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.

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