1. Fiscal and Economic Issues Discussion Group - Illinois
May 2018 Meeting 1 1

2. At the state level, Illinois’ spending in 2016 was not high compared to other states
Notes
Data are for state fiscal year 2016 and include general fund, federal funds, other state funds, and bonds.
Sources
KCMU calculations based on adjusted data collected in the National Association of State Budget Officers (NASBO)  November 2016; and the U.S. Census Bureau 2

3. Illinois State and Local Spending is Slightly Above Average
Source: 3

4. Illinois Budget: Revenues and Expenditures4

5. Illinois has high property taxes, but that is NOT a state government issue5

6. Illinois has the 5th most regressive state and local tax structure in the country (2015)6

7. Most States have Regressive State and Local Taxes7

8. Illinois’ Alleged Spending Spree with the Higher Inc. Tax Rates8

9. Illinois Appropriations FY 11-FY169

10. Illinois Unpaid General Funds Bills10

11. Jobs in Illinois (Non-Farm / 000’s)11

12. Illinois Job Growth - Fiscal Years 2009 – 2018 (ytd thru March) (in thousands)
-323.8
2010
-31.4
2011
60.8
2012 76
2013
52.4
2014
81.6
2015
93.1
2016
29.6
2017
64.5
2018 (ytd)
25.3 12

13. CIVIC FEDERATION EXECUTIVE SUMMARY
The budget for fiscal year has an estimated operating deficit of at least $1.5 billion, and deficits are projected to continue for the foreseeable future.
The State’s unpaid bills are substantially reduced from $14.7 billion at the end of FY2017, but the backlog is still expected to stand at $7.5 billion when the current fiscal year ends on June 30, 2018 and is projected to grow to $13.7 billion by FY2023.
The biggest challenge continues to be staggering public employee pension costs, which are
difficult to reduce due to State constitutional protections as interpreted by the Illinois Supreme
Court.
At the end of FY2017, the five funds had $129.1 billion in unfunded liabilities; only about 40% of promised pension benefits were covered by pension assets.
Illinois still has the lowest credit rating of any state.

15. The Civic Federation’s comprehensive plan proposes the following policy changes to improve
the State’s fiscal position:
1. Restrict net agency spending growth to 2.1% annually through FY2023;
2. Reduce late bill interest penalty payments to a market-based rate;
3. Eliminate the exclusion of federally-taxable retirement income from the State’s income
Tax;
4. Extend the State sales tax to the 14 additional services taxed by the State of Wisconsin;
5. Work toward building a rainy day fund equal to 10% of General Funds revenues;
6. Place a constitutional amendment on the ballot to limit the pension protection clause and
allow reasonable, moderate changes to current employee and retiree benefits necessary to
secure the financial sustainability of the State and local governments and the pension
systems themselves;

16. 7. In the absence of benefit reform, require annual supplemental payments to the State’s
systems of $600 million from FY2020 through FY2034 and $481 million in FY2035;
8. Merge the Chicago Teachers’ Pension Fund (CTPF) with the Teachers’ Retirement
System, with the State shifting the normal costs onto local school districts and assuming
responsibility for unfunded liabilities;
9. Create a bipartisan commission to study the elimination of duplicative higher education
programs, reallocation of resources across programs and campuses and the closure or
consolidation of campuses; Consolidate the governance of State universities into a single,
statewide Board of Trustees;
10. Initiate a new capital plan with a comprehensive analysis and prioritization of the State’s
infrastructure needs, funded by an increase in the motor fuel tax and potentially by
vehicle miles traveled and congestion taxes; and
11. Consolidate and streamline government units in Illinois

17. The following table shows the effects of the Civic Federation’s recommendations on the General Funds budget for the next five years.

18. Future Changes
Once the State pays off its unpaid bill backlog and begins to make progress toward building a
rainy day fund, it should pursue the following measures to give the State’s finances more longterm
sustainability:
 Return the lapse period to two months from six;
 Phase-out Section 25 liabilities and other practices that allow current years’ costs to be
paid from future years’ appropriations;
 Shift normal pension costs from the State to public universities and community colleges;
and
 Consider a modestly graduated income tax rate structure with a maximum spread of 3.0
percentage points that could generate additional revenues and lower rates for low income
taxpayers, while protecting against excessive disparities and rate increases. Such a
change would require an amendment to the Illinois Constitution.

19. Other Organization Proposals:
Chicago Fed – Pay down pensions with a statewide property tax
Progressive Income tax -
Legalize Marijuana – Senator Steans, Representative Cassidy, JB Pritzker
Legalize Sports Betting

20. Civic Federation of Chicago -
Resources:
Civic Federation of Chicago - - -
Governor Rauner Proposed Budget -
History of Illinois Pensions, i.e. how we got to our large unfunded liability -