LEGISLATIVE FRAMEWORK FOR BUDGET DEAL

The States backlog of unpaid bills currently totals $6.9 billion and is expected to reach about $8.5 billion by the end of
the calendar year, according to the Comptroller. The longer the General Assembly waits to take action, the larger the
problem for FY 2016 becomes and the more revenue will be required to solve this crisis. And once the taxable year
concludes December 31st, the possibility and flexibility of a retroactive tax increase disappears. Numerous public interest
groups have taken an active role in promoting solutions that would both address the need for spending cuts, new revenues,
and structural reforms.
Following is a framework for both attempting to solve this years crisis and set the state on the path to eliminate the deficit
and become fiscally responsible in the coming years. Because some revenues would be available immediately, while
others would take some time to implement, it is important to use a multifaceted approach which both shares the burden
among stakeholders and is sustainable. Cuts will be necessary, particularly to solve the massive FY 2016 deficit, as will be
slowing the growth of any increases in spending in coming years.
INCREASE REVENUES, CUT SPENDING & LIMIT GROWTH
With such a large budget deficit, the largest of any state in the nation, it is not possible to cut our way out of the problem.
A combination of tax increases, while protecting lower income families, and improvements to the current, outdated, and
inefficient taxation system would provide more than $7 billion a year in additional revenues, to be used to fund
operations, pensions, and debt service. While the scope of the FY 2016 problem will require significant cuts as well,
according to the Civic Federation, just restricting our current trajectory of spending growth to 2%, we would save an
additional $260 million in the coming years.
Increase the Personal Income Tax. +$3.3B/YR Increasing the personal income tax rate to 4.75% from the current level
of 3.75% would generate roughly $3.3 billion in additional net revenue per year. Assuming passage of a bill before the end
of the taxable year, this tax should be applied retroactively from July 1, 2015, for FY 2016. While the Civic Federation
recommends 4.25%, given the massive scale of the problems for FY 2016 due to the failure to pass a budget, this rate
would be insufficient at this time. [Center for Tax and Budget Accountability, 9/09/15]

Increase the Earned Income Tax Credit to Offset Broad Tax Increases. -$136M/YR To offset the regressive
impact of higher income tax rates and a broader sales tax on low income residents, the state should gradually increase
its Earned Income Tax Credit to 15% of the federal amount by FY 2018 from the current 10%. Using the estimated
FY 2016 federal EITC of $2.7 billion, increasing the state EITC by five percentage points would cost approximately
$136 million in addition to the current credit. [Civic Federation, 2/12/15; Center on Budget and Policy Priorities, 1/28/15]

Increase the Corporate Income Tax to 5.75%. +350M/YR Increasing the corporate tax from its current 5.25% to
5.75% would bring in an additional $350 million a year. The tax should be applied retroactively from July 1, 2015, for FY
2016. [Illinois Tax Handbook for Legislators, March 2015; Center for Tax and Budget Accountability, 9/09/15]
Maintain the Local Distributive Share Rate at 8% (Personal) and 9.14% (Corporate) After the Tax Increases. $296M/YR Keep the portion of the state personal income tax for local governments at 8% and the corporate income tax
at 9.14%, the current allocations through the Local Government Distributive Fund (LGDF), after the tax increases. In
2011, the local distributive share was held constant, despite the income tax increase. The City of Chicago estimated that it
would have received more than $400 million in total additional revenues if local governments had not been excluded from
sharing in increased income tax revenues from 2011 until 2015. Under a 4.75% tax rate, preserving this 8% and 9.14%
shares for local governments would generate an additional $296 million for local governments beyond current levels.
[Civic Federation, pgs. 10, 21, 5/07/15; Civic Federation, 3/11/15; Illinois Municipal League, Fact Sheet]

Eliminate Corporate Loopholes. +$400M/YR Limiting EDGE tax credits, eliminating tax breaks for companies
investing out of state by decoupling Illinoiss exemption from the federal domestic production deduction, taxing income
held offshore as domestic income, taxing companies in Illinois for offshore drilling, and closing accounting loopholes like
requiring combined reporting would generate $400 million a year. [Fiscal Policy Center at Voices for Illinois Children, May
2015]

Expand the Sales Tax to Consumer Services. +$2.1B/YR Illinois ranks last among the 45 states that levy a sales tax on
services in the number of service industries it taxes. Expanding the sales tax base to include consumer services - while
continuing to exclude professional and business-to-business services - would generate nearly $2.1 billion more. This
would also increase funding to local governments by an additional $529 million, as 1.25% of the purchase price collected
is distributed to local governments. B2B transactions are excluded because they encourage tax pyramiding, while only
six of 45 states tax any professional services, as it is complicated and cumbersome to do so. [Center for Tax and Budget
Accountability, 9/09/15, 5/20/15; Illinois Tax Handbook for Legislators, March 2015]

Immediately Cut $1 Billion from Expenditures. -$1.7B While Moodys recommends $1.7 billion of expenditure cuts
for FY 2016, less than half the $3.7 billion of savings in the governor's proposed budget that were not related to employee
benefit reductions, $1 billion is more practical immediate goal. Cuts should hold harmless education funding and funding
for human service providers, which was not funded through a mandatory appropriation or court order, and thus have
already been subject to massive cuts, the failure to receive due payments, and uncertainty for FY 2016. [Moodys Investors
Service, 8/31/15]

Restrict Discretionary Spending Growth. +$260M/YR The state should restrict discretionary spending growth from
the 2.7% level shown in its three-year projections to 2.0%, closer to the rate of inflation. This could reduce total state
spending by $1.3 billion over five years. Funding for K-12 education should not be subject to mandatory cuts. [Civic
Federation, 2/12/15]

License Chicago to Operate a Casino. +$200M/YR The state should license the City of Chicago to operate its own
casino, with proceeds earmarked to pay for City pensions. The casino would also generate $200 million in gambling taxes
for the state. [SB0777, 5/29/15; Legislatures Commission on Government Forecasting and Accountability via the Chicago SunTimes, 5/03/15; Civic Federation, 5/29/15]

INVEST IN EDUCATION
Investing in education strengthens our economy over the long-term, making Illinois a more attractive location to relocate
or expand a business. Investing in well-educated workers will help the state attract more employers offering higher skilled
and higher wage jobs and will also help the states bottom line, as they pay more in tax revenues and rely less on state
assistance programs.
Illinois growing financial problems have gravely affected its ability to adequately fund education. Illinois also has the
most unfair state school funding system in the nation, with students living in poverty receiving nearly twenty percent less
than more affluent students. While the states constitution says it holds the primary responsibility for funding public
schools, in reality, it contributes less than twenty percent, forcing local districts to try and make up the difference.
Increase State K-12 Education Funding With Revenues from a Retirement Tax and Commit to Reforms. Numerous
studies have ranked Illinois last, or nearly last nationally in state education funding. According to statistics compiled by
the National Education Association, in 2013-2014 the average portion received from the state to fund K-12 schools was
46.4%, whereas Illinois provided only 19.6% of total funding. The U.S. Census reports that on average, U.S. states
provide $5,650 per student on education, while Illinois provides only $5,021. Increasing education funding from the state
by $1.05 billion from a retirement tax would not even put Illinois as middle of the pack, but is a good start. [Vision 20/20,
Fulfilling the Promise of Public Education; Illinois State Board of Education, 2/2013; NEA Rankings and Estimates, F-10, 2015; U.S. Census

States Ranked According to Per Pupil Public Elementary-Secondary School System Finance, FY 2013; Illinois State Board of
Education, Fall Enrollment Counts, 2014]

Tax Some Retirement Income to Benefit K-12 Education. $1.05B/YR (revenue neutral) Illinois is one of only
five states with an income tax that does not tax any retirement income. This tax base would also expand over time at a
higher rate than regular income. Eliminating the full deduction for retirement income on a graduated basis for adjusted
gross incomes over $50,000 would raise $1.05 billion in new revenue at a 4.75% income tax rate, while protecting
low and fixed income seniors. The whole of this tax should go to education. [Center for Tax and Budget Accountability,
9/09/15; Civic Federation, 2/12/15]

Reform Education Funding to Make the System Fair. Illinois has the most unfair school funding system in the
nation, with students living in poverty receiving nearly twenty percent less than more affluent students. A single, fair,
and need-based funding formula should replace the current opaque and complex system, which has not updated since
1997. A bipartisan committee will study how best to develop a new system for school funding for two years, while at
the end of those two years, the existing and outdated GSA formula would be abolished. [Chicago Tribune, 3/26/14;
Illinois Senate Democrats, 7/15/15]

Provide Relief for Chicago Public Schools and Create School District Mandate Parity. -$200M/YR over 2 YRS
Require the state to pick up the $200 million annual normal costs of Chicago teachers pensions for two years, at
which time the state-wide education funding reform process will consider the future treatment of Chicago Teachers
Pension Fund. School districts comprise approximately 60 percent of an Illinois property tax bill. In addition to
increasing public support for schools, all districts should be given the relief from mandates that the City of Chicago
has been given, to achieve savings for taxpayers and improve outcomes for children. Repealing the statute that
severely restricts third-party contracting and providing schools relief from other unfunded mandates will free up
additional resources to invest in the classroom. [Crains Chicago Business, 7/01/15; Civic Federation, pg. 20, 8/25/15;
Illinois Association of School Boards, IASB Position Statements]

IMPROVE GOVERNMENT OPERATIONS AND INSTITUTE REFORMS

A primary goal of the state should be to pursue economic policies that improve the lives of the people and allow them to
get and keep jobs that pay enough to support their families and provide economic security. But the growth of the deficit
and debt has not only prevented the state from adequately funding its services, but it has forced massive cuts. By
instituting numerous reforms that change the way state and local governments do business, we can free up revenues to
spend on more productive investments that increase opportunity and empower economic mobility. When more people can
work, they buy more goods and services and support local businesses, as well as pay more into the system. There are also
commonsense business climate reforms that will make Illinois a more attractive place to do business, while protecting
workers that ultimately increase our corporate tax base.
Pass the Cullerton Pension Reform Plan. +$1B/YR State workers should choose between two options: keep the 3%
annual compounded interest on cost-of-living adjustments (COLAs) and give up the ability to count pay raises toward
pensions or continue counting salary increases toward pensions and take a decreased, non-compounded COLA. This will
generate an estimated $1 billion in savings a year. [Chicago Tribune, 5/13/15]

Study the Consolidation of Local Pension Funds. Because state law requires municipalities of 5,000+ residents to
create employee pension funds, Illinois has more than 600 individual, locally-controlled pension funds for cops and
firefighters outside the city of Chicago. Consolidating these funds across Illinois can save money on administrative
costs, similar to the way municipal workers retirements are structured. [WBEZ, 5/12/14; CGFA Report, January 2013;
Msall, Chicago Tribune, 9/17/15]

Create a Realistic Repayment Timeline for the States Five Pension Funds. For years, state legislators borrowed
against what was owed to the pension systems to subsidize operating expenses. This practice became law and
established a Pension Ramp that provided for an incredibly back loaded repayment schedule, which grew in
unattainable, unaffordable annual increments. The current repayment schedule, arbitrarily established by Springfield,
is unsustainable and unaffordable. While borrowing and pension holidays in part created this mess and are not the
answer, the state must create a new, realistic repayment timeline as it is obligated by the Constitution to pay for its
pension commitment. There are excess revenues in this plan that should be devoted to appropriate legacy pension debt
payment, as determined by legislative action. [Center for Tax and Budget Accountability, 9/09/15]

Create a Realistic Repayment Timeline for Fire and Police Pension Funds Across Illinois. Locally controlled
police and fire pension payment schedules were also arbitrarily dictated by the General Assembly, including the City
of Chicago and Cook County. Legislators should reconsider these schedules, as in the bill passed by the General
Assembly this session that deferred from 2040 to 2055 the date by which the police and fire funds must have at least
90 percent of the assets needed to pay promised retirement benefits. [Crains Chicago Business, 6/01/15]

Increase the States Minimum Wage. Increase the state minimum wage to $11 an hour by 2019. The minimum wage
would increase to $9 immediately, with the wage go up by 50 cents annually until it hits $11 in 2019. [Chicago Tribune,
2/05/15]

Reform Workers Compensation in a Bipartisan Manner. -$300M/YR The Illinois workers compensation system
ranks the seventh most expensive in the country by the Oregon Department of Consumer and Business Services study,
indicating the need for further reform. To control costs, the state should look at tighter causation definitions and applying
the rates of reimbursement recommended by the AMA. Reform would save the state roughly $300 million per year on its
own expenses. [Illinois Workers Compensation Commission, FY 2014 Annual Report; Crains Chicago Business, 10/13/14; Illinois
Policy Institute, 9/10/15]

Reform Unemployment Insurance in a Bipartisan Manner. Create a bipartisan committee with representatives of
employers, employees, the Governor, and the General Assembly to recommend changes to achieve reform to the Illinois
unemployment insurance system by an agreed bill process, which is how changes to unemployment insurance has
historically been accomplished to relieve pressure on job creators while being fair to beneficiaries. [Illinois Retail Merchants
Association, 5/01/15; Chicago Chamber of Commerce, Legislative Agenda, Public Policy Principles]

Reform the Collective Bargaining Scope for Public Employees. The state should reform our collective bargaining laws,
allowing units of government to curb rising public employee costs by limiting collective bargaining for specific personnel
issues, including health benefits and work rules. [Illinois Municipal League, 2015; Illinois Municipal League, 3/04/15;
mayorscaucus.org/legislation]

Protect Child Care Assistance Eligibility. -$63.6M/YR The Administration should restore the previous formula to the
Child Care Assistance Program. Restoring the eligibility would cost approximately $63.6 million a year, though would be
a cost savings measure over the long term. [WQAD, 8/31/15]
The following chart details savings* for the state in an average year, once policies are implemented.
New Revenues and Cuts
New Spending
Personal Income Tax
$3,300,000,000 Expand EITC
$136,000,000
Sales Tax on Services
$2,100,000,000 Increase Education Funding
$1,050,000,000
Corporate Income Tax
$350,000,000 Restore Child Care Eligibility
$63,600,000
Eliminate Corporate Loopholes
$400,000,000 Chicago Pension Pickup
$200,000,000**
Retirement Tax
$1,050,000,000 Increase LDS
$296,000,000
Cullerton Pension Reform
$1,000,000,000 Pension Debt Service
TBD
Slow the Growth of Spending
$260,000,000
Chicago Casino
$200,000,000
Workers Compensation Reform
$300,000,000
Unemployment Insurance Reform
TBD
Collective Bargaining Reform
TBD
~Gross New Revenues
>$8,960,000,000
~Net New Revenues

~Gross New Spending

<$1,745,600,000
$7,214,400,000
*All numbers are estimates.
**First two years only