It’s encouraging to finally see detailed proposals about solving the state’s pension obligation issues.
As most folks know, the pension problem is huge. Illinois’ unfunded pension liability is about $95 billion. To pay the current pension bill each year will take a larger and larger chunk of the state’s general budget. If that happens, it means less money for other state operations such as education, public safety and health. In addition, Moody’s bond rating service has made it clear the state’s bond rating will likely be downgraded if a solution isn’t reached. The state’s Constitution also is a barrier, although opinions vary widely on that issue; it’s almost a guarantee any solution will be challenged in court. Still, it’s easy to say one proposal or another is “unconstitutional.” The need for a solution in the lame duck session that ends on Jan. 9 is crucial.
A little more than two weeks ago, a group of House members proposed a bill — HB 6258 — that set up a framework for solving the problem. The bill would increase the retirement age for state workers, teachers and university employees who are younger than 45, restrict the annual cost of living allowance to the first $25,000 of a pension, increase employee contributions to the pension systems, limit “end of career” salary increases that boost pensions, gradually shift the cost of pensions from the state to school boards and universities, give those local governments more say in pension benefits and allow the pension systems to file suit if the state does not keep up with pension payments.
We Are One Illinois, a coalition of groups representing public employee unions, also announced a proposal last week. The group said employees would be willing to increase their pension contributions by 2 percent if the state was legally required to make all pension payments. The group also advocated closing some $2 billion in corporate tax “loopholes.”
House Bill 6258, according to figures released Friday, would reduce the state’s unfunded pension liability by 29 percent — from $95 billion to $67 billion. It also would reduce next year’s required pension contribution by 28 percent — from $6.7 billion to $4.8 billion. That’s nearly $1 billion less than the pension contribution for the current fiscal year. According to House members, the plan also would reduce the contributions necessary from school districts and universities as part of the cost shift.
Rep. Daniel Bliss, D-Evanston and one of the bill’s sponsors, said the numbers prove the legislation strikes the “right balance. It provides retirement security for employees while stabilizing the state’s finances.”
The two proposals agree in two key areas. The state should be required to pay its annual pension obligation. That has to be a part of any solution. And the union group is facing reality by agreeing that public employees will have to contribute more to their pensions.
But tax increases are not the answer. Illinois already is known as an unfriendly state toward business, which has a direct impact job creation. What message will increasing corporate taxes by $2 billion send? In addition, it’s simply misguided to portray the tax increases as being paid by corporations. Some of the proposed increases, such as a tax on satellite dish installations, would be paid by consumers. Another union proposal is to remove a tax exemption on farm chemicals, which would have a direct impact on farmers. The fact is most taxes ultimately end up being paid by consumers.
The House sponsors have taken a measured approach to this problem and have allowed others to comment on their legislation for more than a month. That approach is appreciated.
The House proposal isn’t perfect and some changes will need to be implemented. But it’s the most realistic proposal presented to date, and appears to take significant steps toward solving the problem without implementing job-killing taxes.