Illinois’Budget

State fiscal year: July 1 — June 30

Appropriation: A legislatively-determined spending cap for a particular purpose

Illinois Budget Facts

What is a Balanced Budget?

Revenues Expenditures

What has Caused the State’s Financial Crisis?

Spending Growth Has Outpaced RevenuesHigher Level of AccountabilityRates of

Increase

Inflationary growth rate is 13.4%

General Revenues 11.2%

K-12 Education 18.5% Debt Service 34.4% Medicaid Liability 46.3% Pensions 52.3%

No pension holidays

No debt deferrals intofuture years

• General Funds• Special State Funds• Federal Trust Funds

What Makes Up Illinois’Budget?

9.9%

46%

44%

Special State Funds $14.8 billion

General Funds $15.5 billion

Federal Trust Funds $3.3 billion

TOTAL: $33.7 billion

How the State’s Budget Has Changed Over the Last 10 Years

Fiscal Year 1995

8.5%

35.8%

55.7% Federal Trust Funds $5.7 billion

Special State Funds $36.8 billion

General Funds $23.6 billion

Fiscal Year 2005

TOTAL: $66.1 billion

How the State’s Budget Has Changed Over the Last 10 Years

RevenueSRevenueS

General Funds

35.8%

Fiscal Year 2005

General Taxes and Fees

Discretionary

Negotiated Spending

$23.7 billion

Individual Income Tax

Corporate Income Tax

Sales Tax

Public Utility Taxes

Gaming Sources

Other Taxes

Other Transfers

Federal Sources

Individual Income Tax

Corporate Income Tax

Sales Tax

Public Utility Taxes

Gaming Sources

Other Taxes

Other Transfers

Federal Sources

32%

Individual Income Tax

• Flat tax rate: 3%

• First imposed: 1969 at 2.5%

• Permanently changed to 3% in 1989

• 10% of collections goes toward income tax refunds

• Of the remainder, 10% goes to local governments

Individual Income Tax$ in millions

Fiscal Year

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

($ i

n M

illi

on

s)

Steep rise: late 1990s

Recession: 2002 and 2003

Individual Income Tax

Corporate Income Tax Sales Tax

Public Utility Taxes

Gaming Sources

Other Taxes

Other Transfers

Federal Sources

5%

Corporate Income Tax

• Flat tax rate: 4.8%

• First imposed: 1969 at 4%

• Permanently changed to 4.8% in 1989

• 24% of collections goes toward income tax refunds

Of the remainder, 10% goes to local governments

$600

$700$800

$900

$1,000

$1,100$1,200

$1,300

$1,400

$1,500$1,600

$1,700

$1,800

Fiscal Year

Corporate IncomeTax$ in millions

Change to single sales factor

Decoupled from federal accelerated depreciation

Individual Income Tax

Corporate Income Tax

Sales TaxPublic Utility Taxes

Gaming Sources

Other Taxes

Other Transfers

Federal Sources24%

Sales TaxGoods taxed at 6.25%: 5% to state and 1.25% to local governments (services not taxed in Illinois)

Food & Drugs taxed at 1%: All goes to local governments (value of this exemption is $1.12 billion)

First enacted: 1933 at rate of 2%

Increased several times: 6.25% reached in 1990

After distributions: 72% of total collections are considered general revenues

Sales Tax

Fiscal Year

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$ in millions

Individual Income Tax

Corporate Income Tax

Sales Tax

Public Utility TaxesGaming Sources

Other Taxes

Other Transfers

Federal Sources4%

Public Utility Taxes

• Electric Excise– Residential: up to 1/3¢ per kilowatt– Non-residential: 5.1%

• Telecommunications Excise– Tax rate: 7%– 1% for school construction

• Natural Gas Revenue– Tax rate: 5%

Public Utility Taxes

Fiscal Year

$ in millions

Drop in land line phone use

5%

Individual Income Tax

Corporate Income Tax

Sales Tax

Public Utility Taxes

Gaming Sources Other Taxes

Other Transfers

Federal Sources

• First enacted: 1990 at flat rate of 20% of gross receipts

• Graduated tax rates since 1997. Current range: 15% to 70%

• Law allows 10 riverboat licenses. All 10 operational between 1991 and 1994 (1 closed in 1997 and remains inactive)

• 95% of collections are considered general revenues (Education Assistance Fund)

Gaming Sources• First authorized: 1974• 1/3 of sales goes to state general revenues (Education Assistance Fund)

• 38 other states have lotteries; Illinois ranks 8th in net receipts

Lottery

Riverboats

Gaming Sources

Fiscal Year

$ in millions

Lottery

Riverboats

Tax rate increase and dockside gaming

Tax rate increase

Individual Income Tax

Corporate Income Tax

Sales Tax

Public Utility Taxes

Gaming Sources

Other TaxesOther Transfers

Federal Sources

5%

Cigarette Tax: 98¢ per pack

Estate Tax: Imposed on an estate in excess of $1.5 million before distribution to heirs

Insurance Tax: Vary by type of insurance sold

Franchise Taxes: Based on paid-in capital

Liquor Taxes: Per gallon basis; varies on type of liquor

Other Taxes

Other Taxes

Fiscal Year

$ in millions

Estate

Insurance

Cigarette

Corporate Franchise

Liquor

Individual Income Tax

Corporate Income Tax

Sales Tax

Public Utility Taxes

Gaming Sources

Other Taxes

Other TransfersFederal Sources

9%

Other Transfers

Governor’s Initiatives– Administrative chargebacks– Fee transfers– Fund transfers

Intergovernmental Transfers – Cook County: Local aid for Medicaid costs– U of I: Aid for hospital services

Other Transfers$ in

millions

Fiscal Year

Beginning of Governor Blagojevich’s administrative chargebacks, fund transfers, and fee increases

Individual Income Tax

Corporate Income Tax

Sales Tax

Public Utility Taxes

Gaming Sources

Other Taxes

Other Transfers

Federal Sources

16%

Federal Sources

• Reimbursements for state Medicaid spending

• Food stamp assistance

• Miscellaneous human services reimbursements

Federal Sources

Fiscal Year

$ in millions

Temporary increase in federal reimbursement rate from 50% to 52.95%

10-Year General Funds Total

$14,000

$16,000

$18,000

$20,000

$22,000

$24,000

$26,000

$28,000

$30,000

ExpendituresExpenditures

Types of State Spending

•Mandatory

•Priority

•Discretionary

• Medicaid

• Debt Service

• Pensions

• Constitutional Mandates

Mandatory Spending

MedicaidPrinciple factors driving Medicaid spending include:

Rate: amount paid for services provided (rates set by the state)

Population: number of people eligible for and enrolled in program

Utilization: amount of services used by enrollees

MedicaidThe federal government mandates that all states provide basic healthcare for the following low-income individuals:

Elderly over age 65

Blind and Disabled

Children up to age 18

Pregnant Women

Illinois provides and covers optional services and populations:

Note: FPL for a family of 3 is only $15,670 a year.

KidCare: offers healthcare coverage to children up to age 18 whose families make up to 185% of the Federal Poverty Level (FPL).

FamilyCare: offers healthcare coverage to parents of children enrolled in KidCare up to 133% of the FPL.

Dentistry, podiatry, and chiropractic services.

Prescription drug coverage: fastest growing portion of Medicaid budget.

Medicaid

68%

30%

15%

43%

11%6% 24%

Children, Pregnant Women, and

Parents

Blind and Disabled

Elderly

SeniorCare 3%Persons Served Payments

Medicaid UtilizationFiscal Year

2003

Medicaid Liability + 15

Fiscal Year

$ in millions

Medicaid costs have risen at an average rate of 8% since FY 99. At this rate, the program will double every 9 years.

• Medicaid

• Debt Service

• Pensions

• Constitutional Mandates

Mandatory Spending

Debt ServiceTypes of State Debt

• General Obligation: bonds issued are backed by full faith and credit of state. Debt service paid from general funds.

• Revenue: bonds issued for a particular purpose with a dedicated revenue stream.

Debt Service

– General Obligation Bonds $9.6 billion• Anti-Pollution• Capital Development• Coal Development• School Construction

– Pension Obligation Bonds $10.0 billion

– Build Illinois Bonds (Revenue Bond) $2.1 billion

Unused debt service transfers to General Revenue Fund

Debt Service Payments + 15$ in

millions

Fiscal Year

$10 billion in

Pension Obligation Bonds

• Medicaid

• Debt Service

• Pensions

• Constitutional Mandates

Mandatory Spending

The 5 State Pension Systems

• Teachers’ Retirement (not Chicago): 51%• State Employees’ Retirement: 32%• State Universities’ Retirement: 15%• Judges’ Retirement: 1.7%• General Assembly Retirement: 0.3%

Current Unfunded Liability = $35.1 billion

Pension Funding2005 — 2045

Taxpayers will contribute $286.6 billion to the 5 pension systems.

• 40% will cover benefits paid; and

• 60% will make payments on past years’ unfunded liability

Sta

te C

ontr

ibu

tion

s

Fiscal Year

Pensions + 15$ in millions

$2,609

$5,585

• Medicaid

• Debt Service

• Pensions

• Constitutional Mandates

Mandatory Spending

Court System $326 million

Constitutional Officers $253 million

General Assembly $68 million

Constitutional Mandates

Fiscal Year 2005

Types of State Spending

•Mandatory

•Priority

•Discretionary

Priority Spending

• Education

• Criminal Justice

• Human Services

Higher Education vs. Tuition

Fiscal Year

Elementary & Secondary Education

State Spending on Elementary & Secondary Education (Average of Past 5 Years)

Other Grants 5%

Mandated Categoricals

24%

Early Childhood 4%

Administrative 1%

General State Aid 66%

General State Aid and Mandated Categoricals combined make up 90% of state education spending

Percent Change in Illinois K-12 Public Schools 1987—2003

Enrollment State Employment CPI (Inflation) Total Funding Growth

13.1%

157.8%

57%20.4%

2002-2003: Illinois ranked 11th in Nation for average expenditures per student in public K-12 schools. Source: NEA Rankings and Estimates 2004

Percent

Priority Spending

• Education

• Criminal Justice

• Human Services

Corrections Operations vs. Inmates

Fiscal Year

Priority Spending

• Education

• Criminal Justice

• Human Services

• Mental Health, Developmental Disabilities, & Substance Abuse

• Children & Family Services

• Child Care

• Assistance

• Rehabilitation Services

• Aging

• Public Health

• Other

Human Services — Fiscal Year 2005

$2,003.0

$780.9

$562.9

$417.1

$411.5

$308.1

$148.8

$120.9

$ in millions

Total: $4,753.2

Types of State Spending

•Mandatory

•Priority

•Discretionary

Discretionary Spending• Natural Resources

– state parks, conservation areas

• Commerce & Economic Opportunity– economic development, business grants

• Agriculture– food inspection, animal livestock

• Veterans’ Affairs– hospitals, veterans’ benefits

Types of State Spending

•Mandatory

•Priority

•Discretionary

Spending Priorities

13.5%

Discretionary $2.1 billion

58.5%

12.0%

29.5%24.8%

61.8%

Priority $13.9 billion

Mandatory $3.8 billion

Mandatory $7.0 billion

Priority $9.6 billion

Fiscal Year 2005Fiscal Year 1995

Discretionary $2.8 billion

Revenues

State Sources $17,163 $17,892 $18,529

Federal Sources $3,940 $5,189 $4,688

Subtotal Revenues $21,103 $23,081 $23,217

Transfers

Transfers In $1,827 $2,109 $2,385

Pension Obligation Bonds $300 $1,489 $0

Subtotal Transfers $2,127 $3,598 $2,385

Short Term Borrowing $1,675 $0 $0

Total Cash Receipts $24,905 $26,679 $25,602

Appropriations $22,335 $23,483 $23,685

(Less Permanent Lapse) ($442) ($851) ($681)

Plus Transfers Out $2,741 $3,459 $2,598

Plus Rainy Day Transfer $0 $50 $0

Plus Accounts Payable from Previous Year $1,476 $1,266 $593

(Less Accounts Payable at End of Current Year) ($1,266) ($593) ($593)

Total Expenditures $24,844 $26,814 $25,602

Revenues vs. Expenditures $61 ($135) $0

General Fund BalanceE

xpen

dit

ure

sC

ash

Rec

eip

ts

FY 03 Actual

FY 04 Actual

FY 05 Est

A L KAheadFiscal Year 2006

Walk-up:

FY 2006

Budget Hole

Exp

end

itu

res

Cas

h R

ecei

pts

Revenues

State Sources $18,529

Federal Sources $4,688

Subtotal Revenues $23,217

Transfers

Transfers In $2,385

Pension Obligation Bonds $0

Subtotal Transfers $2,385

Short Term Borrowing $0

Total Cash Receipts $25,602

Appropriations $23,685

(Less Permanent Lapse) ($681)

Plus Transfers Out $2,598

Plus Rainy Day Transfer $0

Plus Accounts Payable from Previous Year $593

(Less Accounts Payable at End of Current Year) ($593)

Total Expenditures $25,602

Increase (Decrease) in End-of-Year Balance $0

FY 05 Estimated

Revenues

State Sources $18,529

Corporate Tax Amnesty ($100)

Adjustment to Cigarette Tax ($50)

Federal Sources $4,688

Extra Federal Match ($25)

Subtotal Revenues $23,042

Transfers

Transfers In $2,385

Fund Transfers ($260)

Administrative Chargeback Change ($50)

Sale of Assets ($25)

Transfer Holiday ($10)

Subtotal Transfers $2,040

Short Term Borrowing $0

Total Cash Receipts $25,082

Appropriations $23,685

Medicaid $1,000

Pension Contributions $486

Annualize Nursing Home Rate $30

AFSCME Contract $28

(Less Permanent Lapse) ($681)

Plus Transfers Out $2,598

Plus Rainy Day Transfer $50

Plus Accounts Payable from Previous Year $593

(Less Accounts Payable at End of Current Year) ($593)

Total Expenditures $27,196

Increase (Decrease) in End-of-Year Balance ($2,114)

Walk-up:FY 2006 Budget Hole

ExpendituresCash Receipts

FY 06 Adjusted

Questions?