2. Points of Discussion 1.How the state budget works 2.Where we spend money 3.The rising costs of non-discretionary spending such as Medicaid and Pensions 4.What we’ve done to lower cost 5.Proposals for pension reform

3. FY13 Projected General Revenue Funds by Source $33.719 Billion

4. Operation of State Government consists of $3.9 billion (11.8%).

5. FY13: All Funds Budget

6. FY13 Budget Making Process Estimate available revenues Determine what costs must come “off of the top” like paying off bonds, or contributing to the state’s pension systems Allocate all other resources to “discretionary” items like money for K-12 and social service programs

8. FY13 GRF Budget: $33.719 Billion

9. FY 12 ActualFY 13 As PassedFY13 vs. FY12 Revenues:$33,324,000,000$33,719,000,000$395,000,000 Non-Discretionary Expenditures Pensions$4,141,040,680$5,100,000,000 $958,959,320 Group Insurance$1,435,531,900$1,171,000,000 ($264,531,900) Debt Service$2,137,000,000$2,168,000,000 $31,000,000 Transfers Out of GRF Like Subsidies for Local Governments $2,398,662,000$2,052,200,000 ($346,462,000) Medicaid$6,638,953,200 $0 Pay Old Bills$302,000,000$1,300,000,000 $998,000,000 Medicaid Match on Old Bills($151,000,000)($500,000,000) ($349,000,000) Permanent Lapse($802,000,000)($650,000,000) $152,000,000 difference:$1,179,965,420 Non-Discretionary Expenditures: FY12 vs. FY13

10. Discretionary Expenditures: FY12 vs. FY13 FY 12 ActualFY 13 As PassedFY13 vs. FY12 Revenues:$33,324,000,000$33,719,000,000$395,000,000 Discretionary Expenditures Human Services$5,286,218,914$5,085,945,980 ($200,272,934) K-12 Education$6,751,429,955$6,541,837,830 ($209,592,125) Higher Ed$2,092,410,002$1,979,809,800 ($112,600,202) Public Safety$1,714,706,151$1,662,900,200 ($51,805,951) General Services$1,242,075,211$1,165,014,734 ($77,060,477) difference:($651,331,689)

11. FY13: Major Budget Issues Keeping up with K-12 Funding Demands Paying Down Old Bills Medicaid Reform and Controlling Rising Healthcare Costs Pension Costs Continuing to Climb

14. Preschool - Grade 12 Funding

16. Accounts Payable As of August 31, 2012, backlog of bills totaled $5.4 billion and the majority of those bills were on-hand for less than 60 days In January 2010, then-Comptroller Hynes reported that the state owed various sources more than $9 billion

19. Medicaid Full Benefits Enrollment

20. Medicaid Full Benefits Enrollment – Type of Enrollees

22. Save Medicaid Access and Resources Together Act of 2012 Cuts $1.13 billion in spending from the Medicaid program by making changes to eligibility and usage Saves $230 million by instituting a plan to better check Medicaid eligibility Brings in $800 million in additional revenues through a $1/pack increase in the cigarette tax, and enhancing a program which taxes hospitals Cuts certain Medicaid provider rates by 3%

26. FY13 GRF Pension Contributions to 5 State Systems TOTAL: $5.1 billion ($ in millions)

27. Current Unfunded Liabilities for the State’s Pension Systems AssetsLiabilities Unfunded Liabilities Current Funding Ratio 1970 Funding Ratio Teachers$37.4 B$81.2 B$43.8 B46%40% State Universities$14.2 B$31.5 B$17.20 B45.3%47% State Employees$10.9 B$31.3 B$20.4 B34.9%43% Legislators$60.4 M$298.4 M$238 M20.2%68.5% Judges$606 M$1.9 B$1.3 B31%32.2% Totals:$63.3 B$146.4 B$83.0 B43.30%41.80%

28. “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” (Article XIII, Section 5 of the Illinois Constitution)

29. 30-Year COLA Comparison Under current law, a SERS employee who retires at age 60 can receive a compounded COLA. The compounding factor entitles the retiree to $252,633 in additional benefits that would not accumulate were the COLA non- compounded.

30. The Election Procedure Choice 1 Receive a lower Tier II COLA (3% simple or 1/2 of CPI, whichever is less) and have that lower COLA rate kick-in the earlier of 5 years after retirement or at age 67 Guarantee that future salary increases are pensionable Remain eligible for state sponsored healthcare Gain eligibility into the optional cash balance plan Choice 2 Maintain current 3% compounded COLA Freeze current salary for pension purposes Become ineligible to participate in a state sponsored healthcare plan Be unable to participate in a newly established optional retirement plan (the cash balance plan)

31. Cost Savings Through 2045 Benefit changes have the potential to reduce the projected $309 billion owed to the pension systems over the next 30 years by $66 to $88 billion

32. The TRS Anomaly “The teacher pension system is set up like a restaurant where everyone picks up the tab for the person to his or her left.” -Illinois Policy Institute “The teacher pension system is set up like a restaurant where everyone picks up the tab for the person to his or her left.” -Illinois Policy Institute

33. Local Responsibility The state will save $27 to $29 billion over 30 years through the cost shift to school districts, community colleges, and public universities The Teachers Retirement System’s costs to the state alone will be reduced by over $20.5 billion

34. So there you have it 1.How the state budget works 2.Where we spend money 3.The rising costs of non-discretionary spending such as Medicaid and Pensions 4.What we’ve done to lower cost 5.Proposals for pension reform

35. www.IllinoisSenateDemocrats.com