $650 M in federal matching

funds, reducing budget savings• doubling the health care impact of these cuts

to vulnerable Illinoisans.


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Pre

lim

inary

An

aly

sis

of

Illin

ois

S

en

ate

GO

P B

ud

get

Pro

posal

They Propose:• more $1.35 B “targeted savings” from

pension cuts (in addition to the savings already targeted from the 2009 pension changes for future workers)

Our Analysis Finds:• Their pension cuts would reduce pension

benefits for existing state workers in direct violation of the state constitution


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Pre

lim

inary

An

aly

sis

of

Illin

ois

S

en

ate

GO

P B

ud

get

Pro

posal


They Propose:• state funding for K-12 education be cut by

$725 M

Our Analysis Finds:• Their education cuts would increase the

funding gap for an “adequate education” to above its current $2000 per child.


34

-$100

-$1,944

-$2,500

-$2,000

-$1,500

-$1,000

-$500

$0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

FY Difference

CU

T E

DU

CA

TIO

N —

RE

AL

LY

?C

UT

ED

UC

AT

ION

—R

EA

LL

Y?

$ Difference in Per Pupil Foundation Level Funding

EFAB vs. ACTUAL

The Illinois State Board of Education estimates it would cost $3.1 billion to increase the current Foundation Level to the EFAB recommendation.


35

Cut Education—Really?

Illinois ranks 49th out of 50 states in portion of education funding covered by the state

But Education now matters more than ever to economic prosperity:

Generally: unemployment rates are highest for those with the least education.

EX

HIB

IT “

A”

IS E

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IBIT

“A

” IS

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Cut Education — Really?Impact of Education

on WagesIn real (2006) dollars, between 1980 and 2006, only those with at least a college degree experienced any gain in hourly income, with growth of 14.3%

Real median hourly wages for all other education categories declinedLess than a high school diploma fell by (-28.7%)Only a high school education declined (-8.7%)Some college but no degree declined (-4.3%)You gotta learn to earn!W

AG

E D

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Illinois GDP Growth Lags

TH

E I

LL

INO

IS E

CO

NO

MY

TH

E I

LL

INO

IS E

CO

NO

MY

Source: Bureau of Economic Analysis, US Dept. of Commerce


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Wages for Minorities lag Whites

Real wages for Whites increased modestly between 1980 and 2007, but :

The White-Hispanic wage gap is larger in amount, but increased by a smaller percentage, growing from $3.82 in 1980 to $5.34 in 2007, an increase of 39.7% over 1980

Real wages for African-Americans declined. The hourly wage gap between Whites and African-Americans grew from $1.52 in 1980 to $3.44 in 2007, an increase of 126.3% over 1980

WA

GE

DIF

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NC

ES

WA

GE

DIF

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NC

ES


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Still Separate. . . . Illinois is the third most

segregated state in K-12 education for blacks

82% of black children attend majority/minority schools

90% of white children attend virtually all white schools

(*Source: 2006 Education Trust study on segregation)

SE

GR

EG

AT

ION

SE

GR

EG

AT

ION


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. . . . Still UnequalMinority school districts

start out with $1,154 less per child to spend on education

That’s the second worst gap in the nation

(*Source: 2006 Education Trust study on segregation)

SE

GR

EG

AT

ION

SE

GR

EG

AT

ION


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Illinois Property Tax Revenue Growth vs. State Median Income Growth

4.92%

-5.33%

23.21%

53.71%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1990-2007 2000-2007

Property Tax Revenue Grow th

State Median Income Grow th

““ TH

E B

UR

DE

N I

S T

OU

GH

”T

HE

BU

RD

EN

IS

TO

UG

H”

*NOTE: It’s a fixed cost for business as well.


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Other Proposed options :

• Borrowing from financial institutions to pay overdue bills and cover operating costs

• Continued deferment of payments owed providers

• Further cutting FY2012 appropriations for services

• Raising Revenue:– Expanding sales tax to services.– taxing some retirement income– a progressive income tax.

Op

tion

s


43

For More Information:

Center for Tax and Budget Accountabilitywww.ctbaonline.org

Ralph M. MartireExecutive Director(312) [email protected]

Ron Baiman, Ph.D.Director of Budget and Policy Analysis(312) [email protected]

Yerik KaslowResearch Associate(312) [email protected]

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rth

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nfo

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Ralph martire slide show 4 14-11

Documents

Transcript of Ralph martire slide show 4 14-11