Leading

Leading Illinois Forward:

Forward:
The
The Hynes Plan for
for Tax
Tax
Fairness & Fiscal Prosperity
Fairness Prosperity
 Table of Contents

How We Got Here…………………………………………………………….…page 3

If Hynes Were Governor………………………………………………….……page 4

The Hynes Record………………………………………………………….…..page 6

Hynes’ Budget Principles……………………………………………….…….page 8

The Hynes Plan to Balance the Budget:

Step One: Reduce the Short-Term Deficit…………………………….……page 9

Step Two: Address Structural Revenue Problem………………...……..page 15

Step Three: A Balanced Budget & Investment………………………......page 17

Conclusion……………………………………………………………………..page 19

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How We Got Here

Inept leadership and management has left Illinois in a nearly $4 billion hole at the
close of FY 2009, an anticipated $4.6 billion hole at the end of FY 2010 and an
estimated $10.5 billion hole at the close of FY 2011. Now, we have a budget that
papers-over this huge gap with a patch-work approach that doesn’t solve the long-term
problem – and, in fact, in some ways makes it worse.

In order to artificially hold down the FY10 deficit, several one-time quick fixes
were implemented. These actions did very little to address the underlying structural
deficit. They include:

One-time federal stimulus payments.

Issuing approximately $3.5 billion in pension bonds this fall – paying this
year’s pension obligations by borrowing from future years.

Instituting a debt restructuring to reduce debt service payments on state

bonds this fiscal year

Undertaking some fund sweeps

And the situation is even worse than advertised, because the state still isn’t really
counting all of its bills: Under what’s called “Section 25” authority, state government
simply refuses to pay all of the state group health insurance and Medicaid bills. If
anyone else did that, they’d be called a “deadbeat.” The unpaid bills – which aren’t
counted as part of the official “deficit” because they’re simply “rolled over” to the next
year – were estimated to be $1.5 billion, and will result in continuing payment delays to
health care providers. These delays are already exceeding six-months, and are growing
with no end in sight. The Governor initiated more short-term borrowing to help reduce
the backlog minimally. However, this will be insufficient to bring payment delays down to
any sort of reasonable level and will only hinder solutions to the fundamental problem.

The bottom line: a $4.6 billion budget deficit for FY10 that the current budget is
simply dumping on top of next year’s budget.

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If Dan Hynes Were Governor Today, the Budget Would Be Under Control

Unlike any other candidate for Governor, we already know where we would be if
Dan Hynes were in charge.

While others stood by silently, in 2003, Comptroller Dan Hynes warned then-
Governor Rod Blagojevich of long-term fiscal problems if the state did not act and
proposed a comprehensive series of fiscal reforms. Those reforms included:

The elimination of excess deferred Medicaid liabilities carried over into

succeeding fiscal years.
Budgetary growth limited to matching more accurate and consensus
estimates of expected revenues.
A percentage of new economic revenues allocated to budgetary reserve
funds.

If the Hynes reforms had been adopted, the State would have experienced
balanced budgets thru FY 09 permitting some program growth for education and health
care within the confines of available revenues. Mandating that 1% of annual revenues
when growth exceeds 4% be deposited into the Budget Stabilization or Rainy Day Fund
would have generated an additional $530 million into that fund, allowing payment cycles
to become more predictable and minimizing seasonal delays. Short-term borrowings
would have been reduced and with them their associated interest costs. With nearly
$800 million in the Rainy Day Fund and a balanced structural budget, Illinois would have
suffered in the current recession like every other state – but a whole lot less: The net
FY09-10 combined deficit would have totaled $2.4 billion, with the receipt of federal
stimulus monies of $3.6 billion. As a result, service cuts and revenue increases would
have been temporary and comparatively small. This is in contrast to the $4.6 billion
deficit and draconian cuts under the current enacted FY10 budget.

Unfortunately, Dan Hynes’ proposed reforms were either ignored or watered

down by the Blagojevich Administration and never implemented as intended.

In short, we’ll start the next budget, for FY11, in a nearly $4.6 billion hole. And because
the underlying structural problem has gone unaddressed – as Comptroller Hynes has
spoken out on for nearly a decade – these problems will only come back with a
vengeance:

The budget didn’t address the long-term pension problem, simply borrowing
all the money to make this year’s payment, thus Illinois will have to return to
making its annual pension payments of at least $3.5 billion.

And then the state will also have to start paying off the $3.5 billion in new
pension bonds borrowed to come up with this year’s payment – that’s close to
an additional $800 million a year for the next five years.

And since the budget relies on federal stimulus money to plug the rest of the
hole, the state will be losing an estimated $1.3 billion in FY10 stimulus
payments that won’t be repeated in FY11.

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 Finally, because the budget does not address the chronic long-term problems
in our ability to pay our healthcare and service providers, the problem will
only grow worse.

Together, that is an additional $5.9 billion in budget shortfall in Fiscal Year 2011
– added on to the $4.6 billion shortfall that is simply being “rolled over” from FY09 and
FY10.

In short, unless we act now, Illinois will be faced with at least a $10.5 billion
General Funds budget deficit for FY11 – leaving the state basically back where we were
last spring. And let’s be clear: The State is still left with a structural, recurring deficit that,
with inflation and natural growth, will leave the state over $10 billion short – and counting
– every single year until we change tactics and change leadership. Illinois simply cannot
afford four more years of the same approach and the same outcomes.

Pat Quinn says he has a plan: Whether you’re a family making $50,000 or $5
million, Quinn wants to hike the income tax on everyone in Illinois by 50%. That’s just a
bad idea. It is unfair to middleclass Illinois taxpayers and it is not the right way to solve
our problems. It’s time to try something better.

Dan Hynes is the state leader who warned about this problem from the beginning
and proposed a way to avoid it. Now, he has fresh new ideas about how we get out of it.
It’s time to put the Hynes Plan to work.

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The Hynes Record

Dan Hynes has been a consistent, outspoken advocate for fiscal responsibility
and budget reform throughout his tenure as Comptroller, but you need to look no further
than the management of his own office to know that he leads by example. Since taking
over as Comptroller in 1999, Dan has been doing more with less as his current operating
budget is well below 2001 levels. Dan’s own office budget reflects more than a 20
percent reduction in headcount from 1999, which is the lowest in the office’s history. He
has achieved these efficiencies in his office by instituting common sense approaches to
save taxpayer dollars:

Continuing the management personnel wage freeze and furlough program

initiated in FY 2009.
Reducing the number of contracts.
Deferring or reducing training-related expenditures including both in-house
and external programs.
Freezing new equipment acquisitions except for emergency purposes.
Decreasing allocations for automotive expenditures including a selloff
/reduction in the number of current agency vehicles.
Eliminating all out-of-state travel expenditures and reducing in-state travel
costs.
Reducing commodities costs through inventory consolidations and
economies.
Decreasing telecommunications and software expenditures by postponing
non -critical purchases and eliminating non-essential goods and services.

Hynes has taken the same approach to saving taxpayer dollars across state
government. He has been forceful in his crusade to stop wasteful spending, innovative
in using technology to save money and dogged in his pursuit of efficient government.
Some of Dan’s actions saving dollars across state government include:

Freezing state payments on state contracts with corporations that were using
foreign tax havens to avoid paying their fair share.
Refused to pay for flu vaccines that Illinois never received when Rod
Blagojevich tried to circumvent the federal Food & Drug Administration-saving
the state over $2 million.
Increased debt collection efforts in the Comptroller’s Office by aggressively
using the offset system generating an additional $278 million
Freezing payments on George Ryan’s pork projects– like a Jack Benny
statue, stained glass in a parking garage, and a lily pond in Lincoln Park.
Enhanced electronic transactions within the office saving the state $16 million
since 1999.
Instituted a ban on giving state business to deadbeat contractors.

Hynes hasn’t just worked for fiscal responsibility – he has also fought for fairness
for working Illinois families. Hynes has been widely recognized as a progressive leader
in creating worker protections, a prudent manager in a complex work environment, a
wise fiscal advocate for state pensions systems, and someone who brings a common
sense approach to labor issues. Dan’s fight for working men and women includes:

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Leading the charge to protect overtime pay for thousands of Illinois
workers. In conjunction with then State Senator Barack Obama, Dan
successfully championed legislation that decoupled Illinois from disastrous
Bush administration rules that would have eliminated overtime pay for those
who provide critical services in Illinois. Under those rules, an estimated
375,000 employees (including nurses, EMTs, lab techs, military vets, and
police and fire personnel) could have been denied overtime protections.

Signing an Executive Order to freeze state payments to state contractors

who are believed to be violating the Prevailing Wage Act and creating a
Prevailing Wage Officer position in his office to ensure state contractors are
paying fair wages.

Greatly expanding family leave guidelines in the Comptroller’s office to

allow more flexibility for workers to take care of their family needs, which
included extending benefits to employees engaged in domestic partnerships.

Fighting for short-term borrowing measures during economic downturns

to help offset payment delays to frontline services. These innovative
techniques allowed Illinois to leverage additional federal dollars that permitted
businesses to stay open and workers to keep their jobs.

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Dan Hynes’ Budget Principles

If we’re going to beat our current budget problems, we’re going to need new
leadership and a new approach. Dan Hynes has that approach – a detailed plan to
balance the Illinois state budget in a way that’s workable and fair. A plan that’s based on
years of experience fighting for fiscal responsibility. And a plan that’s based on
principles – the kind of principles we’d expect from a serious policymaker instead of just
another politician:

This mess was a long time in the making; it’s going to require a long-term
solution.

But we also need to immediately stop the hemorrhaging right now, too.

This won’t be easy. There’s going to be pain. This is going to require

leadership and telling people the truth.

The burden needs to be shared fairly.

Government needs to make cuts before it asks taxpayers to pay more.

There’s plenty of inefficiency and waste with which to start.

Some people in state government will have to go. We should start with the
political hacks and cronies brought in by Rod Blagojevich at exorbitant
salaries that Pat Quinn refuses to get rid of.

Illinois has to stop its bad habit of living off of borrowed funds, debt, and
pushing bills into the future. We need to use intelligent and innovative
financial restructurings where possible to leverage savings and/or additional
dollars that will help reduce our long-term obligations.

We can’t solve our structural budget problems with one-time gimmicks.

However, we can pay one-time bills with one-time revenues.

We will not be able to make ends meet by making cuts alone. Ultimately, the
state needs a new long-term revenue structure to support its operations.

We should look first for non-tax revenue where possible.

Only then can we ask Illinois citizens to pay more. However, any tax
changes must be fair.

That means we must start by closing unfair tax loopholes that let some
businesses escape taxation while others struggle to pay their fair share, and
that let consumers of some luxury services avoid paying the same taxes that
other consumers pay for ordinary goods and necessities.

And we cannot impose a 50% income tax increase on low and middle-income
families across our state. Instead, we must change our state income tax
structure to make it progressive and fair; so that the vast majority of Illinois
families are “held harmless”; and so that the wealthy pay their fair share.

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The Hynes Plan to Balance the Budget

Step One: Reduce the Short-Term Budget Short-Fall in FY10

This deficit was not built in a day – it will take a series of steps over time, not a
one-time stroke like Pat Quinn’s unfair income tax hike, to overcome it. The Hynes Plan
starts with strategic and workable actions we can and must take now to reduce the
current-year deficit and position us to eliminate the state’s structural budget deficit at the
beginning of the next Governor’s term. We need someone to put a workable plan before
the legislature to start closing the gap. Here’s that plan:

1. Cut Government Spending Where We Can

The first thing to do is to cut unnecessary government spending. Pat

Quinn does not have a plan to do this – he has simply ordered blind cuts.
Dan Hynes has a plan – to target the places in state government where
we can cut fat without cutting needed services:

Cut management and unneeded bureaucracy, not front-line workers –

starting with firing half the high-paid Blagojevich political
appointees making over $70,000 per year. Pat Quinn has refused to
get rid of Rod Blagojevich’s management team; however, doing so
would save the taxpayers $100 million per year.

7% cut on spending on discretionary grant programs. Instead of

haphazard cuts, review each and every grant line to determine where
cuts should be made and to ensure that programs are running as
efficiently as possible. While this is an overall 7% reduction in grants,
it is, in essence, a significant restoration of the misguided cuts
imposed by Governor Quinn. Cutting 7% would save the state $625
million per year.

Cut big fat contracts for legal, advertising, consulting services, IT

and other professional services. For example, the FY2010 budget
contemplates $20 million for lottery and tourism advertising contracts
and $10 million for a new timekeeping system for state employees.
Additionally, the state should negotiate with all law firms doing work
for the state to accept a 20% reduction in fees. These examples and
others would save the state another $300 million per year.

Cut operations levels back to their 2005 levels. Dan Hynes has
already done exactly this in the Comptroller’s Office. In fact, his
operations are below 2001 levels and he is reducing costs by an
additional 11% this fiscal year.

Governor Quinn should order similar roll-backs state wide. Reducing

agency operations under the control of the Governor to 2005 levels
represents savings of $600 million per year.

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Of course, setting the target is the easy part – finding the
inefficiencies and eliminating them is where the rubber meets the
road. While agency directors are in the best position to determine the
best way to make these cuts, Dan Hynes has a pretty good idea
where to start:

o Consolidate all state civil service commissions. Right now,

we have four separate civil service systems under the Governor,
Secretary of State, Treasurer and Comptroller. Since these
personnel codes are similar, we could have one commission hear
all the appeals of Merit Compensation employees. Estimated
savings from this move would be $300,000.

o Reduce the state’s cost for durable medical equipment.

Durable medical equipment (DME) purchased through the
Medicaid and Medicare programs should be purchased through a
competitive bid process, which includes negotiated discounts for
volume. In the same way the pharmaceutical costs can be
negotiated down through aggregating drug purchases across state
programs, the state can find savings in the way DME is
purchased. Florida, Texas and New York competitively bid out
DME purchases. Federal demonstration projects have shown that
overall savings to the Medicare program ranges from 17% to 22%.
In the two demonstration sites of Polk County, Florida and San
Antonio, Texas, the net savings for the Medicare DME
expenditures totaled $2.7 million. We should be able to save
another $2 million here in Illinois.

o Close Foreign Trade Offices which aren’t necessary to the core

functions of the state during a fiscal crisis saving an estimated $5
million.

o Make appointments to most State boards and commissions

non-paid. Estimated savings are $12 million.

o Mandate a statewide initiative to reduce telecommunication

costs in State government. Reviewing all bills to verify accuracy
of bills, eliminating unnecessary phones lines and equipment,
consolidating telecomm and cell phone purchases – State
governments in states such as Arkansas, Oklahoma, Louisiana,
and Indiana have all realized significant savings in the range of 7-
10% of annual communications costs. A conservative estimate
would put such savings at $15 million a year.

o Increase efforts to prevent Medicaid fraud. Studies have found

that Medicaid fraud ranges from 10% to as much as 40% of all
program spending. Obviously, there is room in Illinois to improve
performance and save taxpayers money without cutting back on
services to families that truly need it. Technologies now exist to
detect potentially fraudulent patterns of billing, allowing for the
prevention of payments being made that later would require

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 formalized prosecution and collection activities. We would need to
further reduce only a very small percentage of likely fraud levels in
our state just to save $50 million a year.

o Implement aggressive actions to stop tax avoidance. It is no

secret that there is a coordinated effort by some individuals and
corporations to avoid paying state taxes. Other states have
addressed this issue by using computer programs which can
uncover those who avoid paying Illinois taxes. States such as
New York, California, and Massachusetts have recouped
hundreds of millions of dollars from tax scofflaws. Illinois could
expect to recover at least $50 million a year.

That’s roughly $135 million in specific savings that we could start

implementing right now. In fact, Dan Hynes has instituted similar
savings within his own office, which put it on the path to efficiency. He
knows that if we institute a statewide review to scour state
government for waste and inefficiency, we could save 2-3% off
General Fund operations – performance reviews have helped reduce
costs in states from Texas to Delaware to New Mexico to North
Carolina to Colorado to West Virginia to California. In fact,
performance reviews in other states have been able to identify
savings amounting from 1% to 6% of the General Fund budget.

Collectively, the cuts under the Hynes Plan consisting of firing political
appointees, reduction in discretionary grants and professional contracts
and scaling back operations would result in total spending cuts of $1.625
billion for FY 2010.

2. It’s Raining: Use Our Savings to Pay Our Bills

As a long-time advocate of fiscal prudence, Comptroller Dan Hynes

knows that, in most times, the State needs to be building up its Rainy Day
Fund. But he also knows that, when a rainy day comes, that’s what we’ve
saved for – and, right now in Illinois, it’s pouring. Hynes would draw down
the Rainy Day Fund now, and draw down the remaining General Funds
balances of $100 million, to pay help pay current bills that are only
causing further arrearages. That represents a total one-time infusion of
$376 million.

3. Use One-Time Borrowing to Leverage Additional Debt Pay-Down

Normally, Illinois wouldn’t need more borrowing at this point. But we

could actually leverage additional federal funds by paying down some of
our outstanding Medicaid bills now while there is a higher federal
Medicaid match rate under the federal stimulus program that will sunset
at the end of December 2010. Comptroller Hynes would issue bonds to
help pay down this backlog, obtain additional federal funds, and reduce
our obligations by $1.5 billion.

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4. Pay For This Bond Issue With Increased Cigarette Taxes, and
Reform How We Pay for Health Care for the Needy

Unlike the pension notes issued this year that did not have a funding
source attached, Dan Hynes has a plan for how to pay off the notes he
proposes to help reduce current outlays: The Hynes Plan, will increase
the state’s cigarette tax by $1.00 per pack to provide the state with an
additional $300 million in revenues per year. This money will be
deposited into a new Reimbursement Reform Fund and will be used to
promptly repay the $1.5 billion in bonds over five years.

After that, as Governor, Hynes will reform the payment system for
Medicaid bills by eliminating the ability to keep appropriations artificially
low and carry over bills unnecessarily into a later year. He would call on
the legislature to amend Section 25 of the State Finance Act to create a
lapse period of only 4 months to deal with medical assistance bills, so that
Illinois will never again be a “deadbeat state government.”

Under Hynes’ plan, once the bonds are paid off the cigarette tax revenues
would be used to increase Medicaid provider rates to help ensure that all
Illinoisans have access to a broad spectrum of health care. Under Hynes’
plan we will not just address short-term fiscal shortfalls but also address
the underlying problems, like health care costs and coverage, that drive
our long-term financial situation in the wrong direction and limit access
and care to millions of Illinoisans.

5. Close Out Unfair Tax Breaks and Loopholes

Pat Quinn sees the ultimate solution as raising taxes across the board on
everyone. Dan Hynes thinks there is a better way: After we have found
all the savings and expenditure cuts we can, let’s start improving the
revenue picture by asking those who can best afford to pay more to start
by paying their fair share.

The Hynes Plan will immediately close out unnecessary business tax
loopholes and extend the sales tax to include non-vital luxury items.

Luxury Service and Sales Tax: Illinois currently taxes the fewest
services (17) of any of our neighboring states – including Indiana (24),
Missouri (26), Kentucky (28), Wisconsin (76), and Iowa (94). Instead
of raising taxes across the board on middle-class families, we should
be targeting any tax increases to luxury items that we just don’t need.
Many of these goods and services currently escape taxation while
families purchasing necessities, such as clothing and school supplies,
pay the full state sales tax. The Hynes plan would close these
loopholes and extend tax fairness by covering such goods and
services as:

o Tanning parlors
o Elective cosmetic surgeries
o Interior design services

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 o Car and truck rentals
o Pet grooming
o Marina services
o Health Clubs
o Dating services
o Memberships in private clubs
o Cultural events
o Scenic and sightseeing transportation
o Limousine and car services
o Unscheduled charter air flights
o Marine towing

It is always regrettable to raise taxes regardless of the form. However in

this budget crisis, we need leadership willing to say that we all need to
share the burden fairly for nonessentials – whether that’s for your yacht
services or your spray tan. That is a lot fairer than raising taxes on the
things that people really need or boosting every family’s income taxes by
50%. The luxury service and sales tax would bring in $360 million per
year.

Corporate Tax Loophole Closure. In the early 90’s, Illinois adopted

all sorts of tax breaks for big businesses. These tax giveaways – like
the single sales factor and the high impact business exemption – don’t
seem to be doing much to help our economy at the moment, and we
simply can’t afford them any longer. The Hynes Plan will take away
these special breaks for special interests before raising taxes on
working Illinoisans, bringing in an additional $125 million per year.

Sales Tax Expenditures Reduction. The Hynes Plan would make

several technical fixes in how we currently collect sales tax to correct
what basically amount to unnecessary costs to taxpayers. Primary
among these is eliminating the Retailer’s Discount; this allows
retailers to retain a portion of the sales tax themselves, ostensibly to
compensate them for the expense of maintaining sales tax records.
This might have made sense in the days before computers and
immediate telephone link-ups with credit cards and banks to collect
and record these transactions, but it does not make sense any more.
This and similar changes would help the state retain $125 million per
year.

Restore Adequate Gaming Taxation. We must return tax rates on

casinos to 70%. Unfortunately, they were rolled back to only 50%.
There is no reason why working families should pay more when
casinos can afford to do so, instead. The Hynes Plan would restore
the higher rates on riverboat gaming, bringing in an additional $200
million per year.

Maximize Dormant Gaming Positions. Illinois currently allows

1,200 gaming positions at the nine active casino sites across the
state. However, roughly 200 of these positions are inactive. The

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 Hynes Plan calls for a “Tax and Trade” system which would allow
casinos to lease their inactive positions to another casino that has
increased demand. The state would receive a portion of the lease
proceeds and increased gaming revenues when the positions are
activated. This action could generate $40 million per year.

Together, these tax changes represent total new revenues of $850 million/year –
meaning the State could net an additional $425 million in revenues in FY10 by enacting
these measures by January 1.

The Net Effect

These actions won’t totally eliminate the FY10 budget shortfall – but they will
come a lot closer. Most importantly, they will position the state to move into budget
balance within about one year by dramatically shrinking the structural budget problems
that Illinois has been ignoring or making worse.

The Hynes Plan cuts the FY10 budget deficit by more than half – from $4.563
billion to only $2.212 billion. It permanently cuts about $3 billion per year out of the
structural budget deficit, and it puts us within striking distance of permanently solving our
financial problems.

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 Step Two: Address the State’s Structural Revenue Problems in FY11

If Illinois state government acts on Dan Hynes plan for FY 2010, we could cut
billions of dollars from the state’s bottom line this fiscal year and position the state to
reach balance. However, further actions will be needed to eliminate the budget gap
once and for all. To accomplish that, Comptroller Hynes recommends that the state
government take the following actions in FY 2011:

1. Conduct Additional Fund Sweeps

Unneeded allocations build up every year in various funds across state

government. Sweeping those funds again in 2011 will garner an
additional $300 million in excess balances we can apply to paying down
the budget deficit.

2. Continue Pursuing More Efficiencies

The state must make a concerted effort to continue finding ways to make
government work more efficiently. To that end, Dan Hynes believes that
there are ways to consolidate government offices to maximize
performance and save taxpayer dollars. Specifically, Hynes proposes to
merge the Comptroller’s Office and the Treasurer’s Office. Additionally,
eliminate the Office of Lieutenant Governor, leaving the Attorney General
as the successor to the Governor. Together, these initiatives could save
the state at least $4 million a year.

3. Issue Additional Casino Licenses

Dan Hynes believes that we need to look for every possible revenue
source before resorting to increasing the income tax, as Pat Quinn would
do. By issuing licenses for an additional 2-3 casinos, Illinois could reap
one-time revenues of $600 million. This would be used in FY11 to offset
the one-time drop in the revenue picture due to the projected ending of
federal stimulus monies

4. Ask the State’s Voters to Modernize our Tax Structure with a

Graduated Income Tax Starting on January 1, 2011.

Comptroller Hynes recognizes that only a bold change in the state’s fiscal
structure will ultimately solve the fiscal problem Illinois faces. We can cut
waste, close loopholes, find additional sources of money, but, ultimately,
a fundamental restructuring of the tax system is the only way we will end,
once and for all, Illinois’ massive structural budget deficit. But Hynes
disagrees with Pat Quinn that an across-the-board increase in everyone’s
income taxes is the way to achieve that – let alone one as large as 50% -
because it is already a regressive structure. Under Illinois’ current tax
structure, the bottom 20 percent of Illinois households paid 12.8 percent
of their income in state and local taxes, while the top 1 percent paid only
4.6 percent. This may be the reason why Illinois is one of only 7 states to
have a flat tax structure. Instead, Hynes believes that those most able to

15
pay increased taxes should be the ones to do so – and that it’s time to
finally make Illinois’ income tax structure progressive.

The Hynes plan therefore calls for an income tax increase ranging from
0.5 up to a maximum of 4.5 percentage points, only on people making
over $200,000 per year. The top rate of 7.5% would be paid only by
those making more than $1 million. This means that 97% of Illinois
taxpayers would see no change in their taxes.

This would produce new annual revenues of $5.5 billion – eliminating the
structural deficit. The revenue would also provide much needed
resources to many of our local governments. Additionally, this would
provide half-year revenues in FY11 of $2.75 billion that would allow us to
close Pat Quinn’s budget deficit by roughly 80%. This would position us
to eliminate deficits for good in FY12.

Enacting a progressive income tax will require an amendment to the state

constitution. That means the legislature must approve the measure by a
three-fifths vote this spring. Voters could approve this change at the
November 2010 general election, so it could take effect in 2011. Dan
Hynes will advocate for this realistic, common-sense and fair solution to
our budget challenges.

By implementing a half-year of the progressive income tax, additional

casino licenses, fund sweeps and modest natural revenue growth, the
Hynes Plan allows the state to put a halt to the runaway budget deficit. It
holds the deficit steady with a $2.3 billion deficit in FY11, until the full-year
of the progressive income tax is phased-in. Additionally, the Plan calls for
the state to make full pension payments in FY11 and allows for a $150
million increase in education spending.

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 Step 3: A Balanced Budget in FY12 and a Return to Investing in Illinois’
Future

Closing record budget deficits will not be easy – but the Hynes Plan
accomplishes that goal within 2 years. The first full year of the progressive income tax
will eliminate the structural deficit permanently. Hynes’ plan will eliminate Illinois’
“deadbeat” payer status. By staying true to our commitment to making pension
payments, we will begin to moderate the state’s pension obligations going forward and
return them to a fiscally sustainable level; and, provide permanent and stable funding to
begin making serious investments in education, healthcare and other programs that
assist our most vulnerable citizens.

Instituting Real Budgetary Reforms

But the Hynes Plan does not stop there. From a decade of service as Comptroller, Dan
Hynes knows our state’s entire budget and fiscal process needs to be reformed so that
we never get into this position again. Dan Hynes will be the kind of Governor who leads
the fight in Springfield for such reforms.

The Hynes Plan for reforming the state budget process includes the following:

1. Controlled Growth in State Spending: Hynes will allow for reasonable

natural budget growth to counter inflation and to provide for the new initiatives
we will need to move Illinois forward in the 21st Century. However, he will
insist that the state hold spending to 99% of independently-certified estimated
revenues, so that we can set aside 1% every year for the Rainy Day Fund.

2. Strengthen the Rainy Day Fund. Hynes’ plan establishes a permanent

funding stream for the Rainy Day Fund equal to 1% of estimated revenues.
Hynes will then cap the fund’s growth when it reaches 4% of estimated
revenues and divert the excess to retiring outstanding state debt. Hynes will
also press to establish set rules for use of the Rainy Day Fund during fiscal
difficulties – so that future politicians cannot simply “raid” the fund for other
purposes.

3. Paying Down Our Debts. Hynes’ plan provides a mechanism for paying
down state debt by diverting monies from the Rainy Day Fund, when it
reaches an ideal level, to an Early Debt Retirement Fund. Hynes will use this
fund to pay off deferred liabilities such as the current backlog of Medicaid
bills; the State retirement system’s unfunded liabilities; and, when cost
effective, some of the State’s bonded indebtedness.

4. Truth-in-Budgeting. Hynes will require “Truth in Revenue” by creating an

independent Revenue Estimating Council to certify revenue levels for budget
purposes, with which the governor and legislature must comply, and “Truth in
Spending” – under which the State will pay its bills as they come in rather
than pushing them into future years. Finally, Hynes will require quarterly
budget check-ups to make sure we make spending adjustments quickly
whenever revenues drop, so that we reduce the risk of future deficit
spending.

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5. Pension Reform. To truly return to fiscal solvency, the state must come to
terms with its unmanageable pension obligation. This means scrutinizing
retirement benefits, ending early retirement initiatives, addressing spiraling
retirement healthcare costs associated with retirees’ benefits, and ending the
abuses of the golden parachute pension sweeteners. Hynes will put teeth in
the laws that will dictate the state’s annual contribution to the pension system
and put an end to pension holidays.

6. Medicaid Reform. The state’s Medicaid obligations are causing a

stranglehold on the state’s budget and it must be brought under control.
Hynes’ reforms will include ending the loopholes that allow the state to under-
budget its obligations. However, there must be reforms on the benefit side,
as well. Hynes will work with other Governors to lobby the Obama
administration to make the current 60% reimbursement rate for Medicaid
permanent. Hynes also supports the initiative to expand Managed Care, but
is also in favor of reforming the Primary Care Case Management system to
make it work as it was intended.

7. Restore Our Bond Ratings. Due to the transgressions of the previous

Governor, the devolving budget deficit and lack of a clear budget plan has
caused Illinois’ bond ratings to plummet. As a result, Illinois’ costs associated
with managing our debt service are increasing. The Hynes Plan will allow the
state to return to a solid bond rating and help save the state millions of
dollars.

18
Conclusion

Dan Hynes has a plan to reduce the state deficit that is real, workable, and fair.

Hynes’ plan cuts the deficit contained in Pat Quinn’s FY10 budget in half and
eliminates it completely and permanently after FY 2011. It looks first to finding spending
cuts, savings and efficiencies – not tax increases.

Hynes is also a leader willing to confront the hard truths. His plan admits that
part of the solution must come from finding new revenues. But any new revenue must
be fair, so the Hynes Plan first closes unfair tax loopholes and places a fairer share of
the tax burden on luxuries instead of necessities and the hard-earned incomes of middle
class families. The Hynes Plan helps take some of the tax burden off these same
families by obtaining a fairer share of gambling revenues for the taxpayers. It obtains
the rest of what we need by raising taxes only on the wealthiest 3% of Illinoisans.

The Hynes Plan also puts us on-track to better health care and education
systems in our state. It reforms Illinois’ shoddy fiscal practices – ending carry-over of bill
non-payments, shortening vendor non-payment times to end the state’s reputation as a
“dead-beat state,” and starts to stabilize our pension system. It shares the burden, it’s
fair, and it works – unlike Pat Quinn’s proposed 50% income tax hike on everyone.

The Hynes Plan represents a complete solution – and the only real solution.

Paid for by Friends of Dan Hynes

19
Conclusion

Dan Hynes has a plan to reduce the state deficit that is real, workable, and fair.

Hynes’ plan cuts the deficit contained in Pat Quinn’s FY10 budget in half and
eliminates it completely and permanently after FY 2011. It looks first to finding spending
cuts, savings and efficiencies – not tax increases.

Hynes is also a leader willing to confront the hard truths. His plan admits that
part of the solution must come from finding new revenues. But any new revenue must
be fair, so the Hynes Plan first closes unfair tax loopholes and places a fairer share of
the tax burden on luxuries instead of necessities and the hard-earned incomes of middle
class families. The Hynes Plan helps take some of the tax burden off these same
families by obtaining a fairer share of gambling revenues for the taxpayers. It obtains
the rest of what we need by raising taxes only on the wealthiest 3% of Illinoisans.

The Hynes Plan also puts us on-track to better health care and education
systems in our state. It reforms Illinois’ shoddy fiscal practices – ending carry-over of bill
non-payments, shortening vendor non-payment times to end the state’s reputation as a
“dead-beat state,” and starts to stabilize our pension system. It shares the burden, it’s
fair, and it works – unlike Pat Quinn’s proposed 50% income tax hike on everyone.

The Hynes Plan represents a complete solution – and the only real solution.

Paid for by Friends of Dan Hynes

19