Where We Stand
Slowing Economy
• The nation’s top economic policy makers say the economy has worsened, but could turn around with help. • The Federal Reserve has cut key interest rates in recent months, and further cuts are widely expected. • Economists believe we’re in an economic slowdown, but it is not known how long it will be or how deep. • 25 states are facing deficits in 2008 and 2009, including California, New York, Arizona and Florida. • The General Assembly’s “overly optimistic” revenue projections, and the revenue slowdown, have resulted in a $750 million gap for the current year that we still have to make up.
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Overview
Solution: We must jump-start the economy and protect Illinois families
Fiscal Year 2009 priorities: 1) A comprehensive economic stimulus package to protect Illinois families: • Illinois Works – Infrastructure and jobs plan • Illinois Child Tax Credit – Doubling the federal economic stimulus payments for children • Illinois Business Tax Cut – Investment and job stability 2) Continued focus on healthcare and education 3) Responsible spending and a balanced budget
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Infrastructure and Jobs
Illinois Works – Investing in Infrastructure
Illinois has not passed a capital plan in 9 years. Illinois Works is a $25 billion capital program that will support over 700,000 jobs across Illinois. It will invest:
• $14.4 billion for roads and bridges • $3.8 billion for school construction • $2.7 billion for public transit • $1.1 billion for higher education • $1.1 billion for environment, energy and technology • $1 billion for economic development and housing • $600 million for improved and expanded State facilities • $500 million for airports and rail
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Protecting Illinois Families
Illinois Child Tax Credit
This credit will double the child portion of the federal economic stimulus payments.
• It will be a one-time, refundable tax credit of $300 per child for all Illinois taxpayers who qualify for the federal economic stimulus plan. • 1.3 million families (3 million children) will receive the credit. To be eligible, families must: • have a dependent child younger than 18. • earn at least $3,000 a year. • earn up to $75,000 annually for an individual filer, $150,000 for joint filers. Then credit phases out.
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Protecting Illinois Families
Illinois Business Tax Cut
This will provide an effective 20% tax cut for businesses that paid corporate income tax for 2007. Qualifying businesses must: • Pay Illinois Corporate Income Tax for 2007. • Maintain their employment levels. This $300 million tax cut will create business investment and development, and will help save jobs.
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Budget Priorities
Illinois Covered
Illinois Covered is a landmark plan to provide access to quality, affordable healthcare for all Illinois residents. • Healthcare expansions will continue to be funded in this budget. This includes FamilyCare, the Illinois Breast and Cervical Cancer Program, and electronic medical records. • We will also begin to implement the following with a dedicated revenue source: • Access for low-income adults • Roadmap to health • All Kids Bridge • Affordable insurance options
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Budget Priorities
Investing in Education
The Governor has invested more money in education than any other administration in history. This year’s budget includes an additional $300 million increase, for a total investment of $8.3 billion more since 2003.
Education Funding Increases
(in $ millions)
$2,800 $2,400 $2,000 $1,600 $1,200 $800 $400 $0
$8.3 billion
+$300 +$560 +$400 +$330 $400 +$389
FY04
FY05
FY06
FY07
FY08
FY09
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Balanced Budget
New initiatives funded by new revenue
FY2009 Budget Impact Program Protecting Illinois Families Education Illinois Covered FY09 Cost
$1.2 billion (one-time) $300 million $417 million (non-GRF)
Proposed Revenue Options
Options like securitization Increase gaming tax rates 10th casino license revenues Employer Assessment
Multi-Year Impact (Capital and Structural) Program Illinois Works Pension Reform Needs
$11 billion
($7b PAYGO)
Proposed Revenue Options
Partial Lottery concession Road Fund and other sources Pension Obligation Bond
$16 billion refinancing
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Revenue Options
Securitization Options
• To support the one-year Protecting Illinois Families plan, the State will find a one-time revenue source. • One option is to “securitize” revenues into up-front payments. • 18 states including California, New Jersey, Ohio, West Virginia, and Virginia have completed securitizations. Example: Tobacco Securitization • The existing settlement with the tobacco industry provides the State with revenues based in part on national tobacco consumption. Decreased consumption, and state actions limiting smoking, are leading to a risk of lower revenues. • Securitization transfers this risk to another party. • $1.2 billion in one-time revenues could be obtained on favorable market terms (mixing taxable and tax-exempt bonds) to provide immediate cash.
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Revenue Options
Illinois Works Revenue Sources
$11 billion in State money will support the $25 billion Illinois Works plan, and will be placed in the Illinois Works fund. Most funding will be Pay-As-You-Go instead of debt. • Partial Lottery concession – $7 billion (out of $10-12 billion) 65% of Illinois Works projects will be funded without issuing debt. • Bonds ($3.8 billion) Debt service will come from $300 million in annual transfers from the Road Fund and other sources.
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Revenue Options
Benefits of a Partial Lottery Concession
• $10 - 12 billion through the new lottery proposal will help pay for Illinois Works and maintain existing education revenues. • The State will now retain 20% ownership and the ability to regulate. • We are using an asset to invest in new assets, meaning less borrowing will be needed. • New York, Texas, California, Vermont, and others are all seeking to lease their lotteries. The first successful state will enjoy a premium.
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Revenue Options
Other Revenue Sources
• Education: Increase gaming tax rates ($300 million)
To pay for the P-12 education funding increase, Illinois will increase the rates on riverboat gaming and use initial recurring revenues generated from the 10th riverboat license.
• Healthcare: Employer Assessment ($417 million)
• A 3% payroll assessment only on employers of a certain size that do not spend at least 4% of their payroll on health care for their employees. • The money will be deposited in the new Illinois Covered Trust Fund, which will serve as the treasury for the Illinois Covered plan.
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Balanced Budget
Responsible Spending (Fiscal Year 2009)
• Across the board cuts: Governor Blagojevich proposes cutting spending across the board in agencies other than healthcare, education and public safety. • Increasing efficiency and reducing waste: The Governor will also consolidate more administrative functions through Shared Services, reduce leased space, and initiate an early retirement plan. • Restructuring pensions: Restructure the pension plan to provide even growth in funding, save $55 billion, and reach a 90% funded ratio 12 years sooner. • New revenues: All new spending is accounted for in new revenue proposals.
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Structural Reform
The Pension Problem
• Due to chronic underfunding since the 1970s, the pension systems were only 48% funded in 2003. • Without reform, the State owes 8.5% interest on a $43 billion unfunded pension liability annually – $3.7 billion a year. We’ve made progress • Governor’s pensions reforms have already reduced the State’s long-term 2045 pension liability by $83 billion (16%), according to system actuaries. • Because of reforms and record investments, the pensions are now 62.6% funded, but still have $43 billion in unfunded pension liabilities.
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Structural Reform
The Solution: Investing in Pensions
• With the Fed rate cuts, we need to take advantage of favorable interest rates to refinance high-interest pension debt into low-interest pension obligation bonds. • This will save the State $55 billion. The plan would immediately add $16 billion in assets to the State pension funds and even out annual payments. Why now? • The 2003 pension bond also took advantage of recordlow interest rates. Since then, the State has paid out $1.9 billion on that bond, but has earned $5.2 billion in investment income. That’s a net benefit of $3.3 billion for the State. • Today’s interest rates are comparable to 2003.
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Overview
Governor Blagojevich’s Budget Overview
www.illinois.gov/gov/ 1) A comprehensive economic stimulus package to protect Illinois families: • Illinois Works – Infrastructure and jobs plan • Illinois Child Tax Credit – Doubling the federal economic stimulus payments for children • Illinois Business Tax Cut – Investment and job stability 2) Continued focus on healthcare and education 3) Responsible spending and a balanced budget
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