© Center for Tax and Budget Accountability 2008
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CENTER FOR TAX AND BUDGET ACCOUNTABILITY70 E. Lake Street Suite 1700 Chicago, Illinois 60601 direct: 312.332.1049 Email: [email protected]
“Hot Legislative Topics”Illinois Association of School Board Officials
Wednesday, May 14, 2008; 2:30 pmPheasant Run Resort4051 E. Main Street
St. Charles, IL
Presented by:
Ralph MartireExecutive Director
© Center for Tax and Budget Accountability 2008
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What is the problem that causes all other
problems?
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The state’s fiscal policy is the culprit:
•The bad attitude of the powers that be is merely icing on the cake
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Illinois State & Local Revenue• In 2005 (the most recent national
comparison available), state and local revenue came from the following sources:
PROPERTY TAX 38%SALES TAX 17%EXCISE TAX 17%INDIVIDUAL INCOME TAX 16.2%OTHER 7.4%CORPORATE INCOME TAX 4.4%
SOURCE: Federal Tax Administrators Data
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FIRST, A SNAPSHOT OF WHAT IS
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• This makes Illinois the 6th most reliant state on property tax revenue in the nation.
• Two of the states more reliant on property taxes than Illinois – Texas and New Hampshire – do not have income tax.
• Illinois is more reliant on property taxes than Florida, Nevada, Tennessee, Alaska, South Dakota, Washington and Wyoming – which also don’t have income taxes.
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WHY – EDUCATION
• Illinois ranks 49th out of 50 states in the portion of education funding covered by state – versus local – revenue
• Illinois is the most reliant state on property taxes to fund schools in the nation.
(National Education Association Data)
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FAIR PROGRESSIVE
RESPONSIVE TO MODERN ECONOMY
STABLE DURING POORECONOMIES
EFFICIENT DOESN’T DISTORTPRIVATE MARKETS
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WHAT SHOULD BE:
BUT ISN’T
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WHICH HAS CONSEQUENCES FOR ANNUAL REVENUE GROWTH
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HIllinois State Major Tax Revenues Have Not Kept Up With
Inflation by Over $7 Billion Since 2000
-$179.30
-$1,274.10
-$1,873.03-$1,953.03
-$1,369.20
-$576.40
$17
-$2,500
-$2,000
-$1,500
-$1,000
-$500
$0
$500
2001 2002 2003 2004 2005 2006 2007$
in M
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Includes: Personal and Corporate Income, State Sales, and Public Utility Taxes. Source, Illinois Commission on Government Forecasting and Accountability. Inflation based on Bureau of Labor Statistics, CPI.
THERE ISN’T ANY
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1. PROJECTED FY2008 GENERAL FUND REVENUE Growth from State and Federal Sources:
$670 M
2. INFLATIONARY COST OF MAINTAINING FY2007 SERVICE LEVELS IN FY 2008
$907 M
3. SHORTFALL―without funding pension ramp, enhanced investment in schools, or adding or expanding any public services:
-$237 M!
FY
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Category Dollar Amount
Forecasted FY 2008 Revenue Increase $670
Dollar Amount Necessary to Keep Up with the Inflation Costs of Continuing FY 2007 General Fund Service Levels -$907
Dollar Increase in the Required FY 2008 Pension Funding Payment over FY 2007
-$650
Dollar Amount of Unpaid Medicaid Bills in FY 2007 Carried Over to FY 2008
-$2,000
Dollar Amount of FY 2008 One-Time Revenues to be Used to Cover Spending on Public Services (Fund Sweeps and Charge Backs)
-$193
Total Estimated FY 2008 Deficit -$3,080
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*Adjusts solely for historic rates of inflation and population growth, and assumes normal economic growth.
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The Illinois Structural Deficit (How Revenue Growth Will Not Keep Pace With The Cost of Current Services)
20062007
20082009
20102011
20122013
20142015
20162017
20182019
20202021
20222023
20242025
2026
Revenue
Expenditures
$24 Billion
$49 Billion
$44 Billion
$39 Billion
$34 Billion
$29 Billion
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• Illinois has the 5th largest population (over 12 million) and economy (about $600 billion annually) in the nation, but
• Overall, Illinois’ total state AND local tax burden, as a percentage of personal income ranks only 45th in the nation.
• The second lowest tax burden in the Midwest to Missouri.– Illinois taxes 14.8% of income - Missouri
14.7%
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• But Illinois is high tax for low & middle income families
• Illinois also ranks only 42nd in spending among the states
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State & Local Tax Burden as a Percentage of Income
Income Range
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
Average Income
$8,900 $22,600 $38,500 $61,100 $101,400 $203,600 $1,322,100
Tax Burden 12.7% 11% 10% 9.2% 7.7% 6.2% 4.6%
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-6%
5%
33.20%
50.20%
93.4%
-20%
0%
20%
40%
60%
80%
100%
Bottom 60% Next20%
Top20%
Top15%
Top1%
Income Growth in the United States 1979-1999(Real 1999 Dollars)
*Source U.S. Census Data
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Shares of U.S. Household Income by Quintiles (1980 & 2005)
Shares of Household Income by Quintiles - 2006
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Ignoring all that—here’s the 2008 lottery proposal summary
• Sell or lease 80 % of the Illinois Lottery for $10 billion
• Use $7 billion to fund a capital program, and float another $3.8 billion in capital bonds
• Use $3 billion to purchase an education funding annuity
2008
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The Annuity Fund
• Create an annuity fund with the $3 billion balance
• Combined with the retained state interest, will generate $600 million in annual revenue stream to fund education over the next 25 years
• Intended to replace current Lottery $$$IL
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What’s Missing?
• Funding Equity/Property Tax Relief
• Higher Education
• Sustainability
• Growth
• Cliff
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And that’s a best case scenario
Just 2 years ago, full sale of lottery was to generate $10 billion
Starting point is $22 million less than 2007 lottery proceeds to CSF—over $622 million
Over the last 5 years, lottery revenue has grown by an average of $27 million per year
That’s $108 million in lost revenue over 4 years—& what happens when annuity goes?IL
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SB750 is designed to: Be sound tax policy for the modern, capitalist economy
Make tax burden fairer, by making it more progressive―the bottom 60% of income earners won’t pay more in taxes after SB750 passes
Improve school funding by Raising the foundation level Enhancing special education funding Targeting $300M in additional funds to struggling schools Investing $300M more per year in higher education
Eliminate the Unfunded Pension Liability Provide progressive property tax relief statewide, that
effectively helps struggling communities while reducing fixed costs for business
Keep Illinois’ status as a low tax state
SB
750
SB
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Required Yearly Pension Payments: FY 2006 - FY 2045
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$ in
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After SB750:
Flat payments of $3.4 billion per year amortize the full unfunded liability
The ramp goes away, out year payments become easier
Normal cost handled by current revenue
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INCOME TAX INCREASE
3% 5%
3% 2% =5%
2/3 = 67%
*Note, corporate rate goes up from 4.8% to 8%, but―overall corporate tax burden goes down!
SB
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SB
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Goods and Service Sectors as a Percentage of the Total Illinois Economy
32%
26%
20% 19%15% 14% 13% 13% 13%
63%69%
78%82%
76% 76% 77% 76% 77%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1965 1975 1985 1995 2000 2001 2002 2003 2004
Goods Services
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Brings stability by taxing solely consumer services, like bowling, lawn care and health clubs
SB750- DOES NOT TAX healthcare, housing or business services
SB
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SB
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SB
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8S
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Income Tax 3% 5% Same as4.8% 8% HB750
Property Tax Relief
$2.9 B – same as HB750
Targeted Tax Relief
$600 M - $900 M
Pension Ramp Funding
For 3-4 years
Capital Bill $25 B
No Sales Tax Reform, so no Elimination of Structural Deficit
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SB
228
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LGDF $700 M down to $200 M
Health Care Payments
$600 M to Medicaid
Residential Renters Credit
5% of rent
Secretary of State/Illinois State Police
$136.6 M (SOS – 22.3%; ISP 77.7%) to cover Road Fund Diversions
Tuition Tax Credit Jump
$500 - $1,000
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Lumber Company
Tax
Finishing Company
Tax
Furniture Manufacturer
Tax
Wholesaler Tax
Retailer
TAX
Consumer
Compare that to a Gross Receipts Tax
GRT's are regressive & inefficient
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Higher Education Appropriations Have Failed to Keep Pace With Inflation Since 2003
$64,583 $57,600
-$209,920
-$174,426
-$92,878-$92,722
-$2,285
-$229,063
$127,615
-$280,000
-$245,000
-$210,000
-$175,000
-$140,000
-$105,000
-$70,000
-$35,000
$0
$35,000
$70,000
$105,000
$140,000
$175,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
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Source: Illinois Commission on Government Forecasting and Accountability and Office of Budget and Management. Inflation based on Bureau of Labor Stats, CPI
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Has State Funding of Community Colleges Kept Up With Inflation?
-$68,550 -$67,329
-$74,945
-$87,142
-$92,500
-$86,379
2003 2004 2005 2006 2007 2008$ in
Thousands
NO NONONO
NO NO
Source: Illinois Commission on Government Forecasting and Accountability and Office of Budget and Management. Inflation based on Bureau of Labor Stats, CPI
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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 $5,734 – but not tied to any measurable standard
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Education Funding Advisory Board
(“EFAB”)
• Change basis to a measurable outcome standard, predicated on costs and test results
• Foundation Level should be at least $7,191 (after adjusting for inflation)
• Total cost: $1.8 billion
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SPECIAL EDUCATION FUNDING
(Not so Special)
$8,000 was granted in 1985 per special ed instructor
Increased in FY 2008 to $9,000 per special ed instructor
Adjusting for inflation, in 2008 a school district would need either $15,844 (CPI) or $19,767 (ECI) just to stay evenS
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For Tax Fairness FAMILY TAX CREDIT
EXAMPLE:
Tax Credit of $500Income Tax Liability $200Balance $300
Taxpayer receives a $300 check for the balance, offsetting sales, excise and property taxes paid.
SUMMARY:
$900 million refundable credit targeted to middle, low and no income families
Designed to eliminate impact of tax enhancements under SB750 on middle/low income taxpayers
Net effect – through refundability feature, the credit effectively relieves both income and sales tax changes, so the bottom 60% of income earners do not pay more in taxes under SB750
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PROPERTY TAX RELIEFAMOUNT: $2.9 billion, statewideMETHOD: Abatement of 25% of the property taxes that
fund education Minimum guaranty of 20%, with extra relief to low income areas
TRANSPARENCY: Amount of abatement shown on individual property tax bills
Description River Forest Chicago HeightsTotal Bill $10,000 $ 6,000
School Levy $ 7,000 $ 4,000 Portion of School Levy ($1,400) ($1,200)already paid by the state 20% minimum 30%, after bonus relief
Net Paid by Property Tax Payor $8,600 $4,800
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CONTINUING APPROPRIATION
A + B + C
FY BR $1.8 billion ECIFoundation Level CPI
$2.9 billion Property Tax
Special Education Mandate, Bonus Investment Pool
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HB750, Senate Amendments 1 and 2HB750, Senate Amendments 1 and 220042004--2005 General State Aid Increase and Property Tax 2005 General State Aid Increase and Property Tax
Relief by RegionRelief by Region
Chicago
$427,067,725 GSA
$351,398,947 Relief
Other Cook
$239,461,893 GSA
$608,320,599 Relief
Collar
$404,514,547 GSA
$721,335,066 Relief
Downstate
$699,591,846 GSA
$541,627,409 Relief
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.
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EDUCATION AND FISCAL RESPONSIBILITY ACT LEGISLATIVE OUTLINE - SB750
BENEFITS OF SB750 For Public Schools:
Funds a quality education statewide by phasing in an increase of the foundation level over four years to an amount that fully funds the minimum recommended by the Education Funding Advisory Board.
Most of the funding enhancements are phased in over four years, allowing schools to adjust to the enhanced funding in an accountable way, ensuring the best utilization of the funds.
Implements a four-year phase-in of an increase in the special education reimbursement from its current level of $8,000 per teacher to $19,000.
Implements a four-year phase-in of an increase of $180 million for Early Childhood Education programs. Creates an education venture pool that will target up to $300 million annually to fund educational programs for schools that have
to contend with concentrated poverty, to help improve test scores and address the achievement gap. Enforces the education funding with a confirming appropriation.
For Public Universities and Community Colleges: Phases in an additional $300 million for the state’s institutions of higher education, helping keep Illinois competitive in a global
economy. For Taxpayers: Provides over $2.7 billion of needed property tax relief statewide, helping homeowners and reducing fixed business costs. Provides almost $1 billion of tax relief to hardworking middle and low income families through a refundable family tax credit, which
effectively ensures the bottom 60% of income earners in Illinois will not, on average, pay any more in taxes than they did before SB 750 becomes law.
Keeps Illinois one of the lowest taxing states in the nation – ranking in the bottom10 in tax burden as a percentage of income. For the Business and Economy: Decreases direct taxation of businesses by almost $400 million per year. Investing more in education will create the numerate, literate workforce that is attractive to business. The refundable tax credit to low and moderate income families creates an economic stimulus for local communities. For the State Budget:
Puts the state’s fiscal house in order. Allows Illinois to pay its current bills and its accumulated $42 billion unfunded pension liability – the worst in the nation. Increases the personal income tax from 3 to 5% Increases the corporate income tax from 4.8 to 8 % Expands the sales tax base to include consumer services only
For Health and Human Services: Makes Illinois state government solvent and fiscally capable of maintaining the human service, health, public sector, and
environmental programs it provides today without cuts. A Cost of doing Business Fund set aside of over $170 million annually
SB
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SB
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For More Information:
• Center for Tax and Budget Accountability
www.ctbaonline.org
Ralph M. MartireExecutive Director(312) [email protected]
Chrissy A. ManciniDirector of Budget and Policy Analysis(312) [email protected]
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