New IL plan has local taxpayers picking up state-pension tab
By Benjamin Yount | Illinois Watchdog
SPRINGFIELD – Taxpayers would pay more to Springfield and more in local taxes as well to cover Illinois’ $130 billion pension debt under the latest plan floated at the Capitol.
State Rep. Lou Lang, D-Skokie, wants to pay for pensions by extending Illinois’ temporary, 2-percentage-point income tax increase until the pension debt has been eliminated, and shifting the retirement costs for teachers and university professors to schools and universities. Lang’s plan would keep the corporate tax increase in place as well.
“Taxpayers are now paying the two percent,” Lang said Wednesday at the statehouse. “And so the taxpayers of the state of Illinois, even those that will be the most angry about this, will tell you that the state of Illinois is in dire straits and needs the cash.”
Lang would rely on the temporary rate increases passed in early 2011, when the individual income tax rate went from 3 percent to 5 percent, the corporate rate from 4.8 percent to 7 percent. In 2014, the rates are supposed to fall, to 3.75 percent for individuals, 5.25 percent for corporations.
The cost shift, which would have local taxpayers pay for the retirements of local teachers, would happen over nearly two decades, according to Lang.
Lang wants Illinois’ public employees to pay more toward their own retirement and wait to leave their jobs until age 67. Lang wants to bump employee contributions up by 3 percentage points. Current contribution rates vary by pension system.
But Lang’s plan would not change the defined benefit plan, or reduce benefits already promised to thousands of public employees and hundreds of thousands of teachers.
“I expect to get some significant interest from unions, teachers, AFSCME, members of the General Assembly,” Lang said. “And I expect to find some support because this is the first proposal that does not take away benefits from any public employee.”
Representatives for the coalition of Illinois’ public employee unions, including the American Federation of State County and Municipal Employees, the Illinois Federation of Teachers, the Illinois Education Association, and the state’s AFL-CIO would only say they are “reviewing” the proposal.
The unions have long pushed for a tax increase and guaranteed pension payments, included in Lang’s proposal. But they have not been generally supportive of a higher retirement age or increased employee payments.
State Rep. Darlene Senger, R-Naperville, said Lang’s proposal does nothing to fix the structural imbalance of Illinois’ defined benefit plan.
“This is not a finite problem. This is always fluid,” Senger was quick to say. “If we have another market crash, if they lower the interest rate assumptions, if people work longer. All of those things move that unfunded liability needle over again.”
Senger said even if Lang’s plan becomes law Illinois will be looking at a massive unfunded pension debt in five years.
Laurence Msall, president of the nonprofit Civic Federation in Chicago, said the math of Lang’s proposal doesn’t add up.
“It’s very difficult to determine, even with his proposed income tax increase, if that would be enough to make this plan viable,” Msall said from Chicago. “And the notion of 80 percent funded over 50 years is a creation of the General Assembly.”
Lang’s plan would have the state’s five pensions systems 80 percent funded by 2063. Msall is quick to point out that the goal for every government retirement plan is 100 percent funded within 30 years.
But Senger said there is another math question that voters need to answer for themselves.
“You’ve got five percent of those who are actually in a public pension system, and 95 percent of the state of Illinois that is not,” Senger said. “They’re being asked to pay for someone who is retired because there is not enough money to fund them.”
Lang’s plan now faces an arduous trip through the General Assembly. Lawmakers have been told they have until the end of May to pass some type of pension reform.
You can reach Benjamin Yount at Ben@IllinoisWatchdog.org
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