State of Illinois General Obligation Bonds Rating Agency - PowerPoint PPT Presentation

State of Illinois General Obligation Bonds – Rating Agency Presentation March 22, 2018 Deliberative Work Product Deliberative Work Product

Table of Contents 1. Illinois’ Strong and Diverse Economy 4 2. FY 2018 Budget Update 7 3. Pensions 14 4. Debt Overview 18 5. Plan of Finance 22 Deliberative Work Product

Presentation Participants – Governor’s Office of Management and Budget Hans Zigmund Kelly Hutchinson Director Director of Capital Markets Jim Foys Robert Steere Chief of Staff General Counsel Charlie Weikel Deputy Director Deliberative Work Product 2

The State’s Credit Fundamentals Have Improved Significantly  The State’s outstanding bills have been reduced substantially using the proceeds from the $6.0 billion of general obligation bonds issued in 2017 and $2.2 billion of additional federal funds  By the end of FY18, the bill backlog is expected to be approximately $7.7 billion, or just above the bill backlog average from December 2010 to FYE15 of $7.1 billion Inherent Credit Strengths Recent Positive Developments  Sovereign State with significant revenue flexibility  Passage of FY18 Budget  Illinois’ economy is the 5 th largest in the United  Increased projected revenues States and 19 th largest worldwide  Passage of Senate Bill 1947 remedied education  Statutory provisions gives priority to debt service funding disparities and provided certainty of over other State expenditures funding to school districts  GO Bond debt service has a continuing  Reauthorization of Edge Tax Credits to allow the appropriation, insulating it from political debates State to compete for major economic development projects  Debt service is limited to no more than 7% of General Funds and Road Fund Appropriations,  Reduced risk to swap counterparties by unless waived by the Treasurer, the Comptroller, renegotiating rating triggers or by Statute  After FY19 pension bonds debt service declines by $980 million, providing significant financial flexibility Deliberative Work Product 3

1. Illinois’ Strong and Diverse Economy Deliberative Work Product

Illinois’ Strong Economic Foundation Expansive Strong and Diverse Highly Educated Economy Transportation Network Population  The State is home to the 2nd and 25th  Broad employment base with no  Illinois is home to top ranked busiest U.S. airports in O’Hare and industry accounting for more than 20% universities bringing talented and Midway educated individuals to the State  Illinois is well-positioned for long-term  O’Hare is the Best Connected Airport stability through economic cycles  32.3% of Illinois residents have in the US according to MIT’s Airport college degrees, well above the US at Connectivity Quality Index  State’s diversified economy is a major 29.8% and the Great Lakes States at attraction for workers and recent  Illinois is the only state where all 7 26.2% graduates across the nation class I railroads in the United States operate. Train transit ridership is up nearly 54% over the past decade  Five Major Trucking Routes Intersect Mining, Construction in the State Logging, 3% Information and Other Finance Services 6% 6% Trade, Transportation and Utilities 20% Manufacturi ng 9% Professional Leisure and and Business Services Hospitality 16% 10% Education and Health Government Services 14% 15% Deliberative Work Product 4 Illinois’ Strong and Diverse Economy

Illinois’ Robust Economic Indicators Per Capita Personal Income 1 Average Non-farm Employment and Unemployment 1,2 Illinois’ Per Capita income is ranked 3rd among the 10 largest states. Employment increased with jobs exceeding 6.0 million in 2017. Q3FY17 $54,000 6,200 12.0 $52,929 $52,000 6,100 $50,463 10.0 $50,000 Employment (Thousands) 6,000 Unemployment Rate (%) $48,339 $48,000 5,900 8.0 5,800 $46,000 6.0 5,700 $44,000 5,600 4.0 $42,000 5,500 $40,000 2.0 5,400 $38,000 5,300 0.0 $36,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 3Q2017 Illinois United States Great Lakes IL Employment IL Unemployment Rate National Unemployment Rate Median Household Income 3 Upward Trend in IL Real GDP 4 Illinois’ median household income continues to outpace the nation and in 2016 In 3Q2017 Illinois’ $706 Billion GDP ranked 5th in the nation behind Florida and grew by 2.82% compared to growth of 2.66% seen nationally. would rank 19th in the world ahead of Switzerland. $62,000 $720,000 $59,196 $60,000 Millions of Chained 2009 Dollars $57,166 $56,797 $57,574 $56,853 $58,000 $700,000 $56,000 $55,322 $680,000 $53,889 $53,482 $54,000 $53,046 $53,046 $660,000 $52,000 $640,000 2009 – 3Q2017 CAGR of 1.5% $50,000 $620,000 $48,000 2012 2013 2014 2015 2016 $600,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3Q17 Illinois National Source: Bureau of Economic Analysis; Bureau of Labor Statistics; U.S. Census Bureau Note: 1. YTD averages 2. As of 3/2018, not seasonally-adjusted 3. American Community Survey 5-Year Estimates 4. Bureau of Economic Analysis 2017, data as of 3/2018. Deliberative Work Product 5 Illinois’ Strong and Diverse Economy

Economic Developments  The State recently reauthorized the Economic Development For a Growing Economy Tax Credit Program (EDGE) to provide special tax incentives to encourage companies to locate or expand operations in Illinois when there is active consideration of a competing location in another state  For three years in a row, Site Selection Magazine has named the Chicago Metropolitan Region as #1 U.S. Metro for new projects, showing progress in how Illinois, and specifically Chicago, is viewed in the business community  In calendar year 2017, a record-high 55.2 million tourists visited Chicago, a 2.5% increase from the previous year  Amazon has built 9 new multi-million square foot distribution centers throughout Illinois providing for over 8,000 jobs and over $500 million in investments  Amazon is conducting a search for a location for its second headquarters. The company says this new location will create up to 50,000 jobs. Chicago has made the shortlist of potential candidates  Companies such as Google and Facebook are reportedly looking to expand their operations in the Chicago area  Illinois exports 1 increased by 8% from $5.1 billion in December 2016 to $5.5 billion in December 2017 1 Data on U.S. exports of merchandise from the U.S. to all countries, except Canada, is compiled from the Electronic Export Information (EEI) filed by the US Principal Party in Interest (USPPI) or their agents through the Automated Export System (AES). The EEI is unique among Census Bureau data collection methods since it is not sent to respondents soliciting responses as in the case of surveys. Each EEI represents a shipment of one or more kinds of merchandise from one exporter to one foreign importer on a single carrier. Filing the EEI is mandatory under Chapter 9, Title 13, United States Code. Qualified exporters or their agents submit EEI data by automated means directly to the U.S. Census Bureau Deliberative Work Product 6 Illinois’ Strong and Diverse Economy

2. FY 2018 Budget Update Deliberative Work Product

FY 2018 Budget Overview Highlights  The Budget Impasse ended on July 6, 2017, when the State enacted a full-year budget for fiscal year 2018  Income Tax rates increased from 3.75% to 4.95% for individuals and from 5.25% to 7.00% for corporations, generating an estimated $4.5 billion of additional revenue for fiscal year 2018 and more in future years  $6.0 billion of general obligation bonds were authorized and issued to pay down the bill backlog; $4 billion paid for group health insurance, $2.5 billion for Medicaid (generating an additional $2.2 billion in federal match)  Appropriations for education increased by over $490 million, driven by an evidence-based funding bill that revamps the previous education funding formula 1  The Comptroller received authority to make one-time transfers during fiscal year 2018 of specific amounts from specific funds in the State Treasury, up to a total of $292.8 million, into the General Funds and the Health Insurance Reserve Fund, to improve stability in the funds and reduce the backlog of bills  The Comptroller received authority to temporarily borrow available balances of up to $1.2 billion in other state funds in the State Treasury for deposit into the General Funds or the Health Insurance Reserve Fund prior to December 31, 2018 in order to meet cash flow deficits and to maintain liquidity in those funds. Any such interfund borrowing must be paid back to the fund from which it was borrowed within 24 months  “General Funds” was redefined to include the Fund for the Advancement of Education, Commitment to Human Services Fund and Budget Stabilization Fund along with the Common School Fund, General Revenue-Common School Special Account Fund, Education Assistance Fund, and General Revenue Fund  Starting in fiscal year 2018, State income and sales tax revenue shared with local governments flows directly into the Local Government Distributive Fund, the Public Transportation Fund and the Downstate Public Transportation Fund as revenues are collected rather than first being deposited in the General Revenue Fund for transfer to the other funds 1 See ISBE website for more information on evidence-based funding at: https://www.isbe.net/Documents/EBF_Presentation_Overview.pdf Deliberative Work Product 7 FY 2018 Budget Update