#1State of Illinois Investor Presentation General Obligation Bonds, Series of April 2019A&B March 18, 2019 STATE OF SEAL OF THE ILLINOIS 1868 1818 AUG. 26 1818 AL OF THE STAT AUG. 26 1818 ILLINOIS#2Disclaimer This Investor Presentation is provided as of March 18, 2019 for a proposed offering by the State of Illinois (the "State") of its General Obligation Bonds, Taxable Series of April 2019A and Tax-Exempt Refunding Series of April 2019B (the "Bonds"). If you are viewing this presentation after March 18, 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 March 15, 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. AL OF THE STAT OF ILLINO AUG. 26 1818#3Table of Contents 1. Introduction 2. Plan of Finance 3. Economy 4. Governor's Fiscal Year 2020 Proposed Budget 5. Fiscal Stabilization 6. Debt Overview 7. Timeline and Contacts 4 10 5 7 10 14 21 25 AL OF THE STAT OF ILLINO AUG. 26 1818#44 Presentation Participants Alexis Sturm Director of GOMB SEAL OF TH STATE ME OF ILLINO 1868 1818 AUG. 26 1818 Kelly Hutchinson Director of Capital Markets Alexis Sturm, Director of the Governor's Office of Management and Budget 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, 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. Kelly Hutchinson, Director of Capital Markets Ms. Hutchinson joined GOMB as Director of Capital Markets in November of 2015. Prior to her current position, Ms. Hutchinson worked as Director and Chief Compliance Officer at a nationally-ranked financial advisory firm for over 10 years, advising large municipalities. She also worked in investment banking for several years. Ms. Hutchinson received her Bachelor's degree from Pomona College and her Juris Doctor from Tulane University Law School. AL OF THE STAT OF ILLINO AUG. 26 1818#5Plan of Finance AL OF THE STAT ILLINOIS AUG. 26 1818#6Plan of Finance Use of Proceeds Security Financing Overview The Series A Bonds are being issued to fund the Pension Buyout Program and the AAI Reduction April 1 Program (see next slide). The Series B Bonds are being issued to refund for economic savings certain outstanding general obligation bonds. 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. Amortization Taxable Series A Amortization* Sept. 1 Tax Exempt Series B 2020 12,000,000 2020 5,690,000 2021 12,000,000 2021 16,670,000 2022 12,000,000 2022 16,695,000 2023 12,000,000 2023 16,725,000 2024 12,000,000 2024 16,715,000 2025 12,000,000 2025 23,755,000 2026 12,000,000 2026 6,815,000 2027 12,000,000 2027 43,535,000 2028 12,000,000 2028 6,400,000 2029 12,000,000 Total $152,000,000 2030 12,000,000 2031 12,000,000 2032 12,000,000 2033 12,000,000 2034 12,000,000 Interest 2035 12,000,000 Payment Dates April 1 and October 1, commencing October 1, 2019 2036 12,000,000 2037 12,000,000 Mode Fixed Rate Bonds; Series A Taxable and Series B - Tax exempt 2038 12,000,000 2039 12,000,000 Ratings Baa3 (Stable) / BBB- / (Stable) / BBB (Negative) 2040 12,000,000 (Moody's/S&P/Fitch) 2041 12,000,000 Series A 10:15 A.M, Series B - 10:45 A.M. 2042 12,000,000 Pricing* Central, March 26th 2043 12,000,000 2044 12,000,000 Closing* April 9th Total $300,000,000 *Preliminary, subject to change. AL OF THE STAT OF ILLINO AUG. 26 1818#7Taxable Series of April 2019A - Pension Acceleration Bonds Pension Acceleration Program Overview P.A. 100-587, which became effective on June 4, 2018, established two programs permitting eligible members of the State retirement systems, until June 30, 2021, to forego certain benefits to which they are entitled under the Pension Code in exchange for a payment from the State. 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 AAIS. The accelerated pension benefit payments will be funded using proceeds from the issuance of State Pension Obligation Acceleration Bonds pursuant to Section 7.7 of the GO Bond Act. $1 Billion of the Section 7.7 Bonds have been authorized for issuance. The State expects that the Programs, taken independently of other factors, will cause a reduction in the UAAL of the retirement systems. However, the State is currently unable to quantify the amount or timing of any such reduction. The current status of Pension Acceleration Programs can be found on page E-33 of the Preliminary Official Statement. 6 AL OF THE STAT OF ILLINO AUG. 26 1818#8Illinois' Strong and Diverse Economy AL OF THE STAT ILLINOIS AUG. 26 1818#9The State's Credit Fundamentals Continue to Improve 7 Inherent Credit Strengths Sovereign State with significant revenue flexibility Illinois' economy is the 5th largest in the United States and 19th largest worldwide ✓ GO Bond debt service has a continuing appropriation, which allowed for continued debt service payments in the absence of a fully enacted budget during fiscal years 2016 and 2017 Issuance of additional GO Bonds is prohibited if debt service on outstanding bonds and a proposed new issuance exceeds 7% of General Funds and Road Fund Appropriations, unless waived by the Treasurer, the Comptroller, or by Statute ✓ As of March 1, 2019, the 2011 pension bonds are paid off, reducing pension general obligation bonds debt service by $953 million and providing significant financial flexibility The State recently terminated all of its variable rate debt and associated interest rate swap agreements AL OF THE STAT OF ILLINO AUG. 26 1818#10✓ Illinois' Strong Economic Foundation Strong and Diverse Economy Broad employment base with no industry accounting for more than 20% Illinois is well-positioned for long- term stability through economic cycles ✓ State's diversified economy is a major attraction for workers and recent graduates across the nation ✓ Site Selection Magazine again picked the Greater Chicago Region as number 1 in its annual Top Metros rankings¹ Mining, Logging, Information and Construction Other Services 3% 6% Expansive Transportation Network The State is home to the 2nd and 25th busiest U.S. airports in O'Hare and Midway 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 The State is home to 37 Fortune 500 companies, a reflection of the State's highly talented workforce ILLINOIS STERN 1851 UNI UNT ERSITY UNIVERSITY OF CHI Finance 6% Manufacturing 9% Leisure and Hospitality 10% Trade, Transportation and Utilities 20% Professional and Business Services 15% Government 14% Education and Health Services 15% #1 Best connected airport in the U.S. according to MIT's Airport Connectivity Quality Index LOYOLA UNIVERSITY CHICAGO 1890 OLLEGE DEI THAT THEY M GLORIAMS WHEATON COLLEGE VITON MASS esse 1890 1870 FOREM AD MAIOR Annual Freight Tonnage By Mode -U.S. Class I Railroad -Inland Waterways -National Highway System Volume Scale (Tons/Year) 250000000 125000000 2500000 UIC SIU CARBONDALE NIU Northern Illinois University WESLE SCENTON SAHENTIA 8 1. https://siteselection.com/digitalEdition/2019/mar/docs/Site-Selection-Magazine-March-2019.pdf?reload=1552327150122 vider 1850 心の INSTITUTE LINDIS 1890 GLOGY AL OF THE STAT OF ILLINO AUG. 26 1818#11Illinois' Robust Economic Indicators Per Capita Personal Income¹ Average Non-farm Employment and Unemployment¹‚² 2017 6,250 $54,000 $52,000 $50,000 $54,203 $51,640 $48,2459 $48,000 $46,000 $44,000 $42,000 Employment (Thousands) 6,200 6,150 6,100 6,050 6,000 5,950 $40,000 5,900 $38,000 5,850 $36,000 5,800 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Illinois United States Illinois Per Capita Real GDP³ 58,500 Millions of Chained 2009 Dollars 58,000 57,500 57,000 56,500 56,000 55,500 55,000 T 2013 2014 2015 2016 2017 2 8 Co 12 10 Employed IL Unemployment Rate National Unemployment Rate Unemployment Rate (%) Per capita income is ranked first among the Great Lake Region and third among the 10 largest states ✓ Employment trends have improved over the past decade and remain strong ✓Illinois' economy continues to grow, with State GDP ranking 1st in the Great Lakes Region, 5th in the nation and would rank as the 19th largest in the world Source: Bureau of Economic Analysis; Bureau of Labor Statistics; U.S. Census Bureau Note: 1. YTD averages 2. As of 3/2019, not seasonally-adjusted 3. Bureau of Economic Analysis, 11/2018. AL OF THE STAT OF ILLIN AUG. 26 1818#12Governor's Fiscal Year 2020 Proposed Budget AL OF THE STAT AUG. 26 1818 ILLINOIS#13Fiscal Year 2020 Budget - Meeting the Challenges of Illinois' Third Century The proposed fiscal year 2020 budget lays out a path to restore Illinois to a place of fiscal and economic health. ✓ Restore Economic and Budgetary Stability ✓ Implement a fair income tax system ✓ Stabilize pension funding Eliminate structural deficit ✓ Create a World Class Education System Accessible to All ✓ Invest in our children from cradle to career Invest in the higher education infrastructure Strengthen Illinois' Social Safety Network ✓ Assist the state's most vulnerable ✓ Reform the Criminal Justice System and Invest in Public Safety Rebuild and Expand Illinois' Infrastructure ✓ We need to do more than just fix what's broken ✓ Invest in roads, facilities and broadband ✓Make Illinois a World Leader/Competitive in a Global Economy 10 Source: Governor's FY 2020 proposed budget AL OF THE STAT OF ILLINOI AUG. 26 1818#141 FY 2020 Proposed All Funds: $77.0 Billion General Funds 48.0%. Bond Financed By Fund Category Special State Funds 32.3% Education 19.4% Federal Funds 0.0% Trust Funds Healthcare State Trust. Highway Debt 11.2% 32.6% Funds Funds Service 0.7% 3.1% Funds 4.6% Source: Governor's FY 2020 proposed budget By Result Area Human Services 13.7% Government Services 12.5% Pensions 10.0% Economic Developmen t Public Safety 6.5% Environmen. t and Culture 0.5% 4.9% AL OF THE STAT OF ILLINO AUG. 26 1818#1512 FY 2020 Proposed General Funds Revenues: $38.9 billion Federal Statutory Transfers In Sources 9% 5% Other Taxes and Fees 10% Sales Taxes 22% Source: Governor's FY 2020 proposed budget Expenditures: $38.8 billion Income Taxes 54% Pensions 19.4%. Education 27.5% Economic Development 0.1% Healthcare 17.0% Human Services 16.3% Government Services Statutory 7.7% Transfers Environment and Culture Public Safety 4.7% 7.0% 0.2% AL OF THE STAT OF ILLINOI AUG. 26 1818#16STATE OF ILLINOIS GENERAL FUNDS FINANCIAL WALK DOWN GOVERNOR'S OFFICE OF MANAGEMENT & BUDGET General Funds Summary Projections ✔FY2020 General Funds revenues are estimated to total $38.903 billion ✔FY2020 General Funds expenditures are expected to total $38.748 billion Estimated FY2020 surplus of $155 million ($ millions) RESOURCES State Sources: Revenues Net Individual Income Taxes Net Corporate Income Taxes Net Sales Taxes Public Utility Taxes All Other Sources Final Estimated Projected FY 2018 FY 2019 FY 2020 17,725 18,251 2,017 2,207 7,810 8,229 18,851 2,338 8,537 896 868 846 2,555 2,581 2,961 Total State Sources: Revenues 31,003 32,135 33,533 State Sources: Transfers In Lottery 719 731 Riverboat Gaming Other Transfers Total State Sources 272 263 745 258 917 1,061 820 32,911 34,190 35,356 Federal Sources 4,032 3,220 SUBTOTAL, RESOURCES 36,943 37,410 3,547 38,903 Interfund Borrowing/Fund Reallocations 802 250 Treasurer's Investment Borrowing 700 TOTAL RESOURCES 37,745 38,360 38,903 EXPENDITURES 1. Education K-12 Education Higher Education 2. Economic Development 3. Public Safety 4. Human Services 5. Healthcare 6. Environment and Culture 7. Government Services Group Health Insurance 9,728 10,173 10,804 7,995 8,385 8,883 1,733 1,789 1,920 82 62 56 2,218 1,735 1,855 6,219 5,906 6,448 7,613 7,930 7,228 60 59 59 3,244 3,390 3,417 1,858 2,026 2,028 Government Services 1,386 1,364 1,389 8. Pensions 1 7,014 7,478 7,124 K-12 Education Pensions 4,107 4,467 4,238 State Universities' Pensions 1,414 1,440 1,427 State Employees' Pensions 1,493 1,571 1,460 9. Unspent Appropriations (770) (1,050) (975) ✓ Total Operating Budget 35,409 35,684 36,016 Statutory Transfers Out 582 434 364 Debt Service: Capital and Pension Bonds 2,372 1,851 1,208 Debt Service: Backlog Borrowing 527 801 982 Debt Service: Pension Acceleration Bonds 7 92 Interfund Borrowing Repayment 128 60 85 Treasurer's Investment Borrowing Repayment 713 Total Additional Expenditures 3,609 3,865 2,731 TOTAL EXPENDITURES 39,018 39,549 38,748 Comptroller Budgetary Basis Adjustment (167) General Funds Surplus/(Deficit) Backlog Borrowing Proceeds (1,440) (1,190) 155 2,500 600 Federal Revenue Due to Medicaid Backlog Payments 1,206 166 Potential Liability from Retroactive AFSCME Step Increases 3,4 (381) Supplemental Appropriations Needed 5 (92) Adjusted General Funds Surplus/(Deficit) 2,266 (897) 155 Revenue Adjustment if Proposed Revenue Enhancements are Not Enacted Appropriation Decrease: 4.0 Percent Cut Across All Agencies 6 (1,121) 1,121 13 Adjusted General Funds Surplus/(Deficit) 2,266 (897) 155 Footnotes 1 FY 2019 pension values represent the certified values for the fiscal year. Savings from enacted buyout programs for TRS and SERS will not be known until June. 2 The Governor is proposed a $1.5 billion backlog borrowing to address remaining interest accruing bills, of which $600 million would be estimated to be deposited into the General Revenue Fund. 3 The State and AFSCME have been in litigation to determine the amount owed on retroactive step payments. The administration is moving employees to the proper step effective April 1, 2019. The current estimate listed would be the higher end of the potential range for retroactive payments, not including any potential interest owed. Supplemental appropriations would be needed to cover these costs. 4 Appropriations to cover AFSCME step increases in fiscal year 2020 are reflected in each of the agency lines. 5 See Table I-C for details on fiscal year 2019 supplementals needed. 6 The Governor is proposing new revenue enhancements and adjustments totaling $1,121 million. If these changes are not enacted, an equal amount of cuts must be applied. A 4.0 percent cut across agencies, excluding pensions, debt service, and group health insurance, would be required. Source: Governor's FY 2020 proposed budget on page 45 AL OF THE STAT OF ILLIN AUG. 26 1818#17Fiscal Stabilization AL OF THE STAT ILLINOIS AUG. 26 1818#1814 A Path Toward Fiscal Stability Illinois' recent fiscal history is one of instability and uncertainty. The budget impasse in FY2016 and FY2017 damaged the State's reputation and relationship with entities dependent on state payments. ✓ The backlog increased from $5 billion at the beginning of the impasse to a peak of $16.7 billion. ✓ Late payment interest penalties from the impasse exceed $1.25 billion. Illinois will continue to face structural deficits, including an estimated deficit of $3.2 billion in FY2020. ✓ Structural deficits cannot be addressed by spending cuts alone. ✓ Revenue adjustments and a different approach to the payment of the state's pension contributions are necessary. ✓ Governor Pritzker believes Illinois' fiscal health depends on the passage of a constitutional amendment to allow for a fair income tax system. ✓ Thirty-three states and the federal government have graduated income tax rates based on varying income levels. ✓ Only nine states tax income at a single rate. AL OF THE STAT OF ILLINO AUG. 26 1818#1915 Basic Options for Addressing the State's Fiscal Challenges Option 1: Across the Board Cuts Illinois would cut its discretionary spending by 15 percent. Discretionary spending includes: K-12 education Universities and community colleges ✓ State Police Social service agencies Option 2: Flat Tax Increase Illinois would raise the flat tax rate from 4.95 percent to 5.95 percent - meaning that every family in the state would pay higher taxes. Option 3: Fair Income Tax Illinois would change its system so the wealthy pay more, like in 33 other states. 97 percent of taxpayers would have a lower tax bill, while those making more than $250,000 would pay more and generate $3.4 billion in additional revenue. Source: Governor's Progressive Income Tax Proposal Address AL OF THE STAT OF ILLIN AUG. 26 1818#2016 Governor's Proposed Fair Income Tax Elements Filers at or below $250,000 - 97% of taxpayers will have lower tax bill 20% increase in current property tax credit against state income taxes ✓ Credit goes from 5% of property taxes paid to 6% of property taxes paid (estimated value $100 million) $100 per child Child Tax Credit for: Single filers under $80K (phase- out starting @ $40K) Joint filers under $100K (phase- out starting @ $60K) Top rate of 7.95% once income exceeds $1.0 million. ✓ Once income reaches $1.0 million, entire income is taxed at 7.95% rate Corporate income tax rate to match top individual income tax rate (7.95%) Tax Rate Rates Marginal Single & Joint Filers % of IL Net Income Level Taxpayers 4.75% $0 - $10,000 27.2% 4.90% $10,001 - $100,000 58.9% 4.95% $100,001 - $250,000 11.1% 7.75% $250,001 - $500,000 1.9% 7.85% $500,001 - $1,000,000 0.6% 7.95% Over $1,000,000 0.3% Fair Income Tax Proposal Rates (Without Credits) 8.50% Households 8.00% Seeing Tax Relief 7.50% 7.95% (97% of IL) 7.02% 6.92% 6.80% 7.00% 6.63% 6.50% 6.00% 5.50% 4.88% 4.75% 4.92% 5.54% 5.00% 6.40% 6.07% 4.50% 4.00% 5,000 85,000 165,000 245,000 325,000 405,000 485,000 805,000 885,000 965,000 1,045,000 1,125,000 1,205,000 565,000 645,000 725,000 -Effective Rate Filer Net Income AL OF THE STAT OF ILLIN AUG. 26 1818#21Path to a Fair Income Tax System Legislative Action • Constitutional amendment must be approved by three-fifths of the members of both chambers. General Election Once approved, the amendment would be put to the voters for the November 2020 election. Voter Action Statutory Changes Revenue Collection • Amendment becomes effective if approved by either 60% of those voting on the amendment or a majority of those voting in that election. • Income tax rates would be passed in separate legislation with the implementation contingent on the passage of the constitutional amendment. • If approved by voters, fair tax could be implemented as early as January 2021, providing a half year of additional revenue to the state in fiscal year 2021. AL OF THE STAT OF ILLINO AUG. 26 1818#22Proposed FY20 revenue changes will enable the state to fund essential services now... Facing the structural deficit and knowing that a fair tax cannot be implemented before FY2021, Governor Pritzker recognizes that additional revenues will be needed in FY2020. 18 Close Corporate Tax Loophole: Decouple from Federal Tax Credit for Repatriated Corporate Income $94M Additional Revenues to Support Medicaid: E-Cigarettes $10M Cigarette Tax Increase - $55M MCO Assessment - $390M Identify New Revenue Markets: Sports Wagering $212M Recreational Cannabis - $170M Plastic Bag Tax - $20M In addition, there is a proposed FY2020 Delinquent Tax Payment Incentive Program estimated to accelerate $175 million. $1.121B Proposed for FY20 Changes to existing rate structures: Phase out Private School Scholarship Credit - $6M Create Progressive Tax Structure for Video Gaming - $89M Cap retailers discount - $75M AL OF THE STAT OF ILLINOI AUG. 26 1818#2319 Pension Debt The State's Biggest Financial Challenge ✓ Illinois' current pension payment schedule follows the plan set forth Projected State Retirement Contributions 1994 est. vs 2018 est. ($ millions) in 1994, 25 years ago. ✓ After the original ramp $20,000 ended in FY2010, the $18,000 schedule assumed gradual growth in $16,000 pension payments. However, the impact of $14,000 recessions on asset values and changes to the systems' actuarial assumptions led to a steeper ramp in payments even with the addition of Tier 2. Appropriations for state $12,000 2003 Pension $10,000 Bonds $8,000 $6,000 $4,000 pensions have grown on average by 9% ($500 million) annually since FY2010. $2,000 $0 FY2020 certified contributions are $4.2 billion higher than originally estimated when 90% by FY2045 target date was set in FY1995 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 1994 Projections 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Actual Payments 2018 Estimates AL OF THE STAT AUG. 26 1818 OF ILLIN#24Sustaining the Pension Systems A Five-Tiered Approach The Governor's approach to pension stabilization, taken collectively with the expansion of the tax revenue base and the ongoing investment in priorities that will grow our economy, will put the state on a sustainable path that keeps its promises to retirees. 1) New dedicated revenue from the fair income tax on top of certified amounts 2) Extend the current pension buyout program 3) Infuse the systems with additional assets from the issuance of new pension funding bonds of $2 billion Establish two task forces: Pension Asset Value and Transfer Task Force and a Pension Consolidation Task Force 5) Restructure the pension debt to make payments more sustainable by modestly extending the target date to fiscal year 2052 20 20 AL OF THE STAT OF ILLINO AUG. 26 1818#25Debt Overview AL OF THE STAT ILLINOIS AUG. 26 1818#26Security for Illinois General Obligation Bonds 21 Security The full faith and credit of the State is pledged for the punctual payment of principal and interest under the General Obligation Bond Act (the "Bond Act") of the State 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 is dedicated to the payment of debt service on GO bonds and short-term debt Appropriation of Funds Additional Protection under Illinois Constitution and State Laws • 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 • 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 AL OF THE STAT OF ILLIN AUG. 26 1818#27$Billions 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. • The GO Bond Act includes the "7% Requirement", where bonds may not be issued (Unless waived by the Comptroller and Treasurer) if, in the next fiscal year after the issuance of new bonds, the amount of debt service on all then- outstanding GO Bonds (other than GO Bonds issued to pay pension obligations in 2010 and 2011 and Section 7.6 Bonds) exceeds 7% of the general funds (consisting of the General Revenue Fund, the Common School Fund, the General Revenue-Common School Special Account Fund and the Education Assistance Fund) and Road Fund appropriations for the fiscal year immediately prior to the fiscal year of the new issuance. • Average life of all outstanding GO Bonds is approximately nine years. General Obligation Debt Service¹ 4.5 4.0 Debt service declines in FY2020 by approximately $1 billion after the final 2011 pension notes are paid off in March 2019 Bill Backlog Bonds Current Par Outstanding $5.5 billion Capital Improvement and Refunding Bonds $13.3 billion $9.0 billion $27.8 billion Pension Bonds Total 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 22 1. As of March 2019 100% Fixed Rate 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Principal 2029 2030 2031 2032 2033 est 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 AL OF THE STAT AUG. 26 1818 OF ILLINO#28Liquidity • The Governor's Proposed FY2020 Budget estimates $2.3 billion in transfers from the General Funds to GOBRI in FY2020, with the balance expected from other State funds. - In FY2020, the State transfers will average approximately $190 million a month from General Funds to GOBRI after the issuance of the Series A Pension Acceleration Bonds.³ General Funds State Source Revenues available to make General Revenue Fund debt service in FY 2020 are projected to total approximately $2.8 billion per month on average providing 14.7x debt service coverage. • As of March 1, 2019, $1.0 billion was available in GOBRI. Fiscal Year End All Fund Cash Balances¹ Transfers to the GOBRI Fund ($Millions)2 2016 2017 2018 2019 2020 Est. Proj. 12.0 $12 $12 $11 $12 $9 $10 10.0 General Revenue Fund Capital Bonds 8.0 Pension Bonds $557 $626 $797 $608 $500 1,423 1,609 1,576 1,243 708 $Billions Section 7.6 Bonds 527 801 982 6.0 Pension Acceleration 7 92 4.0 GRF subtotal $1,979 $2,235 $2,899 $2,659 $2,282 Road Fund 334 305 349 339 338 2.0 School Infrastructure Fund 212 115 172 157 154 0.0 2013 2014 2015 2016 2017 2018 Capital Projects Fund TOTAL 533 477 285 481 633 $3,057 $3,133 $3,706 $3,637 $3,407 1. Does not include Federal Trust Funds. Includes GOBRI. June 30, 2016 balance show an increase from FY 2015 due in part to the late enactment of FY 2016 appropriations for many State funds. 2. Does not include debt service transfers on short-term debt as may have been from time to time outstanding 3. 23 This figure does not take into account the impact of the refunding AL OF THE STAT OF ILLIN AUG. 26 1818#29Plan of Finance Use of Proceeds Security Financing Overview The Series A Bonds are being issued to fund the Pension Buyout Program and the AAI Reduction April 1 Program (see next slide). The Series B Bonds are being issued to refund for economic savings certain outstanding general obligation bonds. 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. Amortization Taxable Series A Amortization* Sept. 1 Tax Exempt Series B 2020 12,000,000 2020 5,690,000 2021 12,000,000 2021 16,670,000 2022 12,000,000 2022 16,695,000 2023 12,000,000 2023 16,725,000 2024 12,000,000 2024 16,715,000 2025 12,000,000 2025 23,755,000 2026 12,000,000 2026 6,815,000 2027 12,000,000 2027 43,535,000 2028 12,000,000 2028 6,400,000 2029 12,000,000 Total $152,000,000 2030 12,000,000 2031 12,000,000 2032 12,000,000 2033 12,000,000 2034 12,000,000 Interest 2035 12,000,000 Payment Dates April 1 and October 1, commencing October 1, 2019 2036 12,000,000 2037 12,000,000 Mode Fixed Rate Bonds; Series A Taxable and Series B - Tax exempt 2038 12,000,000 2039 12,000,000 Ratings Baa3 (Stable) / BBB- / (Stable) / BBB (Negative) 2040 12,000,000 (Moody's/S&P/Fitch) 2041 12,000,000 Series A 10:15 A.M, Series B - 10:45 A.M. 2042 12,000,000 Pricing* Central, March 26th 2043 12,000,000 2044 12,000,000 Closing* April 9th Total $300,000,000 24 *Preliminary, subject to change. AL OF THE STAT OF ILLINO AUG. 26 1818#30Timeline and Contacts AL OF THE STAT ILLINOIS AUG. 26 1818#31Tentative Transaction Timeline and Contacts Date* Event* Competitive Bond Sales March 2019 April 2019 SMT W Th F S S M T W Th F S March 26th (Series A-10:15 A.M. Series B 10:45 A.M. Central) 1 2 1 2 3 4 5 6 April 9th Closing 39 4 5 10 11 12 13 6 7 8 9 14 15 16 7 8 9 10 11 12 13 14 15 16 17 18 19 20 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 21 22 23 24 25 26 27 28 29 30 State of Illinois Governor's Office of Management and Budget Kelly Hutchinson Director of Capital Markets [email protected] (312) 814-0023 Financial Advisors Columbia Capital Management LLC Courtney Shea Managing Member [email protected] (312) 499-9200 *Preliminary, subject to change 25 Sycamore Advisors, LLC Diana Hamilton President [email protected] (317) 631-1900 AL OF THE STAT OF ILLINO AUG. 26 1818