1. Presented by: Ralph M. Martire, Executive Director For: Taskforce on Social Innovation, Entrepreneurship and Enterprise The John Marshall Law School 315 S. Plymouth, Room 3 Chicago, Il Taking a Strategic Approach to Policy Development—Using Education and Fiscal Policy as an Example 70 East Lake Street Suite 1700 Chicago, IL 60601 www.ctbaonline.org July 24, 2013 © 2013, Center for Tax and Budget Accountability

2. The Goal Implementing a strategic, comprehensive approach for sustainable systems reform that: July 24, 2013 2 © 2013, Center for Tax and Budget Accountability Is driven by evidence and best practice Bridges, rather than reinforces, ideological divides Results in promoting economic & social justice

3. Silo Mentality & Gaps, Overlaps Failure to Coalesce Around a national, evidence-based strategy to drive systems reform Lack of Capacity (Human, Service, Fiscal) to Generate and Sustain Meaningful, Evidence-Based Reform Counterproductive Competition Disjointed State, Local, Federal Efforts to Define and Meet Needs Inefficient and Underproductive Resource Allocation/Service Delivery July 24, 2013 3 © 2013, Center for Tax and Budget Accountability Partisan Rhetoric, Pandering to Worst Instincts, Designed to Create Political Advantage

4. The Solution July 24, 2013 4 © 2013, Center for Tax and Budget Accountability Scan Available Resources, Match to Demographically Driven Needs Create a Comprehensive, Strategic Approach to System Changes Needed to Attain Desirable Outcomes Integrate:  Federal, state, local resources/programs to accomplish outcomes;  Utilize evidence-based approaches and advocacy, bridge rather than reinforce ideological divides;  Minimize inefficient competition maximize collaboration; and  Develop resources to build and sustain the capacity needed for success.

5. Evidence this approach works: Education as a Case Study July 24, 2013 5 © 2013, Center for Tax and Budget Accountability Current Focus of Global Education Reform Movement (“GERM”)  Set higher standards for student achievement—standardize education generally  Enhance accountability metrics and implement punitive consequence matrix  Enhance competition between and among schools and educators

6. Impact of GERM on Program for International Assessment or “PISA” Math Scores July 24, 2013 6 © 2013, Center for Tax and Budget Accountability

7. Then There’s Finland July 24, 2013 7 © 2013, Center for Tax and Budget Accountability Rejected GERM Focused on:  Building collaboration/reducing competition;  Building teaching profession;  Investing adequately in poorest schools on up, focusing on equity as core to excellence;  Invest in early childhood, wrap-around services and overall education funding;  GOAL  Build capacity so that every school provides high quality education tailored to meet student need

8. The Results July 24, 2013 8 © 2013, Center for Tax and Budget Accountability PISA Math Scores 20002009  525  542

9. July 24, 2013 9 Public Education in America is not so much “Broken” as it is under-resourced to education all children © 2013, Center for Tax and Budget Accountability

10. Test Scores July 24, 2013 10 © 2013, Center for Tax and Budget Accountability The International Benchmark:  Combined PISA (Reading, Math, Science, Critical Thinking) Overall, U.S. schools scored a middling 500 with the OECD average @ 493

11. #1 Reality #1 July 24, 2013 11 © 2013, Center for Tax and Budget Accountability But adjusting for poverty  U.S. schools w/ 0-10% poverty scored 551, best in the world (Finland was 2 nd @ 536)  U.S. schools w/ 10-24.9% poverty scored 527, top in the world for similar profiles (Canada was 2 nd @ 524 and 4 th overall )

12. Poverty July 24, 2013 12 © 2013, Center for Tax and Budget Accountability U.S. scores did not start to drop until poverty got over 25% In Illinois, roughly 44% of kids live in poverty. In CPS, the number is over 88%.

13. Enacted P-12 Appropriations for FY2014 Compared to FY2000 Enacted, Nominal & Adjusted for Inflation (ECI) and Population July 24, 2013 13 © 2013, Center for Tax and Budget Accountability Sources: Sources: FY2000 unadjusted appropriations from Governor’s final budget summary for FY2000; and FY2014 CTBA analysis of GOMB, FY 2014 Operating Budget Detail (March 6, 2013), http://www2.illinois.gov/gov/budget/Pages/BudgetBooks.aspx. Inflation for healthcare inflated by Midwest Medical Care CPI; all other appropriations adjusted using ECI-C and Midwest CPI from the BLS as of January 2013, and population growth from the Census Bureau as of January 2013.

14. YEAH, $ Does Appear to Matter July 24, 2013 14 © 2013, Center for Tax and Budget Accountability *Linear regression is a statistical analysis that shows the correlation of two or more variables, in this case, how per-pupil expenditures correspond to ISAT test scores. The regression line (heavy red) represents the predicted test score results a school district should obtain, given a specific level of instructional expenditure.

15. Dollar Shortfall in State Per-Pupil K-12 Education Funding to Meet EFAB Adequate Education Standard by Fiscal Year July 24, 2013 15 © 2013, Center for Tax and Budget Accountability Sources: CTBA analysis of January 2013 EFAB data. Education Funding Advisory Board, Illinois Education Funding Recommendations, (Springfield, IL: January, 2013), p. 9.Appropriations adjusted using ECI and Midwest Medical Care CPI (for Healthcare) from the BLS as of January 2013, and population growth from the Census Bureau as of January 2013.

16. Local and State Share of Education Funding Spending July 24, 2013 16 © 2013, Center for Tax and Budget Accountability Source: National Center on Education Statistics, 2011. “Revenues and Expenditures for Public Elementary and Secondary Education: School Year 2008-2009 (Fiscal Year 2009).”

17. The Burden is Tough July 24, 2013 17 © 2013, Center for Tax and Budget Accountability All data inflation adjusted to 2008 Income Data: US Department of Census Property Tax Data: IL Department of Revenue

18. Really???? July 24, 2013 18 © 2013, Center for Tax and Budget Accountability  YES: Illinois ranks 50 th out of 50 states in portion of education funding covered by the state But Education now matters more than ever to economic prosperity:  Generally: unemployment rates are highest for those with the least education.

19. Unemployment Highest Among Least Educated, 2010 July 24, 2013 19 © 2013, Center for Tax and Budget Accountability

20. Wages for Minorities Lag Whites July 24, 2013 20 © 2013, Center for Tax and Budget Accountability Real wages for Whites increased modestly between 1980 and 2010, but :  The White-Hispanic wage gap is larger in amount, but increased by a smaller percentage, growing from $4.01 in 1980 to $5.86 in 2010, an increase of 46% over 1980  Real wages for African-Americans declined. The hourly wage gap between Whites and African- Americans grew from $1.60 in 1980 to $3.08 in 2010, an increase of 92.3% over 1980

21. FY2014 Enacted General Fund Appropriations as Passed by the 98 th General Assembly ($ Millions) July 24, 2013 21 © 2013, Center for Tax and Budget Accountability $865 M $179 M

22. Source: Appropriations from and FY2014 CTBA analysis SB 2555, SB 2556, HB 206, HB 208, HB 213, HB 214, HB 215, passed by the 98 th General Assembly; and hard costs from FY2014 GOMB Budget Book. *This is the 23 rd consecutive fiscal year with a General Fund deficit* CategoryGOMB RevenueHJR-17 Revenue (i)Projected FY2014 Revenue$35.63$35.08 (ii)Projected FY2014 Hard Costs$11.16 (iii) Projected Deficit Carry Forward from FY2014 $8.3 (iv) Projected Net FY2014 General Fund Revenue Available for Services $16.17$15.62 (v) Projected Net General Fund Service Appropriations $24.52 (vi) Estimated Minimum FY2014 General Fund Deficit ($8.35)($8.9) (vii) Estimated Deficit as a Percentage of General Fund Service Appropriations -34.05%-36.29% FY2014 Accumulated Deficit ($ Billions) July 24, 2013 22 © 2013, Center for Tax and Budget Accountability

23. That Huge Shortfall is a Real Problem Because……Over $9 out of $10 of G.F. are Spent on: July 24, 2013 23 © 2013, Center for Tax and Budget Accountability Education (PreK-12 plus Higher Ed)35% Healthcare30% Human Services21% Public Safety 5% 91%

24. FY2014 Enacted General Fund Services Appropriations (excluding Group Health & Pensions) Relative to FY2000, in Nominal and Adjusted for Inflation and Population Growth July 24, 2013 24 © 2013, Center for Tax and Budget Accountability Sources: FY2000 unadjusted appropriations from Governor’s final budget summary for FY2000; and FY2014 CTBA analysis SB 2555, SB 2556, HB 206, HB 208, HB 213, HB 214, HB 215, passed by the 98 th General Assembly. Inflation for healthcare inflated by Midwest Medical Care CPI; all other appropriations adjusted using ECI-C and Midwest CPI from the BLS as of January 2013, and population growth from the Census Bureau as of January 2013

25. Illinois General Fund Spending by Major Public Service Category, FY2014 Enacted Budget Compared to FY2000, and FY2000 Adjusted for Inflation and Population Growth ($ Millions) July 24, 2013 25 © 2013, Center for Tax and Budget Accountability Sources: FY2000 unadjusted appropriations from Governor’s final budget summary for FY2000; and FY2014 CTBA analysis SB 2555, SB 2556, HB 206, HB 208, HB 213, HB 214, HB 215, passed by the 98 th General Assembly. Appropriations adjusted using ECI and Midwest Medical Care CPI (for Healthcare) from the BLS as of January 2013, and population growth from the Census Bureau as of January 2013.

26. Impact of the Temporary Tax Increase on the Accumulated Deficit July 24, 2013 26 © 2013, Center for Tax and Budget Accountability Sources: CTBA calculations using total spending figures for FY2011 and FY2012 as reported in GOMB, FY2013 Budget Book (Springfield, IL: February 2012 2013), Ch. 2-18; total spending for FY2013 includes all supplementals; and spending for FY2014 as reported in GOMB, FY2014 Budget Book (Springfield, IL: March 2013) for hard costs and SB 2555, SB 2556, HB 206, HB 208, HB 213, HB 214, HB 215, passed by the 98 th General Assembly; actual revenue for FY2011-FY2012 as reported by COGFA; FY2013 based off of revised personal income tax, corporate income tax and federal sources updated presented during the closing week of the spring 2013 legislative session, which took into account the April 2013 revenue spike and estimated revenue for FY2013-FY2014 as reported and estimated by COGFA in FY2014 Economic Forecast and Revenue Estimate and FY2013 Revenue Update (Springfield, IL: March 12, 2013).

27. Capitalist Tax Policy Should Be: July 24, 2013 27 © 2013, Center for Tax and Budget Accountability FAIR  PROGRESSIVE RESPONSIVE  TO MODERN ECONOMY STABLE  DURING POOR ECONOMIES EFFICIENT  DOESN ’ T DISTORT PRIVATE MARKETS ILLINOIS IS 0 for 4

28. Which Creates a Structural Deficit July 24, 2013 28 © 2013, Center for Tax and Budget Accountability

29. Which Led to the Irresponsible Fiscal Practice of: July 24, 2013 29 © 2013, Center for Tax and Budget Accountability Borrowing against the pensions to subsidize cost of delivering services By 1994 the Unfunded Liability was $17 billion This was almost double the $8.7 billion Unfunded Liability just five years earlier in 1989

30. Which Led To: July 24, 2013 30 © 2013, Center for Tax and Budget Accountability P.A. 88-0593: the “Pension Ramp” Which created a new, unaffordable, unattainable structure for repaying the pension debt AND Intentionally grew the Unfunded Liability to over $45 billion by 2008 — when the markets crashed Creating the $95 billion hole today — just 40% funded

31. Growth in Unfunded Liabilities for the Five State Systems (FY 1996-2012) July 24, 2013 31 © 2013, Center for Tax and Budget Accountability Source: The Commission on Government Forecasting and Accountability

32. Required State Pension Contributions FY2013-FY2045 ($ Millions) July 24, 2013 32 © 2013, Center for Tax and Budget Accountability Source: COGFA, “A Report on the Financial Condition of the IL State Retirement Systems: Financial Conditions as of June 30, 20112” p. 97.

33. COLA Choice and Cost Shift Impact on State’s Pension Contributions July 24, 2013 33 © 2013, Center for Tax and Budget Accountability

34. FY2014 – FY2045 Total Contributions to Retirement Systems ($ Millions) July 24, 2013 34 © 2013, Center for Tax and Budget Accountability Notes: (i) contributions for both lines include amortization and normal cost; (ii) re-amortization contribution schedule is an estimate of contributions so that systems are 80% funded by FY2059; and (iii) re-amortization contribution includes in-flow contributions from debt service of retired pension obligation bonds, which is why the re-amortization line spikes in FY2020.

35. Revenues of Goods and Services as a Percent of Gross Domestic Product: Illinois (SIC 1965-1985, NAICS: 1997-2012) July 24, 2013 35 © 2013, Center for Tax and Budget Accountability Private producing industries Source: Bureau of Economic Analysis

36. Adam Smith, the father of modern capitalism, contended that for a tax system to be fair it has to be progressive July 24, 2013 36 According to Smith: "The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state ….[As Henry Home (Lorde Kames) has written, a goal of taxation should be to] 'remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.'" © 2013, Center for Tax and Budget Accountability

37. The long-term trends in income distribution in America demonstrate that his reasoning was solidly on target. Source: Economic Policy Institute's website: http://stateofworkingamerica.org/who-gains/ Data used is from Piketty and Saez, "Income Inequality in the United States, 1913-1998", Quarterly Journal of Economics, 118(1), 2003, 1-39 (Tables and Figures Updated to 2011 in Excel format, January 2013), http://elsa.berkeley.edu/~saez/. Change in Average US Income Growth Over Time Income Group1979 — 2011 Top 10%139.8% Bottom 90%-39.8% Change in Average US Income Growth Over Time Income Group1947— 1979 Top 10%34.1% Bottom 90%65.9% Was Adam Smith Right? July 24, 2013 37 © 2013, Center for Tax and Budget Accountability

38. And it Won’t Hurt the Economy at All July 24, 2013 38 © 2013, Center for Tax and Budget Accountability From 2000 - 2010 9 states with highest graduated income tax rate structures had:  Better growth in state GDP per capita  Better change in median wage  Identical unemployment rate Than the 9 states with NO income tax Source: Institute on Tax and Economic Policy

39. For More Information July 24, 2013 39 Center for Tax and Budget Accountability www.ctbaonline.org © 2013, Center for Tax and Budget Accountability Ralph M. Martire Executive Director (312) 332-1049 rmartire@ctbaonline.org Bobby Otter Education and Fiscal Policy Analyst (312) 332-2151 botter@ctbaonline.org