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Sarah Wetmore, Vice President, Civic Federation February 27, 2019 5-4-16

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  • Sarah Wetmore, Vice President, Civic FederationFebruary 27, 2019

    5-4-16

  • About the Civic Federation

    • Members include major corporations and service firms

    • Independent and nonpartisan

    • Founded in 1894

    • We promote:

    • Sustainable tax and fiscal policies• Responsible long-term financial planning

    • High quality, efficient government services

    Membership opportunities and more information at civicfed.org

    www.civicfed.org

  • Overview

    • What led Illinois to create Tier 2?

    • What’s happened since Tier 2 went into effect?

    • The impact of the budget impasse on state services, including higher education

    www.civicfed.org

  • What led Illinois to create Tier 2?

    • State’s 50-year pension funding plan

    • Pension holidays

    • Great Recession à falling state revenue, severe contraction in pension assets

    • Debt rating downgrades attributed in part to growing pension liabilities

    www.civicfed.org

  • What’s Happened Since Tier 2?• Borrowing to make pension contributions• More debt downgrades due mostly to public pension

    underfunding• Various attempts to reduce benefit levels for current

    Tier 1 employees and/or retirees of the state and local governments

    • More debt downgrades when pension reform legislation was struck down by the Illinois Supreme Court

    • Ever higher contributions by the State to the pension funds, crowding out other spending priorities, but still not sufficient to prevent the unfunded liability from growing

    www.civicfed.org

  • www.civicfed.org

    $2,074 $2,705

    $564

    $1,667

    $5,743 $6,659

    $7,643 $7,549 $8,055 $8,560 $8,593 $8,349

    8.3%12.0% 2.6%

    6.7%

    19.2% 20.7%23.3% 22.9%

    28.0% 30.5% 25.9% 24.5%

    91.7%88.0% 97.4%

    93.3%

    80.8% 79.3% 76.7% 77.1%72.0% 69.5%

    74.1% 75.5%

    $-

    $1,000

    $2,000

    $3,000

    $4,000

    $5,000

    $6,000

    $7,000

    $8,000

    $9,000

    $10,000

    FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017* FY2018**FY2019**Pension Contributions and Debt Service Transfers for Pension Bonds***Pension Costs % of State-Source Revenues% State-Source Revenues Available for Other Purposes

    * Preliminary.**Estimated.*** Pension contributions in FY2010 and FY2011 were made through issuance of bonds and are not included in this chart.Source:State of Illinois, Governor's Office of Management and Budget, General Funds Financial Walk Down, November 15, 2018; Illinois State FY2019 Budget, p. 62; State of Illinois, General Obligation Refunding Bonds, Series of September 2018, Official Statement, August 22, 2018, pp. 29-30; Illinois State FY2018 Budget, p. 78; Illinois State FY2017 Budget, p. 75; Illinois State FY2015 Budget, pp. 2-22; State of Illinois, General Obligation Bonds, Series of May 2014, Official Statement, April 25, 2014, p. 15; Illinois State FY2011 Budget, p. 2-10; Illinois State FY2010 Budget, p. 2-12; Illinois General Assembly, Commission on Government Forecasting and Accountability, Illinois State Retirement Systems, Financial Condition as of June 30, 2017, March 2018, pp. 123-127.

    State-Source General Funds Revenue Available for Pension Costs Compared with Other Purposes:

    FY2008-FY2019 (in $ millions)

  • Impact of the Budget Impasse on Services and Higher Education

    www.civicfed.org

    • The damage:• Unmanaged spending

    • Damage to social services, universities and most vulnerable citizens

    • $16 billion in unpaid bills

    • Challenges persist even with FY2018 and FY2019 budgets

    • Lowest credit rating of all 50 states

  • Where are we now?

    www.civicfed.org

    • Projected budget deficit for state fiscal year 2020 starting in July: $3.2 billion

    • Governor Pritzker has proposed:• Extending the payment schedule 7 years,

    • Issuing pension obligation bonds,

    • Expanding buy-outs and

    • Eventually putting more money into the pensions from a future graduated income tax.

    • Would reduce contributions by over a billion dollars in FY2020

  • THANK YOU

    •Happy to answer questions

    •Visit civicfed.org for more information

    www.civicfed.org