#1State of Illinois General Obligation Bonds Investor Roadshow Presentation October 25, 2019 STATE OF IL ILLINOIS SEAL OF THE UNION 1868 1818 AUG. 26TH 1818#2Disclaimer This Investor Presentation is provided as of October 25, 2019 for a proposed offering by the State of Illinois (the "State") of its General Obligation Bonds, Series of November 2019 (the "Bonds"). If you are viewing this presentation after October 25, 2019, there may have been events that occurred subsequent to such date that would have a material adverse effect on the financial information that is presented herein, and the State has not undertaken any obligation to update this electronic presentation. All market prices, financial data and other information provided herein are not warranted as to completeness or accuracy and are subject to change without notice. This Investor Presentation is provided for your information and convenience only. Any investment decisions regarding the Bonds should only be made after a careful review of the complete Preliminary Official Statement, dated October 25, 2019. By accessing this presentation, you agree not to duplicate, copy, download, screen capture, electronically store or record this Investor Presentation, nor to produce, publish or distribute this Investor Presentation in any form whatsoever. This Investor Presentation does not constitute a recommendation or an offer or solicitation for the purchase or sale of any security or other financial instrument, including the Bonds, or to adopt any investment strategy. Any offer or solicitation with respect to the Bonds will be made solely by means of the Preliminary Official Statement and Official Statement, which describe the actual terms of such Bonds. In no event shall the the State be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction mentioned herein. You should consult with your own advisors as to such matters and the consequences of the purchase and ownership of the Bonds. No assurance can be given that any transaction mentioned herein could in fact be executed. Past performance is not indicative of future returns, which will vary. Transactions involving the Bonds may not be suitable for all investors. You should consult with your own advisors as to the suitability of the Bonds for your particular circumstances. Clients should contact their salesperson at, and execute transactions through, an entity of the Underwriters or other syndicate member entity qualified in their home jurisdiction unless governing law permits otherwise.#3BEAL THE STATE AUG 94 1818 Table of Contents 1. Introduction 2. Plan of Finance OF ILLINOIS 3. Illinois' Strong and Diverse Economy 4. Enacted FY 2020 Budget and FY 2019 Budget Results 5. Rebuild Illinois - The State's 6-Year Capital Plan 6. The Income Tax Amendment 7. Pension Updates 8. Debt Overview 9. Timeline and Contacts 4 6 9 12 18 21 23 26 30 3#4BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 1. Introduction#5Presentation Participants SEAL OF THE STATE OF OF ILLINO AUG. 261 1818 Alexis Sturm Director of GOMB Alexis Sturm, Director of the Governor's Office of Management and Budget Paul Chatalas Director of Capital Markets Ms. Sturm, who joined GOMB as director in January 2019, has over 20 years of experience in Springfield working on state fiscal policy, debt management, and administration. Most recently, she was the director of cash management and bond reporting for the Office of the Comptroller. She previously worked at GOMB. From 2015 to 2017, she served as chief of staff and deputy director for debt, capital, and revenue and from 1997 to 2004, she worked in senior roles in debt management and revenue and economic analysis. From 2004 to 2015, Ms. Sturm served as director of research and fiscal reporting and senior fiscal advisor for the Office of the Comptroller. She received her Bachelor of Arts in Economics from Miami University and a Master of Arts in Economics from Washington University in St. Louis. Paul Chatalas, Director of Capital Markets Mr. Chatalas has more than 25 years of combined public policy and public finance experience, most recently as a Managing Director in US Bancorp's Municipal Products Group. His public finance experience spans more than 15 years and began with UBS Investment Bank in New York. He holds a Master of Public Administration from Columbia University's School of International and Public Affairs. Mr. Chatalas spent several years working on Capitol Hill for members of the U.S. House and Senate, including members of the Budget and Appropriations Committees. He is on the President's Leadership Council of the Field Museum, and currently sits on the Exhibitions Committee of the Board of Trustees. THE STATE OF ILLINOIS AUG 94 1818 5#6BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 2. Plan of Finance#7SEAL OF THE STAT Series of November 2019 Capital Bonds - Issuance Terms and Schedule Use of Proceeds Financing Overview The Bonds are being issued to provide funds to finance capital projects under the State's capital program and to pay costs of issuance of the Bonds. Security The Bonds are direct, general obligations of the State and, pursuant to Section 9(a) of Article IX of the Illinois Constitution and the General Obligation Bond Act of the State of Illinois, as amended (the "Bond Act"), the full faith and credit of the State is pledged for the punctual payment of interest on all bonds issued under the Bond Act, including the Bonds, as it comes due and for the punctual payment of the principal of all bonds issued under the Bond Act, including the Bonds, at maturity, or on any earlier redemption date, and redemption premium, if any. These provisions are irrepealable until all bonds issued under the Bond Act, including the Bonds, are paid in full as to both principal and interest. Interest Payment Dates* May 1 and November 1, commencing May 1, 2020 Mode Ratings Fixed Rate Bonds Baa3 (Stable) / BBB- (Stable) / BBB (Stable) (Moody's/S&P/Fitch) Sale Date* November 6th Closing* November 21st OF ILLINOI AUG 96 1818 *Preliminary, subject to change. November 1 2020 Amortization* Series A Series B Series C 30,000,000 2021 30,000,000 2022 30,000,000 2023 30,000,000 2024 30,000,000 2025 30,000,000 2026 30,000,000 2027 30,000,000 2028 30,000,000 2029 30,000,000 2030 30,000,000 2031 30,000,000 2032 30,000,000 2033 30,000,000 2034 30,000,000 2035 30,000,000 2036 30,000,000 2037 30,000,000 2038 30,000,000 2039 30,000,000 2040 30,000,000 2041 30,000,000 2042 30,000,000 2043 30,000,000 2044 30,000,000 Total $300,000,000 $300,000,000 $150,000,000 7#8Recent Legislative Accomplishments Bolster the State's Inherent Credit Strengths Accomplishments of Spring 2019 Legislative Session Passage of a bipartisan balanced FY 2020 budget Passage of the Income Tax Amendment that will be voted on by Illinoisans in November 2020, along with P.A. 101-008, establishing new rates contingent upon passage of the Income Tax Amendment Passage of the bipartisan $45 billion Rebuild Illinois capital plan, the largest infrastructure investment in Illinois history Passage of gaming expansion and legalization of sports betting Inherent Illinois Credit Strengths Sovereign State with significant revenue flexibility Illinois' economy is the 5th largest in the United States and 18th largest worldwide GO Bond debt service has an irrevocable and continuing appropriation, which allowed for continued debt service payments in the absence of a budget during FY 2016 and FY 2017 GO Bond debt service is limited by statute, unless waived by the Treasurer and the Comptroller SEAL THE STATE OF ILLINOIS AUG 94 1818 00 8#9BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 3. Illinois' Strong and Diverse Economy#10SEAL Illinois' Strong Economic Foundation • Strong and Diverse Economy The State has a diversified economy Broad employment base with no industry accounting for more than 20%¹ • Expansive Transportation Network The State is home to the 3rd and 27th busiest U.S. airports in O'Hare and Midway² • Illinois is the only state where all 7 class I railroads in the United States operate. • Five major trucking Routes Intersect in the State Highly Educated Population ⚫ Illinois is home to top ranked universities bringing talented and educated individuals to the State 35.1% of Illinois residents have college degrees or higher, above the US at 32.6% and the Midwest region at 31.1%³ Mining, Logging, Information and Construction Other Services 3% 6% Finance 6% Manufacturing 10% THE STATE Leisure and Hospitality 10% OF ILLINOIS AUG. 96 1818 Trade, Transportation and Utilities 20% Education Government 13% and Health Services 15% Professional and Business Services 16% inois RR Passenger Stations incis RR Future Passenger Routes Illinois Railroads Burlington Northem Santa Fe (BNSF Canadian National (CN) CP Rail Systems (CPRS) CSX Transportation Inc (CST) Elgin Joliet and Eastern Ry, Co (FF) Kansas City Southem Ry (KCS) Norfolk Southern Ry (NS) Union Pacific RR (UP) Other Railroads ILLINOIS HWESTERN MQUE UNIV SUNT HAVE IT ABV LOYOLA UNIVERSITY CHICAGO 1870 OREM AD MAIOR DES *GLORIAM 1851 MAY HAVE LIFE AND MAY ERSITY esse 1890 quam OF CH vider UIC NIU Northern Illinois University ESLEYAN SIU CENTEN SAMENTA SITY DEPAUL UNIVERSITY 心の CARBONDALE 1. Bureau of Labor Statistics, as of March 13, 2019 2. FAA, Commercial Service (Rank Order) based on Calendar Year 2018 Preliminary 3. 2018 American Community Survey 1 year estimates, reflects educational attainment among those 25 years of age and older. INSTITUTE 850-1 LLINOIS 2890 10#11SEAL OF THE STATE AUG. 96 1818 Chained 2012 Dollars Illinois' Robust Economic Indicators Per Capita Personal Income¹ $60,000 $56,000 8.0 7.0 6.0 $52,000 5.0 4.0 $48,000 3.0 2.0 $44,000 1.0 Illinois Unemployment Rate 2018 $56,839 $54,446 $50,997 Unemployment Rate (%) 0.0 $40,000 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Illinois United States Great Lakes National Unemployment Rate IL Unemployment Rate Illinois Real GDP Per Capita³ $62,000 $60,000 $58,000 $56,000 $54,000 $52,000 $50,000 $48,000 2014 2015 2016 2017 2018 United States Illinois Great Lakes Region Source: Bureau of Economic Analysis; Bureau of Labor Statistics; U.S. Census Bureau Note: 1. As of 9/4/2019. Illinois data not seasonally adjusted, National data seasonally adjusted. 3. Bureau of Economic Analysis, 3/2019 Per capita income is ranked first among the Great Lake Region and third among the 10 most populous states Employment trends have improved over the past decade and remain strong Illinois' economy continues to grow, with State GDP ranking 5th in the nation and would rank as the 18th largest in the world 11#12BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 4. Enacted FY 2020 Budget and FY 2019 Budget Results#13SEAL OF THE STATE AUG 94 1818 Overview of Estimated FY 2019 Fiscal Results • FY 2019 base revenues totaled $39.2 billion, an increase of $1.0 billion, or 2.7%, from FY 2018 levels The State's three largest revenue sources, individual income tax, corporate income tax and state sales tax, totaled $30.0 billion, a net increase of $2.5 billion, or 9.0%, when compared to FY 2018 Total General Funds operating expenditures for FY 2019 are projected to total $36.3 billion, an increase of $926 million, or 2.6%, from FY 2018 This includes expenditures of approximately $372 million for paying retroactive step payments to AFSCME employees for FY 2016, 2017 and 2018 and the first three quarters of FY 2019 • It is estimated that FY 2019 expenditures exceeded FY 2019 revenues by approximately $46 million STATE OF ILLINOIS GENERAL FUNDS FINANCIAL WALKDOWN ($ billions) Resources Individual and Corporate Income Tax and Sales Tax All Other Sources Final FY 2018 FY 2019 Estimate¹ Change: FY 18 Final to FY 2019 Estimate 27.6 30.0 2.5 9.0% 3.5 3.5 0.1 2.2% 5.2 3.6 -1.6 (31.3%) 1.9 2.0 0.1 6.7% 38.1 39.2 1.0 2.7% Interfund Borrowing/Fund Reallocations 0.8 0.3 -0.6 (68.8%) Treasurer's Investment Borrowing 0.0 0.8 0.8 0.0% 39.0 40.2 1.2 3.2% Federal revenues Transfers in Total Base Revenues Total Resources Expenditures Operating Expenditures Statutory Transfers Out Transfers for GO Bond Debt Service Interfund Borrowing Repayment Treasurer's Investment Borrowing Repayment Total Expenditures FY 2019 resources are final. FY 2019 expenditures are estimated. 35.4 36.3 0.9 2.6% 0.6 0.4 -0.2 (25.7%) 2.9 2.7 -0.2 (6.8%) 0.1 0.0 -0.1 (92.2%) 0.0 0.8 0.8 0.0% 39.0 40.2 1.2 3.1% OF ILLINOI 13#14BEAL THE STATE AUG 9 1818 - Fiscal Year 2020 Operating Budget – A Balanced, Bipartisan Budget that Marks a New Era of Fiscal Stability The estimated $40.1 billion fiscal year 2020 budget begins to pay down Illinois' debt and return the State to fiscal stability. Balanced The updated budget forecast for FY 2020 estimates an approximately $184 million surplus, which includes the estimated $100 million from interfund borrowing Makes key investments Increases K-12 Evidence-Based Funding by $378.6 million Increases Early Childhood Education funding by $50 million, a record high Full appropriation for the state retirement systems as required by Illinois law Revenue Changes ✓ $500 million from MCO assessment, providing budgetary relief to GRF through reduced transfers to the Healthcare Provider Relief Fund $175 million from a tax amnesty program: runs October 1 - November 15, 2019 $120 million from decoupling from the federal deduction for repatriated income ✓ $40 million from authorizing a marketplace facilitator to improve online sales tax collections at marketplaces ✓ Authorizes $1.2 billion in backlog borrowing to achieve interest savings OF ILLINOIS 14#15BEAL THE STATE FY 2020 Estimate General Funds Revenue • General Funds base revenues are estimated to total $40.3 billion for FY 2020, a $1.1 billion increase, or 2.7%, from FY 2019 actual revenues •The State's three largest revenues sources, individual income tax, corporate income tax and sales tax, are estimated to total $30.8 billion in deposits to the General Funds, a net increase of $727 million, or 2.4%, compared to FY 2019 • Federal revenues are projected to total $3.5 billion, a decrease of $103 million, or 2.9%, from FY 2019 • FY 2020 non-base revenues also include an estimated $100 million in interfund borrowing and $400 million from the Treasurer's investment borrowing program STATE OF ILLINOIS OF ILLINO AUG. 96 1818 GENERAL FUNDS FINANCIAL WALKDOWN ($ billions) Final FY 2018 Final FY 2019 FY 2020 Forecast Change: FY 19 to FY 2020 Forecast Resources Individual and Corporate Income Tax and Sales Tax All Other Sources 27.6 30.0 30.8 0.7 2.4% 3.5 3.5 3.5 0.0 (0.3%) Federal revenues Transfers in Total Base Revenues Interfund Borrowing/Fund Reallocations Treasurer's Investment Borrowing Total Resources 5.2 3.6 3.5 -0.1 (2.9%) 1.9 2.0 2.5 0.4 22.0% 38.1 39.2 40.3 1.1 2.7% 0.8 0.3 0.1 -0.2 (60.0%) 0.0 0.8 0.4 -0.4 (46.7%) 39.0 40.2 40.8 0.6 1.6% 15#16BEAL THE STATE Estimated Spending for FY 2020 Budget Outlook • Total General Funds operating expenditures for FY 2020 are projected to total $37.6 billion, an increase of $1.3 billion or 3.6% from FY 2019 • Debt service transfers to the GOBRI fund are estimated to total $2.1 billion • Transfers to other State Funds is expected to reach $365 million, a decline of $68 million from FY 2019 • FY 2020 forecasted revenues are expected to exceed FY 2020 expenditures at current appropriation levels by $184 million. • After accounting for the increase to total revenues from the estimated General Revenue Fund deposit from the potential sale of Section 7.6 Bonds ($300 million) in FY20, the projected surplus totals $484 million OF ILLINO AUG. 96 1818 STATE OF ILLINOIS GENERAL FUNDS FINANCIAL WALKDOWN ($ billions) Final FY 2018 FY 2019 Estimate FY 2020 Forecast Change: FY 19 Estimate to FY 2020 Forecast Expenditures Operating Expenditures 35.4 36.3 37.6 1.3 3.6% Statutory Transfers Out 0.6 0.4 0.4 -0.1 (15.7%) Transfers for GO Bond Debt Service 2.9 2.7 2.1 -0.6 (22.5%) Interfund Borrowing Repayment 0.1 0.0 0.1 0.1 750.0% Treasurer's Investment Borrowing Repayment 0.0 0.8 0.4 -0.4 (47.6%) Total Expenditures 39.0 40.2 40.6 0.3 0.8% 16#17BEAL OF THE STATE Update on Accounts Payable Backlog The General Funds total of budget basis accounts payable and Section 25 Liabilities outstanding as of June 30, 2018 was $7.8 billion The Comptroller's estimate of the backlog as of September 30, 2019 was approximately $6.4 billion¹ The State is authorized to issue up to $1.2 billion of additional Section 7.6 General Obligation bonds to pay backlogged bills Estimated Bill Backlog ($billions) 18 $16.7 billion 16 14 12 10 8 642 $6.4 billion 0 Estimated Nov-17 Estimated Sep-19 End of Fiscal Year General Funds Accounts Payable ($millions) FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 General Funds Budget Basis Accounts Payable² $4,005 $3,521 $3,789 $9,061 $5,823 General Funds Section 25 Liabilities³ Total General Funds Accounts Payables Section 25 Liabilities - Other State Funds 5,627 1,622 1,598 3,307 5,932 5,119 7,096 14,993 2,004 7,827 429 316 956 162 214 OF ILLINOIS AUG. 96 1818 Table Source: Illinois Office of the Comptroller data. 1. The Comptroller's backlog estimate is found in the Comptroller's Debt Transparency Report. 2. These amounts include General Funds Lapse Period Transactions as reported in the Office of the Comptroller's Traditional Budgetary Financial Report. 3. 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 as reported in the Section 25 Deferred Liabilities report on the Comptroller's website. 17#18BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 5. Rebuild Illinois - The State's 6-Year Capital Plan#19SEAL THE STATE REBUILD ILLINOIS The State's $45 billion six-year capital plan is the largest infrastructure investment in Illinois history, creating jobs, repairing roads and bridges and building major projects that are essential to Illinois' future The Rebuild Illinois plan includes: New bonded appropriations totaling $20.8 billion Pay-as-you-go totaling $10.4 billion Federal and local matches totaling $13.6 billion Prior year capital projects received reappropriations totaling $6.4 billion in bonded funds and $7.6 billion in pay-as-you go funds REBUILD ILLINOIS BY CATEGORY ($ MILLIONS) OF ILLINOIS AUG 94 1818 Transportation, $33,243,74% REVENUE SOURCE ANNUAL STATE REVENUE - full implementation ($ in millions) Motor Fuel Tax * Vehicle Registration Fees Tiered Title and Registration Fees Special Fuels Tax ssst es $ 590 $ 479 $ 196 $ 78 Reallocate Sales Tax from Motor Fuel ** Gaming $ 600 *** Parking Garage Tax Traded in Property Exemption Net Cigarette Tax**** Sales Tax Parity ESTIMATED TOTAL sssssssss $ 350 $ 60 $ 40 $ 160 $ 200 $ 2,753 Economic & Community Development, $1,848,4% Higher Education, $2,938,7% PreK-12 Education, $526, 1% State Facilities, $4,357, 10% Environment/ Conservation, $1,007, 2% Broadband Development, Healthcare & $420,1% Human Services, $465,1% *The Motor Fuel Tax will increase annually based on the Consumer Price Index. Number above reflects state share, while local governments will receive approximately $650 million annually. **Beginning in FY2022, 1% of the 5% state tax on motor fuel purchases will shift from a deposit into the General Funds to the Road Fund annually, with the full 5% deposited into the Road Fund by FY2026. ***Gaming includes $350M in recurring annual revenue at full implementation between casinos, video gaming and sports wagering. Upfront license fees associated with gaming expansion will be dedicated to pay-go Rebuild Illinois projects. ****Net increase for the State from the increase, resulting in $246 million to be deposited into the Capital Projects Fund 19#20BEAL THE STATE AUG 94 1818 REBUILD ILLINOIS Rebuild Illinois Program Highlights Transportation $3.9 billion increase in direct funding to locals for roads and bridges through state bonding ($1.5 billion) and additional MFT revenues ($2.4 billion) ✓ Education • $3.4 billion to support education facilities around the state including universities, community colleges and school districts ✓ Environment and Conservation · $50 million for Park and Recreational Facilities Construction (PARC) grants Economic and Community Development ⚫$1 billion for public infrastructure and community development grants for targeted projects such as local government water and sewer projects, school districts, and community-based providers for costs associated with infrastructure improvements, street, highway, and bridge improvements, and park district, recreation improvements and a new Illinois Works Preapprenticeship Program ✓ State Facilities ⚫ $4 billion for deferred maintenance and new projects at state facilities Broadband Development · $420 million for statewide broadband deployment Healthcare and Human Services ⚫ $200 million for construction and rehabilitation of affordable housing OF ILLINOIS 20#21BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 6. The Income Tax Amendment#22BEAL OF The Income Tax Amendment Proposal Public Act 101-008 Income Tax Amendment Marginal Net Income Level, THE STATE Rates¹ 4.75% 4.90% Single Filers $0-$10,000 $10,001-$100,000 Net Income Level, Joint Filers $0-$10,000 Legislative Action $10,001 - $100,000 4.95% $100,001 - $250,000 $100,001 - $250,000 7.75% $250,001 - $350,000 $250,001 - $500,000 7.85% $350,001 - $750,000 $500,001 - $1,000,000 7.99% Over $750,000 Over $1,000,000 Statutory Changes • Constitutional amendment has been approved by three-fifths of the members of both chambers. • Income tax rates were passed in separate legislation with the implementation contingent on the passage of the constitutional amendment. •The amendment will be put to the voters for the November 2020 election. Voter Action • Amendment becomes effective if approved by either 60% of those voting on the amendment or a majority of those voting in that election. General Election Based on Public Act 101-008, if and only if voters approve the Income Tax Amendment in November 2020 ... $3.6 billion in additional revenue² • 97% of earners get tax relief • 20% Increase in Property Tax Credits Revenue Collection • $100 per Child Tax Credit³ OF ILLINO AUG. 96 1818 • If approved by voters, under P.A. 101-008, the fair tax would be implemented in January 2021, providing a half-year of additional revenue to the state in fiscal year 2021. ¹Once income reaches the top threshold, entire income is taxed at 7.99% rate 2The $3.6 billion estimate includes additional revenue from an increase in the corporate tax rate to 7.99% ³Income thresholds for property tax credits remain unchanged from current law; for Child Tax Credit, single filers eligible up to $80,000 in net income and married/joint filers eligible up to $100,000 in net income, with credit phase-out starting at $40,000 and $60,000, respectively 22 22#23BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 7. Pension Updates#24SEAL OF THE STATE AUG. 96 1818 Pension Overview • The State provides funding for five systems - the Teachers' Retirement System, the State Universities Retirement System, the State Employees' Retirement System, the Judges' Retirement System and the General Assembly Retirement System History of Employer Contributions ($millions) Actuarially Fiscal Amount Year Contributed¹ Required Contribution Percentage Contributed² 2015 7,020.1 7,896.8 88.9% 2016 7,501.9 8,388.4 89.4% • Actuarial Assets as of FY 2018 for the 5 systems combined are $89.6 billion and the Asset Market Value is $89.8 billion 2017 7,803.6 10,422.7 74.9% 2018 7,788.9 11,882.4 65.5% • The State Retirement Systems, in aggregate, were funded at 40.1% as of FY 2018 based on the asset smoothing method and 40.2% using asset market value; individual percentages for each fund vary Investment Rate of Return Assumptions Used by the Retirement Systems 2009 2018 TRS 8.50% 7.00% FY 2018 State contributions to the retirement systems totaled $7.8 billion SURS 8.50% 6.75% SERS 8.50% 7.00% GARS 8.00% 6.75% • The systems are required to be 90% funded by 2045 JRS 8.00% 6.75% National Median³ 7.25% Notes: Annual Actuarial valuations of the Retirement Systems as of June 30, 2018. Comprehensive Annual Financial Reports of the Retirement Systems for the fiscal years ending June 30, 2009 and June 30, 2018. 1. Includes all State Funds. TRS also includes local employers and federal funds that count towards the Actuarially Required Contribution (ARC). 2. The State's percentage contributed declined in Fiscal Year 2017 primarily as a result of TRS establishing a 20-year closed amortization period in calculating its Actuarially Required Contribution (ADC). This amortization period, which is shorter than that used in calculating the Required Annual Statutory Contribution, causes the ADC for TRS to substantially exceed the Required Annual Statutory Contribution which the State is authorized to pay under the Pension Code. 3. NASRA Issue Brief: Public Pension Plan Investment Return Assumptions, February 2019 24#25BEAL THE STATE AUG 9 1818 Review of Recent Pension Developments 2017 Smoothing of Changes in Actuarial Assumptions • 2018 Beginning with FY 2018, changes in actuarial assumptions were smoothed over a 5-year period. Changes in actuarial assumptions that first applied in FY 2014-2017 are being retroactively smoothed over a 5-year period beginning with the year the change first applied • Accelerated Pension Benefit Programs (P.A. 100-587) ⚫ The Pension Buyout Program: Eligible members of SERS, TRS and SURS who have terminated service may forfeit all rights to future benefit payments in exchange for an accelerated pension benefit payment equal to 60% of the present value of the pension benefit to which the member is entitled • The AAI Reduction Program: At the time of retirement, eligible Tier 1 members of SERS, TRS and SURS may forfeit the 3%, compounded automatic annual increase ("AAI") in exchange for (i) a 1.5% non-compounded AAI and (ii) an accelerated pension benefit payment from the State equal to 70% of the difference in the present value of such AAls ⚫ The accelerated pension benefit payments will be funded using proceeds from the issuance of State Pension Obligation Acceleration Bonds. There is remaining authorization for $700 million of such bonds • • Public Act 101-0010 (enacted June 5, 2019) extended the end date of the programs from June 30, 2021 to June 30, 2024 As of October 1, 2019, the balance in the Pension Obligation Acceleration Bond Fund was approximately $184 million, meaning approximately $115 million of the April 2019A proceeds have been spent out of the fund OF ILLINOIS 25#26BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 8. Debt Overview#27Security Security for Illinois General Obligation Bonds The full faith and credit of the State is pledged for the punctual payment of principal and interest under the Bond Act о The State can draw from all State funds in the State Treasury that are not restricted by law to another use if needed to pay debt service on GO bonds Statutorily Mandated Debt Service Set Asides (GOBRI) . Under the Bond Act, monthly transfers are made from various State funds to the General Obligation Bond Retirement and Interest Fund (GOBRI), in amounts sufficient to pay the next interest and principal payments when due, which effectively results in the State transferring 1/12th of the next principal payment and 1/6th of the next interest payment every month GOBRI is a separate fund in the Treasury that can be applied to debt service payable on GO bonds and short-term debt Continuing Appropriation of Funds • The Bond Act requires the Governor to include an appropriation in each annual budget of monies in an amount necessary to pay all principal and interest due and further requires the General Assembly to make appropriations annually to pay debt service on outstanding GO Bonds from GOBRI In the absence of appropriations, the Bond Act itself constitutes an irrevocable and continuing appropriation of all amounts necessary to pay principal and interest . Principal and interest on all outstanding GO Bonds must be paid even in the absence of a State budget Additional Protection under Illinois Constitution and State Laws . The Bond Act explicitly provides bondholders the remedy to sue the State to compel payment of GO bonds The provisions of the Bond Act, pledging the full faith and credit of the State to GO bonds issued thereunder, are by their terms irrepealable to any outstanding GO bonds The Illinois Constitution contains a "non-impairment" clause that prohibits action by the General Assembly that would, under contract law, impair the obligations of a contract between the State and its bondholders 27 27#28THE STATE AUG. 96 1818 MILLIONS General Obligation Bond Overview • • • General Obligation bonds are backed by the full faith and credit of the State There is a continuing appropriation in place to ensure bond repayment without action by the General Assembly GOBRI is a separate fund in the Treasury that is dedicated to the payment of debt service on GO bonds and short-term debt Segregation of funds for debt service begins 12 months in advance for principal payments and 6 months in advance for interest payments • As of October 1, 2019, all of the State's outstanding debt is fixed rate, with no variable rate debt or interest rate swap agreements Current Par Outstanding¹ 7.6 Bonds $5.5 Billion Capital Improvement and Refunding Bonds $13.1 Billion Pension Bonds $8.9 Billion $3,500 $3,000 $2,500 GENERAL OBLIGATION FISCAL YEAR DEBT SERVICE 7.7 Bonds Total $0.3 Billion $27.7 Billion $2,000 $1,500 $1,000 $500 $- 2020 2021 2022 1. Amounts are as of October 1, 2019 2023 2024 2025 2026 2027 2028 2029 Principal Interest 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2041 2042 2043 OF ILLINOI 2044 Outstanding Debt Fixed Rate 100% 28#29SEAL OF THE STATE Liquidity • The State estimates $2.1 billion in transfers from the General Funds to GOBRI in FY 2020, with the balance expected from other State funds In FY 2020, State transfers are expected to average approximately $174 million a month from the General Funds to GOBRI taking into account current issuance plans General Funds State Source Revenues available to make General Revenue Fund debt service in FY 2020 are projected to total approximately $3.1 billion per month on average providing 17.6x debt service coverage • As of October 1, 2019, $1.5 billion was available in GOBRI Fiscal Year End All Fund Cash Balances² Transfers to the GOBRI Fund ($ Millions)² $12 $11 ($ Billions) $12 2017 2018 2019 $12 $12 General Revenue Fund $10 $9 $8 Capital Bonds $626 $797 $670 Pension Bonds 1,609 1,576 1,243 Section 7.6 Bonds 527 782 220 $6 $4 $2 Pension Acceleration 7 GRF subtotal $2,235 $2,900 $2,702 Road Fund 305 349 339 School Infrastructure Fund 115 172 107 50 $0 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Capital Projects Fund 477 286 431 TOTAL³ $3,132 $3,707 $3,579 OF ILLINO AUG 94 1818 1. 2. 3. Does not include Federal Trust Funds. Includes GOBRI. June 30, 2016 balance shows an increase from FY 2015 due in part to the late enactment of FY 2016 appropriations for many State funds. Does not include debt service transfers on short-term debt as may have been from time to time outstanding Totals may not add due to rounding. 29#30BEAL OF THE STATE AUG 94 1818 OF ILLINOIS 9. Timeline and Contacts#31SEAL THE STATE OF ILLINOI AUG 9 1818 Tentative Transaction Timeline and Contacts October 2019 November 2019 Date* Event* S M T W Th F S S M T W Th F S 1 2 3 4 5 1 2 November 6th Competitive Bond Sale(s) 6 7 8 13 14 15 16 17 9 10 11 12 3 4 5 6 7 8 9 17 18 19 10 11 12 13 14 15 16 20 21 22 23 24 25 26 17 18 19 20 21 22 23 135 November 21st Closing 27 28 29 30 31 24 25 26 27 28 29 30 *Preliminary, subject to change State of Illinois Governor's Office of Management and Budget Paul Chatalas Director of Capital Markets [email protected] (312) 814-0023 Municipal Advisor PFM Group Adela Cepeda Managing Director [email protected] (312) 523-2425 31