Governor proposes unprecedented plan to reduce decades-old pension debt by more than 60 percent
SPRINGFIELD – Governor Rod R. Blagojevich today delivered his Fiscal Year 2008 Budget Address, launching his second term with a bold agenda for Illinois’ middle class families that will give everyone access to affordable healthcare, improve education, and relieve the tax burden on individuals by asking big businesses to pay their fair share. Highlights of the Governor’s plan for FY08 include:
• An historic Tax Fairness Plan that closes corporate loopholes and gives the middle class the relief it deserves;
• A record new investment of $10 billion in schools over the next four years – nearly three times bigger than any increase in state history;
• “Illinois Covered” – an affordable, reliable healthcare plan to cover the 1.4 million uninsured adults in Illinois and provide assistance to millions of middle-income families and small businesses struggling to keep up with health insurance costs;
• Addressing the state’s long-time pension deficit and ensuring secure retirements for thousands of workers by leasing the Illinois Lottery and investing the proceeds toward the pension debt;
• And a billion Capital Budget to make important investments in schools, roads, bridges and other critical infrastructure.
“Today, we will begin the biggest, most fundamental change, in our 4 year effort, to put middle class and working families at the center of who we fight for. It is a change long overdue and desperately needed,” said Gov. Blagojevich.
“For decades, it’s been the middle class and working families of Illinois that have shouldered more and more of the tax burden. And while they have paid more, the wealthiest corporations in our state have paid less and less. The impact of this imbalance weakens our economy, burdens our families and holds our state back,” continued the Governor. “And the saddest irony of all, the very people burdened by an unfair tax system -- middle class families and working families -- were hurt by the under-funding of education, healthcare and pension funds.”
Governor Blagojevich’s plan for Fiscal Year 2008 takes historic steps to change the Illinois tax structure – one of the most regressive and unfair to working families in the nation. In 1977, the corporate share of the state income tax was 21%, while individuals paid 79%. Today, the corporate share is 12% and people pay 88%. In fact, the average taxpayer in Illinois pays $1,500 in state income taxes while over 12,500 of the largest companies that do business in Illinois pay on average $151 in corporate income taxes. Gov. Blagojevich unveiled his Tax Fairness Plan that closes corporate loopholes and allows for new investments in healthcare, education and pensions.
“The choice is simple: higher property taxes or having companies pay their fair share. It will allow us to expand healthcare for all, to help small businesses with the cost of healthcare and to improve the quality of care. The choice is simple: we can ignore healthcare or have companies pay their fair share. It will allow us to fund our pensions, removing this long-created threat to our fiscal health. The choice is simple: we can let the pension challenge worsen or have companies pay their fair share. We can take this historic step now because for the past 4 years, you have rejected the old politics that accepted failure,” Gov. Blagojevich said to the joint session of the General Assembly.
Helping Kids Learn
Through past decades, Illinois schools have been chronically neglected and consistently under-funded, but in the past four years, Governor Blagojevich provided $3.8 billion in new dollars to Illinois schools which boosted education funding to record levels. Continuing his commitment to schools, the Governor presented his Helping Kids Learn plan that will boost education funding by an unprecedented $1.5 billion in Fiscal Year 2008. The Governor’s Helping Kids Learn plan:
• Increases general state aid to schools by $800 million, raising the Foundation Level by $686 to $6,020;
• Builds new schools by investing $1.5 billion in a capital construction plan for projects to improve and upgrade classrooms and schools so children can learn and teachers can teach in a more conducive environment. The state would also provide nearly $600 million for capital projects at public colleges and universities;
• Helps schools afford special education teachers with $200 million in new spending that will increase the state’s reimbursement rate for special education teachers – the first increase districts have seen since 1985. Fully funding ‘mandated categorical’ programs with $153 million, which primarily reimburses school districts for special education and transportation costs;
• Accelerates implementation of Preschool for All with $69 million in state support and dedicating additional resources for school districts that provide full-day kindergarten;
• Provides $100 million to support underperforming school districts that invest in after school tutoring, curriculum and textbook enhancements, longer school days or other proven strategies that raise student achievement.
“My Tax Fairness Plan will allow us to invest a record $10 billion more into our schools over the next 4 years. $10 billion to improve schools, to support our teachers and help our kids learn. This increase in funds is nearly three times bigger than any increase in state history. $10 billion new dollars that will help relieve the pressure on local property taxes and finally bring an end to the savage inequality in how we fund our schools. A permanent, dedicated, sustainable source of revenue. No short term fixes. The money our schools need…money to help build new classrooms, for more teachers, more training, more technology and better results,” said Gov. Blagojevich.
Providing Affordable Healthcare for All
While the Blagojevich Administration has expanded access to healthcare to more than 500,000 working families with Illinois’ FamilyCare and All Kids programs, access to quality healthcare continues to be a concern for more than 1.4 million adults statewide who remain uninsured today. And this number continues to grow: As the cost of healthcare for business has been growing five times faster than the rate of inflation, the number of firms offering health benefits to their employees has fallen by at least 8% since 2000.
John and Peggy Means of Mason City, who attended the Governor’s budget address today, and their 13 full- and part-time restaurant employees are just some of the victims of this serious problem. John and Peggy are unable to afford health insurance for themselves or their employees. The Means had insurance, but dropped it when their health provider would not cover medical expenses for pre-existing conditions. Since then, they have been unable to find healthcare coverage that would cost less than $600 or $700 a month, more than half their income. Today, Peggy is currently in remission from breast cancer and requires expensive tests every six months to ensure her cancer does not return. Because the Means are paying for all of the tests and their healthcare expenses out-of-pocket, they expect to be in medical debt well into their 70s and may have to shutdown their business as a result.
To help protect Illinoisans like John and Peggy Means, Governor Blagojevich proposed Illinois Covered – a plan that will ensure all 1.4 million uninsured have access to quality, affordable healthcare, and that will help many middle-income families and small businesses that are currently enrolled in health insurance plans save thousands a year on healthcare costs. The plan will also reform the existing healthcare system to improve quality and require more accountability. The primary components of Governor Blagojevich’s Illinois Covered plan include:
• Illinois Covered Choice: Creates a new, affordable comprehensive insurance plan that anyone without employer-sponsored health insurance in Illinois can purchase. This statewide pool of coverage will offer Illinoisans lower and stable rates. Business groups will be able to connect many of their members with this new affordable insurance, and small business owners can also purchase this product on behalf of their employees.
• Illinois Covered Rebate: Lowers premiums for moderate to middle-income Illinoisans ($20,000-$80,000 for a family of four) to help them afford their health insurance. The rebate will vary based on income, and those with lower incomes would get a larger rebate.
• Illinois Covered Assist: Similar to FamilyCare and Medicaid, individuals or couples who are very low-income will now have access to full coverage through the state (individuals currently making less than $10,210 annually, and couples making less than $13,690).
“At the heart of our plan is one simple goal: everyone should have access to affordable, quality healthcare,” Gov. Blagojevich continued. “So here is the choice we now face: ignore the needs of the working families struggling to pay for healthcare, burden our small businesses costing us jobs and deny healthcare to hard working families -- or improve healthcare by having the biggest corporations pay their fair share. We have made historic progress on healthcare. Let’s now finish the job.”
The Governor also proposes expanding the existing FamilyCare program to 400% of the federal poverty level for those who do not have access to employer sponsored coverage, to expand health benefits for workers with disabilities, and to allow dependants to retain coverage until age 29. Additionally, the state will work with both consumers and healthcare providers to develop a Roadmap to Health that will improve the state’s overall healthcare system and promote wellness, while better managing chronic conditions, the most important component for driving down overall healthcare costs.
Meeting Our Pension Funding Obligations
The State of Illinois’ increasing pension obligation remains its most pressing structural deficit challenge. Thirty years of under-funding the state employee pension system, combined with passing billions of dollars in unfunded pension sweeteners, has created the largest state pension debt in the nation. While Governor Blagojevich invested $13.3 billion in the state’s pension system four years ago – more than any other administration in Illinois history – the pension debt remains at $40.5 billion today.
Governor Blagojevich laid out a landmark plan that would use the proceeds from a long-term lease the Illinois State Lottery to provide an immediate infusion of at least $10 billion into the state’s pension system. He also proposed issuing $16 billion in pension obligation bonds that will help put the system on stronger fiscal footing. Altogether, by refinancing $16 billion of the pension debt with lower interest rates and infusing $10 billion immediately, the state will save more than $60 billion between now and 2045. This will also immediately improve the fiscal position of the pension system from 60.5% to 83% funded – 34 years sooner than outlined in the state’s current 50-year pension plan. The cash infusion will also allow the state to restructure its pension funding plan to reach a 90% funding ratio in 2040, five years earlier than the current funding plan.
“My Tax Fairness Plan will make paying down the principal a reality. Our plan will free up an asset like the Lottery -- lease it, generate $10 to $12 billion and put that toward our pension obligation. That, along with another pension bond refinancing will put an infusion of $26 billion into the system and bring down our liability from $41 billion to $15 billion. And most important of all, it will make a big dent in the principal and finally put an end to the many-headed monster of out of control interest payments,” said Gov. Blagojevich.
Promoting Tax Fairness
In Illinois, the share of state revenues coming from individual income taxes has consistently increased during each of the last three decades. The state income tax burden lies primarily with individuals – many who are struggling to make ends meet – while the burden on businesses has gone down, even while corporations are posting record profits. Governor Blagojevich today unveiled a Tax Fairness Plan that will reverse that trend.
Many large corporations pay little or nothing in corporate income taxes and are not paying their fair share to meet the state’s ongoing infrastructure, education, healthcare and public safety needs.
• According to the Illinois Department of Revenue, 37 of the 99 ‘Fortune 100’ companies that filed taxes in Illinois paid no state income taxes, despite the fact that they averaged $1.2 billion in sales during 2004.
• During 2004 alone, these 37 firms were able to forego paying over $160 million in Illinois income taxes, yet reported $95 billion in total national profits.
• On average, 48% of corporations that generated $50 million or more in annual sales in Illinois paid no income taxes from 1997 through 2004. In 2004 alone, 54% of corporations that filed an Illinois income tax return and made $257 billion in U.S. sales, paid no Illinois corporate income taxes; these firms represent 54% of the state’s Gross State Product.
“When large corporations don’t pay their fair share to the State, our schools are under-funded, our healthcare needs go unmet. Local governments suffer and property taxes go up. This is grossly unfair. It’s unfair to individuals who play by the rules, who go to work, who pay their taxes. It’s unfair to homeowners trying to afford ever-rising property taxes. It’s unfair to small and medium size businesses who don’t have fancy accountants or powerful lobbyists. It’s grossly unfair that 20% of businesses pay 96% of the corporate taxes. Any tax system that allows this is flawed, broken and needs to be changed. Let’s change this system. The time to do it is now,” Gov. Blagojevich said.
The Governor’s Tax Fairness Plan implements a Gross Receipts Tax (GRT) that has been embraced by many economists because of its broad base and low rates. States including Washington, Delaware and Hawaii have had a GRT for years, and recently, Ohio and Texas have adopted a form of the tax. The tax will better reflect the changes in Illinois’ economy since the Corporate Income Tax was implemented thirty years ago when goods dominated the state’s economy. Today ‘new economy’ businesses – primarily services – represent the majority of Illinois’ business activity. In fact, goods-based businesses make up only 35% of Illinois’ economy, but pay 53% of the corporate income tax; services-based businesses make up 65% of Illinois’ economy, but pay only 47% of the corporate income tax.
The GRT will only apply to businesses that make more than $1 million each year, which means that small businesses – 75% of all businesses in Illinois – will be exempt. The GRT will tax service industries at a low 1.8%, while manufacturers, construction, retail and wholesale companies will be taxed at an even lower .5%. Exports will not be taxed. The plan also mitigates costs being passed on to consumers by excluding certain goods, such as retail food and pharmaceuticals. By transitioning to the GRT, Illinois will rid itself from loopholes that major corporations have exploited and used to their advantage to avoid paying their fair share of taxes to the state, and is expected to generate $3 billion in new revenue in fiscal year 2008, and more than $6 billion during its first full year in effect.
“By eliminating the loophole-riddled corporate income tax and replacing it with the GRT, we will generate $6 billion in recurring, new revenue. This will give us the funding we need for schools and healthcare and allow us to commit the Lottery to the pension funds – no games, no ifs, no buts, we pay as you go, and the biggest corporations that have burdened the middle class finally pay their fair share,” Gov. Blagojevich said.
“As I said when I took my oath of office, I want to work for the people who work hard and play by the rules, for the families without lobbyists, inside deals, stock options and hedge funds,” Governor Blagojevich said. “Let us be the ones -- let it be this General Assembly -- that solves the school funding crisis, that gives everyone access to healthcare, that makes fundamental tax fairness a reality. Let it be this General Assembly that rises to the challenge and does what others were unable to do. Let it be said by the school teacher, the parent, the nurse, the factory worker, the shop keeper, that in this great chamber, at this unique time, we had the courage to do great things for the people of Illinois,” the Governor urged.