CENTER FOR TAX AND BUDGET ACCOUNTABILITY
70 E. Lake Street Suite 1700 Chicago, Illinois 60601 direct: 312.332.1049 Email: rmartire@ctbaonline.org
Economics, Education Funding
& the State Fiscal System
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© Center for Tax and Budget Accountability 2006
• In 2004, Illinois ranked fifth nationally with a
Gross State Product of $485.2 billion.
• Context – That would be the 27th largest
economy of any nation in the world-greater
than Egypt, Saudi Arabia, Columbia,
Belgium, Sweden, Greece, Ireland, Portugal,
Norway and Nigeria, to name a few.
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© Center for Tax and Budget Accountability 2006
But economic growth lagged between
1990 and 2004, ranking 35th among the 50
states.
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© Center for Tax and Budget Accountability 2006
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© Center for Tax and Budget Accountability 2006
• Between 1990 and
2005, Illinois lost
24.3% of its
manufacturing
industry jobs, a
loss of 222,500
jobs.
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© Center for Tax and Budget Accountability 2006
• All job growth in Illinois came in the
service sector.
• Most of these service jobs pay less than
the manufacturing jobs they replace – 29%
less!
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© Center for Tax and Budget Accountability 2006
• Private sector employer-provided health
insurance coverage has declined from 75.4%
of the workforce during the 1979 to 1981
period to 60.8% from 2001 to 2003.
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© Center for Tax and Budget Accountability 2006
• The percentage of Illinoisans lacking any
health insurance coverage has increased
from 10.9% in 1990 to 14.0% in 2004.
• By 2004, 27% of the Illinois population
was either on Medicaid or uninsured.
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© Center for Tax and Budget Accountability 2006
• In 1981, 55.6% of the state’s workers were
covered by private sector employer-provided
pension plans.
• By 2003, this percentage declined to only
49.8% of the workforce.
9
© Center for Tax and Budget Accountability 2006
Poverty has worsened in Illinois over the
last 15 years.
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© Center for Tax and Budget Accountability 2006
• By 2004, 12.2% of Illinoisans were below the
national poverty line, as were 17.7% of the
state’s children under 18 years of age.
• In 2004 nearly a quarter of Illinois workers
(23.0%) earned less than $9.28 an hour—This
means their full-time, full-year income IS
BELOW THE POVERTY LEVEL for a family of
four ($19,311).
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© Center for Tax and Budget Accountability 2006
• The state’s median household income has
declined sharply, from a high of $52,515 in
2000, down to $46,132 in 2004.
• The post-1999 median income loss was
$6,383 (12.2%)―the second worst decline
among all 50 states – whether measured
in proportionate or dollar amounts.
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© Center for Tax and Budget Accountability 2006
Illinois Income Loss in Context
0.0%
Illinois
National Average
-2.0%
Income Loss
-4.0%
-3.8%
-6.0%
-8.0%
-10.0%
-12.0%
-12.2%
-14.0%
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© Center for Tax and Budget Accountability 2006
• Why the Economic Problems?
– NOT TAX BURDEN
• Illinois’ total state AND local tax burden, as a
percentage of personal income ranks only 48th
in the nation.
• By far, the lowest tax burden in the Midwest.
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© Center for Tax and Budget Accountability 2006
The workforce has
become better
educated with
58.6% of the
workers having
attended college.
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© Center for Tax and Budget Accountability 2006
• Education now matters more than ever to
economic prosperity:
unemployment
rates are highest for
those with the least education — persons
with less than a high school diploma and
those who are only high school graduates.
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© Center for Tax and Budget Accountability 2006
• Among unemployed youth (ages 16 – 24),
over half (54.3%) of Whites, nearly twothirds (61.4%) of African Americans, and
virtually all Hispanics are both out of work
and out of school.
• This leaves them especially vulnerable to
long-term detachment from the labor
market.
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© Center for Tax and Budget Accountability 2006
• Education also matters in wages!
• In real dollars, over the last 15 years
median hourly wage for those with:
– Less than a high school diploma dropped
25%
– Only a high school education dropped 6.2%
– Some college, increased by 2.2%
– A B.A. or higher increased by 16.7% - the only
sizable gains
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© Center for Tax and Budget Accountability 2006
• Discrimination appears to impact wages
as well.
• The gap in hourly wages between Whites
and Hispanics grew by 23.9% since 1980.
• The gap between the hourly wages paid to
Whites and African Americans grew by an
astounding 162.3% since 1980.
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© Center for Tax and Budget Accountability 2006
20
© Center for Tax and Budget Accountability 2006
Current Basis for Foundation Level
• The Illinois state “Foundation Level” is the
minimum per child guaranteed expenditure for
K-12
• Does NOT include: poverty, special ed,
transportation, etc.
• Currently $5,334 – but not tied to any
measurable standard
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© Center for Tax and Budget Accountability 2006
Education Funding Advisory Board
(“EFAB”)
• Change basis to a measurable outcome
standard, predicated on costs and test
results
• Foundation Level should be at least
$6,675 (after adjusting for inflation)
• Total cost: $1.7 - $2.0 billion
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© Center for Tax and Budget Accountability 2006
Higher Education Appropriations
Have Failed to Keep Pace
With Inflation Since 2003
$3,000,000
$2,500,000
$2,000,000
Actual
$1,500,000
Inflation Adjusted
$1,000,000
$500,000
$0
FY
FY FY FY
FY FY
FY FY
FY FY FY
FY
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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© Center for Tax and Budget Accountability 2006
FY 2007 Appropriations by Agency as a Percent of GRF
TOTAL GRF: $25.76 Billion
Environmental
Protection Agency
0.005%
Administration
4.4%
Pensions
3.9%
Agrilculture
0.2%
Other
3.9%
Natural Resources
0.3%
Illinois State Board
of Education
25.4%
Higher Education
8.4%
Corrections
4.4%
Human Services
15.5%
Health Care
30.7%
Children and Family
Services
3.0%
-ISBE and Higher Ed does not include pension contributions
-Pension contributions include FY 2007 GRF appropriated
-Health Care includes Public Health and Health Care and Family
Services
-Administration includes all boards, commissions, agencies,
authorities, districts, councils, OMB, Revenue, CMS, Inspector
General and all legislative, constitutional and judical offices
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© Center for Tax and Budget Accountability 2006
INFLATION MATTERS!
FY 06 State Budget
FY05
Enacted
FY 05 Inflation
Adjusted to
FY06**
FY06
Enacted
$Change
FY05ia-FY06
% Change
FY05FY06
Operating
GRF
$23,817.00
$24,626.78
$24,358.00
($268.78)
($0.011)
Budget
OSF*
$15,796.00
$16,333.06
$15,012.00
($1,321.06)
($0.084)
FED
$5,852.00
$6,050.97
$5,023.00
($1,027.97)
($0.176)
$45,465.00
$47,010.81
$44,393.00
($2,617.81)
($0.058)
TOTAL
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© Center for Tax and Budget Accountability 2006
GRF Expenditures by Category,
1995 - 2006
Actual
FY 1995 CPI
Adjusted to
FY2006
FY 2006 Enacted
$ Difference
Between
1995 Adj'd
for CPI &
2006
Enacted
$17,302.0
$22,613.7
$24,406.4
$1,792.7
$24,776.5
-$370.1
Education
$3,656.0
$4,778.4
$6,123.0
$1,344.6
$5,235.4
$887.6
Health Care
$4,319.0
$5,644.9
$7,034.0
$1,389.1
$6,184.8
$849.2
$519.0
$678.3
$938.4
$260.1
$743.2
$195.2
$8,808.0
$11,512.1
$10,311.0
-$1,201.1
$12,613.1
-$2,302.1
Category
General Revenue
Fund
Pension
All public services
except Health
Care,
Education and
Pensions
FY 1995
FY 1995 ECI
Adjusted to
FY2006
$ Difference
Between
1995 Adj'd
for ECI &
2006
Enacted
**Notes: Health care includes Medicaid and state employee health insurance
Sources: State of Illinois' Traditional Budgetary Financial Reports and Fiscal Focus Illinois' FY2006 Budget
National Association of State Budget Officers
Comptroller Fiscal Focus, January 1997
CPI and ECI based on Bureau of Labor Statistics
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© Center for Tax and Budget Accountability 2006
$45
Comparison of State Retirement System Debt
$42.2
$40
Debt ($ in billions)
$35
$29.6
$30
$25
$20
$15
$10
$7.2
$5
$0
Illinois
Ohio
National Average
*Ohio Debt and National Average Debt Based on the 2004 Wilshire Report. The current unfunded liability of $42.23 billion is based on the Commission
on Government Forecasting and Accountability, Report on the Financial Condition of the Illinois Public Employee Retirement Systems, August, 2006 .
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© Center for Tax and Budget Accountability 2006
FY 2006 and 2007 Pension Holiday
$3,000.0
$2,507.8
$2,500.0
Amount Owed
$2,117.2
$2,000.0
Amount Paid
$1,374.7
$1,500.0
$1,000.0
$938.4
$500.0
$0.0
2006
2007
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© Center for Tax and Budget Accountability 2006
Required Yearly Pension Payments:
FY 2006 - FY 2045
$18,000,000,000
$16,000,000,000
$14,000,000,000
$12,000,000,000
$10,000,000,000
$8,000,000,000
$6,000,000,000
$4,000,000,000
$2,000,000,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
$0
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© Center for Tax and Budget Accountability 2006
The media focuses on wasteful, excessive
state spending
The data show the opposite:
• Illinois is low spending, ranking only 42nd
nationally
• Illinois is a low headcount state, ranking 50th
in public employees per capita
• Illinois is efficiently operated, only 4.4% going
to administrative costs and has good priorities
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© Center for Tax and Budget Accountability 2006
Medicaid Expenditures Continue to Increase as a
Percentage of the General Revenue Fund
26.6%
27.0%
28.8%
FY99
FY00
FY01
32.4%
32.8%
32.6%
33.8%
FY02
FY03
FY04
FY05
Source: NASBO State Expenditure Reports; Illinois State Comptroller revenue data
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© Center for Tax and Budget Accountability 2006
Impacts on Illinois of
Federal Budget Cuts
Over the Next Five Years
Program
Cuts in Millions
Elementary and Secondary Education
$477.1
Education for the Disadvantaged
$32.9
Special Education
$335.5
School Improvement Programs
$162.9
Vocational and Adult Education
$227.5
Nutrition Programs for Women Infants and Children
$23.7
Children and Family Services
$135.0
Low Income Home Energy Assistance
$12.7
Ryan White HIV Funding
$20.4
Cuts to Strengthening Americas Communities Block Grant
$447.2
Grants in Aid to States and Localities
$2,932.8
Total
$4,807.7
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© Center for Tax and Budget Accountability 2006
Revenue Underperformance of the
Four Major Illinois Taxes Since 2000
$ in Billions
$ in Billions
$0
2001
2002
2003
2004
2005
2006
-$179.30
-$500
-$376.17
-$1,000
-$1,274.10
-$1,369.20
-$1,500
-$2,000
-$1,873.03
-$1,953.03
-$2,500
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© Center for Tax and Budget Accountability 2006
FY 2007 Budget Spending
Covered by Debt & One-Time
Revenues
Underfunding the Pension
$1.133
Special Fund Sweeps
$ .159
Deferred Medicaid Liabilities
$1.800
TOTAL Deficit Spending in Current Budget
$3.092
Amounts expressed in billions of dollars
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© Center for Tax and Budget Accountability 2006
Business/Government Comparison
Business
•
•
•
•
•
•
•
•
•
Government
$
D
Fire employees
Cutback production
plants
D
$
Rehire
Increase/add back
Maintain Profits!
•
•
•
•
$
D
Provides public services
In some basic respects,
cannot operate
government like a
business, because it is
not!
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© Center for Tax and Budget Accountability 2006
Elements of a Sound and
Fair Fiscal System
FAIR
RESPONSIVE
STABLE
EFFICIENT
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© Center for Tax and Budget Accountability 2006
FY06 $’s
Illinois Structural Deficit
This model assumes continuation of current services, assumes no new
programs or service expansions, adjusts solely for inflation &
population growth,& assumes an economy growing at 4% per year
29,300
28,300
27,300
Costs
Revenues
26,300
*Modeling
performed by Dr.
Fred Gertz of
IGPA for CTBA
25,300
24,300
FY06
FY07
FY08
FY09
FY10
FY11
37
FY12
FY13
FY14
FY15
© Center for Tax and Budget Accountability 2006
Five Year Growth in the Illinois Structural Deficit
$ in Billions
$0.0
-$1.0
2007
2008
2009
2010
2011
-$2.0
-$3.0
-$3.0
-$4.0
-$5.0
-$3.8
-$4.7
-$5.6
-$6.0
-$6.0
-$7.0
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© Center for Tax and Budget Accountability 2006
Percent Change
Income Growth in the United States 1979-1999
(Real 1999 Dollars)
*Source U.S. Census Data
100%
93.4%
80%
60%
50.20%
33.20%
40%
20%
5%
0%
-20%
-6%
Next
20%
Bottom 60%
Top
20%
Top
15%
Top
1%
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© Center for Tax and Budget Accountability 2006
State & Local Tax Burden as a
Percentage of Income
Income
Range
Average
Income
Tax Burden
Less than
$16,000
$16,000 –
$30,000
$30,000 –
$48,000
$48,000 –
$77,000
$77,000 –
$148,000
$148,000 –
$295,000
$295,000
or more
$8,900
$22,600
$38,500
$61,100
$101,400
$203,600
$1,322,100
12.7%
11%
10%
9.2%
7.7%
6.2%
4.6%
40
© Center for Tax and Budget Accountability 2006
INCOME TAX INCREASE
3%
3%
5%
2%
2/3
=
=
5%
67%
41
© Center for Tax and Budget Accountability 2006
Goods and Service Sectors as a
Percentage of the Total Illinois Economy
90%
80%
78%
70%
60%
82%
76%
76%
77%
76%
77%
13%
13%
13%
69%
63%
Goods
50%
Services
40%
30%
32%
26%
20%
20%
19%
15%
10%
14%
0%
1965
1975
1985
1995
2000
2001
2002
2003
2004
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© Center for Tax and Budget Accountability 2006
REFUNDABLE CREDIT
• Tax Credit of
• Income Tax Liability
• Balance
$500
$200
$300
• Taxpayer receives a $300 check for the balance,
offsetting sales, excise and property taxes paid.
43
© Center for Tax and Budget Accountability 2006
PROPERTY TAX RELIEF
AMOUNT:
METHOD:
$2.5 billion, statewide
Abatement of 25% of the property
taxes that fund education
TRANSPARENCY: Amount of abatement shown on
individual property tax bills
River Forest
$13,000
$ 9,000
($2,250)
$10,750
Description
Total Bill
School Levy
Portion of School Levy
already paid by the state
Net Paid by Property
Tax Payor
Chicago Heights
$3,000
$1,800
($ 450)
$2,550
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© Center for Tax and Budget Accountability 2006
LOTTERY
Goods News
Bad News
Lottery Proceeds
For Every
Lottery $
$
→
CSF
→ CSF
↓
$ Other
Funding Sources
45
© Center for Tax and Budget Accountability 2006
CONTINUING APPROPRIATION
A
FY BR
+
B
+
$2.0 billion GSA
C
ECI
CPI
$2.5 billion Property Tax
Special Education Mandate
46
© Center for Tax and Budget Accountability 2006
BENEFITS OF HB750
FOR EDUCATION
• The current Foundation Level of $5,334 is increased by more than $1,300 per child,
fully implementing the FY 2007 EFAB recommendation of $6,675
• 96% of school districts receive a real increase in funding
• NO DISTRICT LOSES ANY FUNDING
• The State of Illinois will assume 51% of the cost of funding education, the
national average. Currently the state only provides 30% of school funding, the lowest
in the nation
• School funding is guaranteed with a Continuing Appropriation
• Illinois gains more school funding fairness, by bringing the bottom and middle up, not
taking the top down
• The state’s structural deficit is eliminated, so the funding reform is sustainable
FOR HOME OWNERS AND RENTERS
• Property tax burden is reduced by $2.5 billion statewide
FOR ALL TAXPAYERS
• A $900 million tax credit to low and moderate income families
• Direct taxation of businesses decreases
• The bottom 60% of all income earners realize no tax increase after the reform
• The bottom 20% of income earners actually realize a net tax decrease
• Illinois remains a low-tax state, after HB 750 passes the state will rank only 42nd in
the nation in total state and local tax burden, up from its current ranking of 48th
• Illinois’ tax system becomes fairer, more47sound and sustainable
© Center for Tax and Budget Accountability 2006
HB750, Senate Amendments 1 and 2
2004-2005 General State Aid Increase and Property Tax
Relief by Region
Chicago
$427,067,725 GSA
Collar
$351,398,947 Relief
$404,514,547 GSA
$721,335,066 Relief
Other Cook
$239,461,893 GSA
$608,320,599 Relief
Downstate
FY04 Final GSA assumes the $7.6 M
Supplemental/Transfer – Recommend $30
M for Final Adjustments for FY05 Phase 2
of the Poverty Formula Assumes a 66%
Hold Harmless and 50% increase.
$699,591,846 GSA
$541,627,409 Relief
48
© Center for Tax and Budget Accountability 2006
Projections: more than half of the new jobs
created in Illinois over the next decade will
pay less than the current, average occupational
wage
Projections do not have to materialize
49
© Center for Tax and Budget Accountability 2006
Recognizing Illinois’ inherent strengths and
likely challenges
Making appropriate investments in
infrastructure, implementing integrated
economic/workforce development strategy
A Better Future for Everyone
50
© Center for Tax and Budget Accountability 2006