State of Illinois Summary of ratings presentation to Moodys - - PowerPoint PPT Presentation

State of Illinois

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Summary of ratings presentation to Moody’s Investor Service and Standard and Poor’s

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Presentation Overview

I. Economy II. Budgetary Performance III. Financial Management

• IV. Debt and Liabilities

V. Pension Update

• VI. Concluding Highlights and Questions

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Economy

20% 16% 15% 14% 9% 10% 6% 6% 3%

Trade, Transportation and Utilities Professional and Business Services Education and Health Services Government Manufacturing Leisure and Hospitality Financial Activities Mining, Logging, Information and Other Services Construction

20% 15% 16% 16% 9% 11% 6% 2% 5%

Illinois is a State of Diversified Economic Strength

• Illinois has a deep and diverse economy, with its workforce

composition mirroring that of the U.S.

• Broad employment base anchored by Trade/Transportation/Utilities,

Professional/Business Services and Education/Health – all sectors with recent income and job growth.

• Illinois’ economy ranks 5th in the nation and 21st in the world at

$777 Billion (behind Florida and ahead of The Netherlands).

• O’Hare is the 4th busiest airport in the world.
• Chicago is the only city in North America where all 6 Class 1

intercontinental railroads meet to interchange.

2016 U.S. & IL Non-farm Jobs by Industry 2016 U.S. & IL Non-farm Jobs by Industry

Source: U.S. Department of Labor, Bureau of Labor Statistics Source: IHS

Growth in IL GDP Growth in IL GDP Railroad & Highway Network Railroad & Highway Network

Source: Federal Reserve Bank of St. Louis Source: Village of Tinley Park

U.S. Illinois

500 550 600 650 700 750 800 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Billions

Highways Railways

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• Illinois’ Per Capita income is ranked 4th among the 10 largest states.
• Median Household Income has grown 4.5% annually on average since

2011, outpacing the U.S. (3.1%) and neighboring states (3.1%).

• Income as measured by both PCI and MHI ($60,413) remains well

above national ($56,516) and Great Lakes States’ ($53,728) averages.

• Employment increased with jobs exceeding 6.0 million in 2016.
• Unemployment continues to decline along with national trends;

higher unemployment is concentrated in older manufacturing centers such as Rockford, Danville, Decatur, Kankakee and Peoria while other MSAs are closer to U.S. average.

Per Capita Income Per Capita Income

$30,000 $35,000 $40,000 $45,000 $50,000 Illinois United States Great Lakes Region 2011 2012 2013 2014 2015 Source: U.S. Department of Commerce, Bureau of Economic Analysis; Bureau of Labor Statistics

Median Household Income Median Household Income

Illinois is ranked 17th in the U.S. for Income

Average Non-farm Employment and Unemployment Average Non-farm Employment and Unemployment Unemployment Rate Unemployment Rate

$40,000 $45,000 $50,000 $55,000 $60,000 $65,000 2011 2012 2013 2014 2015 Illinois U.S. Great Lakes Region 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-17 Illinois U.S.

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5.0% 6.5% 10.2% 10.4% 9.7% 9.0% 9.1% 7.1% 5.9% 5.9%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 5,400 5,500 5,600 5,700 5,800 5,900 6,000 6,100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment Rate Employment (Thousands)

Illinois is Home to Some of the Largest Fortune 500 Companies in the World

• Fourteen of the World’s Largest Companies (by revenue) are based in Illinois (up from 12 in 2015), representing diverse sectors of the Illinois

economy, according to Fortune’s Global 500 list.

• Thirty six Illinois-based companies made the U.S. Fortune 500 list, with companies like Groupon, Hyatt, Northern Trust, Mead Johnson and

Kemper climbing the ranks.

• Annual mean wage in Illinois is $49,970 (2015) – 3.4% higher than the U.S. average of $48,320.
• “(In Nov 2016), Chicago’s median base pay grew at the fastest pace of any of the five markets we examined.” “As one of the nation’s largest sites

with many employers of in-demand workers in tech, consumer sales, marketing, retail and hospitality, we expect to see continued healthy pay grow in Chicago-area pay throughout 2017.” Chief Economist, GlassDoor. January 2017.

• Fourteen of the World’s Largest Companies (by revenue) are based in Illinois (up from 12 in 2015), representing diverse sectors of the Illinois

economy, according to Fortune’s Global 500 list.

• Thirty six Illinois-based companies made the U.S. Fortune 500 list, with companies like Groupon, Hyatt, Northern Trust, Mead Johnson and

Kemper climbing the ranks.

• Annual mean wage in Illinois is $49,970 (2015) – 3.4% higher than the U.S. average of $48,320.
• “(In Nov 2016), Chicago’s median base pay grew at the fastest pace of any of the five markets we examined.” “As one of the nation’s largest sites

with many employers of in-demand workers in tech, consumer sales, marketing, retail and hospitality, we expect to see continued healthy pay grow in Chicago-area pay throughout 2017.” Chief Economist, GlassDoor. January 2017.

Source: Fortune.com

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Budgetary Performance

• In June 2016, the Governor and General Assembly agreed to a “bridge” FY 2016 and FY 2017

appropriations bill (P.A. 99-524) to cover essential State spending that includes:

• Passage of a full year of FY 2017 funding for elementary and secondary education and for federal

and all other State funds outside of the General Funds covering FY 2016 and FY 2017

• FY 2017 road capital appropriations and limited other construction appropriations
• Limited FY 2017 General Funds appropriations for critical State government operations tied to

forgiveness of repayment of interfund borrowing for expenses incurred prior to December 31, 2016

• Utilizing existing resources in Budget Stabilization Fund, Commitment to Human Services Fund,

Fund for the Advancement of Education and Personal Property Tax Replacement Fund to pay bills – taking some pressure off of limited General Funds resources

• Allowing the State to keep larger share of federal Affordable Care Act money coming into Illinois
• Providing FY 2017 relief to debt structuring restrictions to allow the State to more efficiently

refinance existing bonds to lower rates This agreement was viewed as a bridge until the Governor and General Assembly can come to agreement on a full FY 2017 budget. The Governor supports working together with the legislature for a comprehensive package that includes economic reforms, revenues and spending reductions.

FY 2017 Budget Framework

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FY 2017 Revised Revenues

• Under current statutes, total General Funds revenues

for FY2017 Estimated Budget are projected to be $31,677 million, an increase from FY2016 base revenues

• f $387 million (1.2%).
• Individual income tax performance has been consistent

with estimates and was not adjusted.

• Corporate income tax estimates were revised down

primarily due to non-economic factors such as pass- through withholding accounting changes, technological improvements at DOR enabling the department to better match returns to payments, and the expiration of cap on Net Operating Loss deductions.

• Sales

tax estimates were revised down due to accounting change related to distribution of prepaid sales tax on motor fuel purchases.

• Federal revenue estimate has been reduced due to the

recognition of the probable lapse of certain Medicaid appropriations related to Medicare premium payments to the federal government and related offsets of federal revenue in lieu of the state’s direct payment. The final amount will depend on timing of payments released by the Comptroller.

FY 2017 General Funds Estimated Revenues

FY 2017 Revenue Update1

1 General Funds in this presentation reflect the inclusion of the Commitment to Human Services Fund, Fund for the Advancement of Education and Budget

Stabilization Fund as part of the General Funds consistent with the Governor’s proposal to reclassify these funds as General Funds. $ in millions FY 16 Actual FY17 Original Estimate FY17 Revised Estimate Base Resources State Sources: Revenues 1 Individual (gross) 15,301 15,665 15,665 Refund Fund Deposit (1,494) (1,754) (1,754) Net Individual Income Taxes 13,806 13,911 13,911 Education/Human Services Funds set aside (916) (940) (940) Corporate (gross) 2,336 2,354 1,814 Refund Fund Deposit (362) (406) (313) Net Corporate Income Taxes 1,973 1,948 1,501 Education/Human Services Funds set aside (1) (6) (5) Sales Taxes 8,063 8,220 8,155 Public Utility Taxes 926 935 899 All Other Sources 2,276 2,288 2,392 Total State Sources: Revenues 27,044 27,302 26,858 State Sources: Transfers In Lottery 677 720 720 Riverboat Gaming Taxes 277 270 270 Other Transfers 627 757 667 Fund Reallocations

• Total State Sources

28,625 29,049 28,515 Federal Sources2 2,665 3,809 3,162 TOTAL RESOURCES 31,290 32,858 31,677

1 General Funds revenues reflect the inclusion of the revenues from the Fund for the Advancement of

Education and the Commitment to Human Services Fund.

2 Revised Federal estimate reflects a change in methodology.

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FY 2017 General Funds Estimated Expenditures

• GOMB estimates that in FY17, General Funds spending

will total $38,123 million, an increase of $6,464 million from the low FY16 actuals, absent any significant changes to underlying programs.

• These estimates reflect the best estimate of current

trends of General Funds spending but would need additional appropriation authority for all the payments to be made.

• Estimated pension contributions total $6.9 billion.
• Estimated transfers to other state funds total $4.686

billion, including $2.247 billion to the GO Bond Retirement and Interest Fund.

• The estimated spending reflects an additional $800

million in higher education spending above current appropriation levels.

FY 2017 Estimated General Funds Expenditures

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$ in millions FY 15 Actual FY16 Actual 1 FY17 Estimate 2 EXPENDITURES Education 8,704 7,579 9,304 K-12 Education 6,755 6,953 7,474 Higher Education 1,950 626 1,830 Economic Development 104 31 54 Public Safety 1,619 1,199 1,714 Human Services 5,602 5,276 5,973 Healthcare 7,178 7,125 7,221 Environment and Culture 67 47 64 Government Services 2,873 1,094 3,034 Group Health Insurance 1,565

• 1,810

Government Services 1,308 1,094 1,224 Pensions 6,047 6,632 6,931 K-12 Education Pensions 3,413 3,743 3,987 State Universities' Pensions 1,347 1,411 1,481 State Employees' Pensions 1,286 1,477 1,462 Unspent Appropriations (1,024) (1,775) (761) Use PPRT Fund for Higher Education

• (97)

TOTAL RESOURCES 31,170 27,207 33,437 Statutory Transfers Out 2,489 2,472 2,439 Debt Service: Capital & Pension Bonds 2,094 1,979 2,247 Total Additional Expenditures 4,583 4,451 4,686 TOTAL EXPENDITURES 35,753 31,659 38,123

1FY16 Expenditures reflect those established at IOC. Does not include an estimated $2.93B in unpaid

FY16 Operational Expenditures

2Estimated expenditure is the amount currently estimated by GOMB based on current patterns.

Additional appropriations would need to be enacted to spend at this level.

• In the FY16 Traditional Budgetary Financial Report,

the Comptroller reported FY16 General Funds budgetary deficit totaled $605 million, which does not reflect all FY16 operational liabilities.

• For FY17, absent any revenue or spending changes

from the current path, the estimated General Funds deficit will total approximately $5.687 billion.

FY 2017 Estimated Deficit

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State of Illinois Governor's Office of Management and Budget General Funds Financial Walk Down $ millions 2016 Estimated 2017 Base Resources State Sources $27,044 $26,858 Transfers In 1,581 1,657 Total State Sources 28,625 28,515 Federal Sources 2,665 3,162 TOTAL RESOURCES $31,290 $31,677 Total Operating Budget $27,208 $33,437 Statutory Transfers Out 2,472 2,439 Debt Service: Capital & Pension Bonds 1,979 2,247 Total Transfers $4,451 $4,686 TOTAL EXPENDITURES $31,659 $38,123 Adjustment for CHSF/BSF Balance (433) 759 IOC Adjustments 1 197 N/A GENERAL FUND SURPLUS (DEFICIT) ($605) ($5,687) Estimated FY16 Operational Liabilities Not Paid ($2,930)

1 IOC adjustments reflect budgetary adjustments in Traditional Budgetary Financial Report.

These are only known when the TBFR is released.

• On February 15, 2017, Governor Rauner put forth a fiscal year 2018 budget proposal.
• The budget proposal focuses on spending in areas that are the state’s core priorities and on

transforming state government so that the taxpayers’ dollars are spent in the most efficient way possible.

• The transformations include proposals to control the cost curve in health and human services and

employee compensation and reduce costs for pensions, state employee health insurance, and the procurement of goods and services.

• Additional changes to the state’s technology infrastructure, management of state grants, and

revenue collections are also expected to contribute to managing state government costs.

• The Governor also supports divestment from the Thompson Center office building in downtown

Chicago.

FY 2018 Budget Proposal

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• Pension changes are estimated to reduce FY18 expenditures by $1.25 billion with the creation of

Tier 3 and other funding changes.

• Work to control the cost of state employee health insurance programs by providing a wider range
• f options for employees to select, with higher premiums for the most generous plans.
• Another goal is to switch more of employee’s annual compensation to a merit-based system

versus the current system of automatic ‘step’ increases.

• Revamping Illinois’ procurement laws will reduce the costs paid by the state for its purchases of

goods, with estimated savings of several hundred million dollars a year.

• The Governor proposed putting $74 million in funding towards performance based funding for our

colleges and universities.

• Human Services transformations include an alternative program for Department on Aging clients

who are not covered by Medicaid, saving $120 million in FY18.

Transformation Examples

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• General funds revenues are estimated to total

$32,744 million for FY2018, a $1,067 million increase,

• r

3.4%, from FY2017 revised estimates.

• This

estimate reflects income tax rates remaining at current statutory levels with moderate growth rate assumptions.

• Corporate

income tax collections are projected to increase as

• ne-time

non- economic factors impacting FY17 estimates are removed.

• The estimate in the accompanying table also

reflects an estimated $300 million from divestiture of the Thompson Center (JRTC). (Not included in ‘maintenance’ base revenues).

• Federal revenues are expected to decrease

slightly from FY17 estimates.

FY 2018 Revenue Estimates1

1 General Funds in this presentation reflect the inclusion of the Commitment to Human Services Fund, Fund for the Advancement of Education and Budget

Stabilization Fund as part of the General Funds consistent with the Governor’s proposal to reclassify these funds as General Funds.

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$ in millions FY 16 Actual FY17 Revised Estimate FY18 Forecast $ increase % increase Base Resources State Sources: Revenues 1 Individual (gross) 15,301 15,665 16,093 428 2.7% Refund Fund Deposit (1,494) (1,754) (1,609) Net Individual Income Taxes 13,806 13,911 14,484 573 4.1% Education/Human Services Funds set aside (916) (940) (963) Corporate (gross) 2,336 1,814 1,989 175 9.6% Refund Fund Deposit (362) (313) (348) Net Corporate Income Taxes 1,973 1,501 1,641 140 9.3% Education/Human Services Funds set aside (1) (5) (5) Sales Taxes 8,063 8,155 8,305 150 1.8% Public Utility Taxes 926 899 917 18 2.0% All Other Sources 2,276 2,392 2,573 181 7.6% Total State Sources: Revenues 27,044 26,858 27,920 1,062 4.0% State Sources: Transfers In Lottery 677 720 719 (1)

• 0.1%

Riverboat Gaming Taxes 277 270 274 4 1.5% Other Transfers 627 667 720 53 7.9% Total State Sources 28,625 28,515 29,633 1,118 Federal Sources2 2,665 3,162 3,111 (51)

• 1.6%

TOTAL RESOURCES 31,290 31,677 32,744 1,067 3.4%

• The estimated FY18 “maintenance” budget –

without transformations and spending controls – is expected to lead to a $7,246 million deficit.

• The

increase in spending

• ver

FY17 is primarily due to a nearly $1 billion increase in pension contributions.

• Working Together is the Governor’s preferred

path to a balanced budget.

• Enact structural reforms and transformations

that reduce the cost of delivering government services and lay the groundwork for strong economic growth.

• Then with those objectives accomplished,

additional revenues would be supported.

• State General Funds spending in fiscal year

2018 under this approach would total a maximum of $37,316 million.

FY 2018 Budget Outlook

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State of Illinois Governor's Office of Management and Budget General Funds Financial Walk Down $ millions 2016 Estimated 2017 Maintenance 2018 Recommended 2018 Base Resources State Sources $27,044 $26,858 $27,668 $27,920 Transfers In 1,581 1,657 1,713 1,713 Total State Sources 28,625 28,515 29,381 29,633 Federal Sources 2,665 3,162 3,111 3,111 TOTAL RESOURCES $31,290 $31,677 $32,492 $32,744 "Working Together" (4,572) Total Operating Budget $27,208 $33,437 $34,870 $32,571 Statutory Transfers Out 2,472 2,439 2,517 2,395 Debt Service: Capital & Pension Bonds 1,979 2,247 2,351 2,351 Total Transfers $4,451 $4,686 $4,868 $4,745 TOTAL EXPENDITURES $31,659 $38,123 $39,738 $37,316 Adjustment for CHSF/BSF Balance ($433) $759 N/A N/A IOC Adjustments 1 197 N/A N/A GENERAL FUND SURPLUS (DEFICIT) ($605) ($5,687) ($7,246) $0 Estimated FY16 Operational Liabilities Not Paid ($2,930)

1 IOC adjustments reflect budgetary adjustments in Traditional Budgetary Financial Report. These are only

known when the TBFR is released.

Table Source: Illinois Office of the Comptroller.

1 This amount consists of General Funds Lapse Period Transactions as reported in the Traditional Budgetary Financial Report. 2 Section 25 Liabilities are incurred in one fiscal year and payable from future fiscal year appropriations. This amount is the General Funds portion of Section 25

liabilities and is released with the State’s CAFR.

Accounts Payable

• Illinois reduced its General Funds Budget Basis Accounts Payable in FY 2015 by $538 million to $3.521 billion.
• General Funds “Section 25” liabilities– essentially current year bills that are paid for with future year appropriations – decreased in FY

2013, FY 2014, and FY 2015.

• FY 2016 General Funds Accounts Payable showed an increase from FY 2015 levels of $268 million and General Funds Section 25

liabilities increased by $1.7 billion, primarily for state employee health insurance.

• The Governor is willing to work with the legislature on different options to reduce these liabilities in conjunction with a balanced budget

agreement, including looking at financing options to address a portion of the backlog.

• As of February 28, 2017 the Comptroller was holding $7.2 billion in unpaid General Funds vouchers and pending transfers.
• This amount is bills on hand at the Comptroller’s office and does not include bills that the agencies are holding.
• Approximately $4.8 billion in bills are on hold at the State agencies.

End of Fiscal Year General Funds Accounts Payable ($ millions) Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2011 2012 2013 2014 2015 2016 General Funds Budget Basis Accounts Payable1 $4,976 $5,024 $4,142 $4,005 $3,521 $3,789 General Funds Section 25 Liabilities2 1,604 2,778 1,864 1,622 1,598 3,307 Total General Funds Accounts Payables $6,580 $7,802 $6,006 $5,627 $5,119 $7,096 Section 25 Liabilities - Other State Funds 237 850 489 429 316 956

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Financial Management

Financial Management Policies

• Debt Service - Illinois limits debt service expenditures to no more than 7 percent of General Fund and Road

Fund appropriations unless the transaction is specifically exempted by statute.

• Capital Expenditures - The State annually forecasts and analyzes revenues available for capital expenditures.

The State conducts a formal capital planning process to rank projects based on specific criteria and evaluates the impact of new capital spending on the operating budget.

• The State performs facility management and condition assessments in order to provide information and

recommendations for current and future capital expenditures.

• Strategic Fiscal Policies - the State has developed a series of fiscal priorities to help achieve a balanced
• budget. These include reducing the State's pension liabilities; maintaining debt affordability processes for

capital programs; funding key priorities; implementing new revenue streams that reflect the State’s economic base; and investing in the economy and the State’s infrastructure. The State is also focused on containing costs and improving the efficiency of state operations, the efficiency of state operations , IT efficiencies, and structural changes to the grow the economy.

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Debt

Debt Service Savings

• The General Assembly passed legislation (PA 99-

523), which lifted for fiscal year 2017 some of the restrictions that limit the State’s ability to efficiently refinance General Obligation bonds and Build Illinois bonds.

• In September 2016, Illinois issued $338.8 million in

Build Illinois refunding bonds that will save $69.6 million over the life of the bonds.

• In October 2016, Illinois issued $1.3 billion in GO

refunding bonds that will save $159.4 million over the life of the bonds.

Variable Rate Bonds

• The letters of credit expired in November 2016.

To replace those letters of credit, the State entered into direct placement agreements. The Series October 2003B Bonds were purchased on November 7, 2016 by four banks. The direct placement agreements have a term of two years and will expire on November 7, 2018. There is no acceleration risk, only an increase in rates with each downgrade.

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The State Has Actively Managed Its Debt Profile

Series 2003B Bonds

Owner Principal Amount Interest Rate Mode Sub-series DNT Asset Trust1 $226,000,000 LIBOR 2003B-1 PNC Bank, National Association 224,000,000 LIBOR 2003B-2 State Street Public Lending Corporation2 75,000,000 LIBOR 2003B-3 RBC Municipal Products, LLC3 75,000,000 SIFMA 2003B-4

1An affiliate of JPMorgan Chase Bank, National Association 2An affiliate of State Street Bank and Trust Company 3An affiliate of Royal Bank of Canada

General Obligation Bond Debt Service

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 $ Millions

Principal Interest

General Obligation: Debt Service1

Current Par Outstanding1,2 Capital Improvement Bonds $14,653,772,111 Pension Bonds $12,000,000,000 Total $26,653,772,111

Fixed Rate, 97.7% Hedged Variable Rate, 2.3%

Current Debt Mix1,2

1 As of 12/31/2016. 2 Reflects the portion of the principal maturing during fiscal year 2017 which has already been

paid.

• There is a continuing appropriation in place to ensure repayment

without action by the General Assembly.

• General Obligation bonds are backed by the full faith and credit of

the State.

• Segregation of funds for debt service begin 12 months in advance

for principal payments and 6 months in advance for interest payments.

• The Bond Act requires that GO Bonds have the following

characteristics:

• No more than a 25 year final maturity
• Level repayment of principal.

If term bonds are used, they must have level mandatory level sinking fund redemptions matching the level repayment structure.

• 25% of all bond sales in a fiscal year, by aggregate principal

amount, must be by competitive bid.

• Although the Bond Act places the restrictions described above on

the issuance of GO Bonds, Public Act 99-0523 suspended some of these restrictions for GO Bonds issued for refunding purposes in Fiscal Year 2017.

• Unless waived in writing by the Treasurer and Comptroller, next

fiscal year’s debt service cannot exceed 7% of last year’s General Funds/Road Fund appropriations.

• Pursuant to Public Act 99-0523, the restrictions were waived

for the issuance of up to $2.0 billion for refunding bonds and $2.0 billion for new money bonds in FY 2017.

• Average life of all outstanding GO Bonds is approximately 9.0 years.

Debt service declines once pension bonds are paid off in 2019

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The State’s GOBRI Fund Cash Balances Are Strong

2 Does not include debt service transfers on short-term debt as may have been from time to time outstanding.

• Monies in GOBRI are used only for the payment of principal and interest on GO Bonds issued under the Bond Act and Short-term

borrowing Act.

• Approximately $2.0 billion in transfers from General Funds to GOBRI were used for FY 2016 for debt service on GO bonds and $2.35

billion is estimated for FY 2017, with the balance expected to come from other State funds.

• The State transfers on average less than $200 million a month from General Funds to GOBRI.
• General Funds Revenues available to make General Revenue Fund debt service total approximately $2.5 billion per month on

average and provide approximately 12.5x coverage on the amount required to be transferred into GOBRI each month for General Funds share of debt service.

• As of January 31, 2017, $1.54 billion was available in GOBRI.
• .

$- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 2012 2013 2014 2015 2016 2017

$ Millions

Fiscal Year All Fund Cash Balances1

1 Does not include Federal Trust Funds. Includes GOBRI. June 30, 2016 balances show

an increase from FY 2015 due in part to the late enactment of FY 2016 appropriations for many State funds.

2FY2017 balances are as of January 31, 2017.

Transfers to the GOBRI Fund ($ Millions)2 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 General Revenue Fund Capital Bonds $ 452.8 $ 548.8 $ 602.9 $ 591.6 $ 556.5 Pension Bonds 1,607.2 1,554.6 1,655.4 1,502.2 1,422.6 Road Fund 332.9 359.3 358.7 346.7 333.7 School Infrastructure Fund 216.3 209.5 208.8 192.8 211.8 Capital Projects Fund 240.8 310.1 344.2 388.0 532.5 TOTAL $2,850.6 $2,982.3 $3,170.0 $3,021.4 $3,057.1

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2

50 100 150 200 250 300 350 $ Millions Interest Principal

Build Illinois Bond Debt Service

Build Illinois: Debt Service

Current Par Outstanding Senior Bonds $1,505,000,000 Junior Bonds 1,203,000,000 Total $2,708,000,000

• The Bonds are secured by an irrevocable, first priority pledge of and

lien on monies on deposit in the Build Illinois Bond Retirement and Interest Fund (“BIBRI”), a separate fund in the State Treasury.

• The State Share of Sales Tax Revenues constitutes a primary source
• f payment for debt service on the Bonds.
• State Share of Sales Tax has consistently trended upward

since 2010 and has averaged $7.8 billion per year.

• Annual Net State Share of Sales Tax Revenues have

significantly exceeded Annual Debt Service Requirements and has averaged 23.7x since 2010.

• Pursuant to the Act, if the State does not make an appropriation for

debt service, the Act provides for an irrevocable and continuing appropriation allowing debt service to be paid as scheduled.

• Under the Act and Indenture, the State irrevocably covenants with

Bondholders not to limit or alter the basis on which taxes and revenues are required to be collected and deposited for Build Illinois Bonds, the purposes of BIBRI or the provisions of certain sections of the Act so as to impair the obligations of the contract incurred by the State in favor of the holders of the Bonds.

25.95x 10.2x 5 10 15 20 25 30 Current MADS Coverage Statutory Minimum Coverage Required

2017 MADS Debt Service Coverage

$6.6 $7.1 $7.5 $7.8 $8.1 $8.5 $8.6 24.1 23.6 25.2 22.8 23.3 23.0 24.2 16 17 18 19 20 21 22 23 24 25 26 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 2010 2011 2012 2013 2014 2015 2016 Coverage ($bn) Net State Share of Sales Tax Revenues Debt Service Coverage Ratio

Net Sales Tax Revenues and Debt Service Coverage

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Pension Update

Pension Status

FISCAL YEAR 2016

($ IN THOUSANDS)

Beginning Net Assets

(2)

15,258,867 $ 46,406,916 $ 17,462,968 $ 54,574 $ 833,910 $ 80,017,235 $ 1,753,554 $ Income Member Contributions 256,198 $ 951,809 $ 278,884 $ 1,310 $ 14,962 $ 1,503,163 $ 76,457 $ State and Employer Contributions 1,882,243 3,890,510 1,582,294 16,073 132,060 7,503,180 65,370 Investment Income (125,443) (44,103) 17,044 (539) (6,471) (159,512) 3,192 Total 2,012,999 $ 4,798,216 $ 1,878,222 $ 16,843 $ 140,552 $ 8,846,831 $ 145,019 $ Expenditures Benefits and Refunds 2,217,210 $ 5,931,207 $ 2,320,829 $ $ 21,983 $ 133,230 $ 10,624,459 $ 72,588 Administration 16,127 22,968 14,731 382 943 55,151 479 Total 2,233,337 $ 5,954,175 $ 2,335,560 $ 22,365 $ 134,173 $ 10,679,610 $ 73,067 $ Ending Net Assets (Fair value) 15,038,528 $ 45,250,957 $ 17,005,630 $ 49,052 $ 840,289 $ 78,184,456 $ $ 1,825,506 Actuarial Value of Assets 15,632,604 47,222,098 17,701,646 50,823 870,893 81,478,064 N/A Actuarial Accrued Liabilities 45,515,370 118,629,890 40,923,301 363,337 2,546,450 207,978,348 N/A UAAL (Fair Value) 30,476,842 73,378,934 23,917,671 314,285 1,706,161 129,793,893 N/A UAAL (Actuarial Value)

(3)

29,882,766 71,407,792 23,221,655 312,514 1,675,557 126,500,284 N/A Funded Ratio (Fair Value) 33.04% 38.14% 41.55% 13.50% 33.00% 37.59% N/A Funded Ratio (Actuarial Value)

(3)

34.35% 39.81% 43.26% 13.99% 34.20% 39.18% N/A

(1) (2) (3) The SURS Self Managed Plan ("SMP") is not included in the totals. The SMP is a defined contribution plan and, by definition, is fully funded and does not carry unfunded

• liability. See "BACKGROUND INFORMATION REGARDING THE RETIREMENT SYSTEMS".

Reflects valuation of assets on a fair value basis as of June 30, 2016. The actuarial value is determined by the methods as discussed in "ACTUARIAL METHODS - Actuarial Value of Assets".

FINANCIAL CONDITION OF THE RETIREMENT SYSTEMS

SERS TRS SURS GARS JRS Total Self Managed Plan of SURS

(1)

Source: Comprehensive Annual Financial Reports, Fiscal Year 2016. Table may not add due to rounding. Certain information was provided by the Retirement Systems.

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Pension Status

• Actuarial Assets as of June 30, 2016 were $81.5 billion and the Asset Market Value was $78.2 billion.
• The State Retirement Systems, in aggregate, were funded at 39.2% as of FY 2016 based on the asset

smoothing method and 37.6% using asset market value; individual percentages for each fund vary.

• FY 2016 valuations show the impact of a reduction in funding levels due to actual returns performing at lower

than assumed rates of return in FY 2016 and the reduction in the assumed investment rates of return by TRS and SERS and other SERS assumption changes.

• Despite the limited FY 2017 budget, continuing appropriations allow the Retirement Systems to continue to

voucher payments for the State’s contribution. The Comptroller is making payments as cash is available. FY 2016 payments were processed by the end of the State’s lapse period.

• The FY 2017 pension contribution from all State funds is at just under $8 billion, including approximately $7.0

billion from General Funds.

• Absent the Governor’s proposed funding reforms and the proposed creation of Tier 3, the FY 2018 certified

pension contribution from all State funds is almost $9 billion, including approximately $7.9 billion from General Funds.

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Pension Contributions

Projected State Pension Contributions

Based on current Illinois funding laws, state pension contributions are based on a level percentage of payroll between current year and fiscal year 2045 to reach a 90% funded level in 2045.

NOTE: Table based on Annual Actuarial Valuation as of June 30, 2016. Projections assume no reforms.

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Pension Assumptions

2009 2016 TRS 8.50% 7.00% SURS 8.50% 7.25% SERS 8.50% 7.00% GARS 8.00% 6.75% JRS 8.00% 6.75% INVESTMENT RATE OF RETURN ASSUMPTIONS USED BY THE RETIREMENT SYSTEMS Illinois Average 6.95% National Average 7.53% 2016 INVESTMENT RATE OF RETURN ASSUMPTIONS ILLINOIS VERSUS NATIONAL AVERAGE

Source: Comprehensive Annual Financial Reports, Fiscal Year 2016; NASRA Issue Brief: Public Pension Plan Investment Return Assumptions, February 2017

29

Pension Status

PERCENTAGE OF ARC/ADC RECEIVED BY PLANS NATIONWIDE

Source: NASRA FY15 Public Fund Survey, December 2016

Fiscal Year Amount Contributed

(2)

Actuarially Required Contribution Per GASB 25

(3)

Percentage Contributed 2005

$1,735.11 $3,084.49 56.25%

2006

$1,022.70 $3,085.60 33.14%

2007

$1,479.40 $3,665.60 40.36%

2008

$2,145.00 $3,729.20 57.52%

2009

$2,891.90 $4,076.40 70.94%

2010

$4,130.90 $4,786.80 86.30%

2011

$4,298.57 $5,906.59 72.78%

2012

$5,012.82 $6,609.55 75.84%

2013

$5,893.87 $7,015.33 84.01%

2014

$6,944.73 $7,751.99 89.59%

2015

$7,020.06 $7,896.83 88.90%

2016

$7,501.89 $8,388.42 89.43%

(1) In millions of dollars. (2) Includes all State funds. (3) Fiscal Year 2016 reflects the Actuarially Determined Contribution (ADC) under GASB 67/68 instead of the ARC. All systems are using a 30-year open amortization period for calculating their ADC. Source: Annual Actuarial Valuations of the Retirement Systems as of June 30,

• 2016. Comprehensive Annual Financial Reports of the Retirement Systems for

the fiscal years ending June 30, 2005 through June 30, 2016.

HISTORY OF EMPLOYER CONTRIBUTIONS(1)

OPEB

2011 2012* 2013 2014 2015** Unfunded Actuarial Accrued Liability 33,295 $ 35,200 $ 34,488 $ 33,051 $ 34,766 $

Source: Illinois State Employment Group Inurance Program GASB No. 45 Actuarial Valuation Report and the State CAFR NOTE: The GASB No. 45 Actuarial Valuation Report is produced every other year; there will be a full valuation reporting on FY 2015 *Estimation in the succeeding year's report **Estimation in the preceding year's report

OTHER POST EMPLOYMENT BENEFITS UNFUNDED ACTUARIAL ACCRUED LIABILITY - FISCAL YEARS 2011-2015 ($ IN THOUSANDS)

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Actuarially Required Contribution (Net of ARC adjustments) 2,275,294 $ Plus: Interest on Net OPEB Obligations 538,859 $ Adjustment to ARC (399,155) $ Annual OPEB Cost 2,414,998 $ Benefits Paid During the Year (185,445) $ Increase in Net OPEB Obligations 2,229,553 $ Net OPEB Obligations at June 30, 2015 11,974,652 $ Net OPEB Obligations at June 30, 2016 14,204,205 $

Source: The Comprehensive Annual Financial Report of the State, Fiscal Year 2016

NET OTHER POST EMPLOYMENT BENEFITS OBLIGATION FISCAL YEAR 2016 ($ IN THOUSANDS)