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Sarah Wetmore, Vice President, Civic FederationFebruary 27, 2019
5-4-16
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About the Civic Federation
• Members include major corporations and service firms
• Independent and nonpartisan
• Founded in 1894
• We promote:
• Sustainable tax and fiscal policies
• Responsible long-term financial planning
• High quality, efficient government services
Membership opportunities and more information at civicfed.org
www.civicfed.org
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Overview
• What led Illinois to create Tier 2?
• What’s happened since Tier 2 went into effect?
• The impact of the budget impasse on state services, including higher education
www.civicfed.org
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What led Illinois to create Tier 2?
• State’s 50-year pension funding plan
• Pension holidays
• Great Recession à falling state revenue, severe contraction in pension assets
• Debt rating downgrades attributed in part to growing pension liabilities
www.civicfed.org
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What’s Happened Since Tier 2?• Borrowing to make pension contributions• More debt downgrades due mostly to public pension
underfunding• Various attempts to reduce benefit levels for current
Tier 1 employees and/or retirees of the state and local governments
• More debt downgrades when pension reform legislation was struck down by the Illinois Supreme Court
• Ever higher contributions by the State to the pension funds, crowding out other spending priorities, but still not sufficient to prevent the unfunded liability from growing
www.civicfed.org
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www.civicfed.org
$2,074 $2,705
$564
$1,667
$5,743 $6,659
$7,643 $7,549 $8,055 $8,560 $8,593 $8,349
8.3%12.0% 2.6%
6.7%
19.2% 20.7% 23.3% 22.9%28.0% 30.5%
25.9% 24.5%
91.7%88.0% 97.4%
93.3%
80.8% 79.3% 76.7% 77.1%72.0% 69.5%
74.1% 75.5%
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017* FY2018**FY2019**Pension Contributions and Debt Service Transfers for Pension Bonds***Pension Costs % of State-Source Revenues% State-Source Revenues Available for Other Purposes
* Preliminary.**Estimated.*** Pension contributions in FY2010 and FY2011 were made through issuance of bonds and are not included in this chart.Source:State of Illinois, Governor's Office of Management and Budget, General Funds Financial Walk Down, November 15, 2018; Illinois State FY2019 Budget, p. 62; State of Illinois, General Obligation Refunding Bonds, Series of September 2018, Official Statement, August 22, 2018, pp. 29-30; Illinois State FY2018 Budget, p. 78; Illinois State FY2017 Budget, p. 75; Illinois State FY2015 Budget, pp. 2-22; State of Illinois, General Obligation Bonds, Series of May 2014, Official Statement, April 25, 2014, p. 15; Illinois State FY2011 Budget, p. 2-10; Illinois State FY2010 Budget, p. 2-12; Illinois General Assembly, Commission on Government Forecasting and Accountability, Illinois State Retirement Systems, Financial Condition as of June 30, 2017, March 2018, pp. 123-127.
State-Source General Funds Revenue Available for Pension Costs Compared with Other Purposes:
FY2008-FY2019 (in $ millions)
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Impact of the Budget Impasse on Services and Higher Education
www.civicfed.org
• The damage:• Unmanaged spending
• Damage to social services, universities and most vulnerable
citizens
• $16 billion in unpaid bills
• Challenges persist even with FY2018 and FY2019
budgets
• Lowest credit rating of all 50 states
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Where are we now?
www.civicfed.org
• Projected budget deficit for state fiscal year 2020 starting in July: $3.2 billion
• Governor Pritzker has proposed:
• Extending the payment schedule 7 years,
• Issuing pension obligation bonds,
• Expanding buy-outs and
• Eventually putting more money into the pensions from a future graduated income tax.
• Would reduce contributions by over a billion dollars in FY2020
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THANK YOU
•Happy to answer questions
•Visit civicfed.org for more information
www.civicfed.org