Chicago Sun-Times

Illinois must move forward on digging out of its pension problem


If left too long on the back burner, Illinois’ underfunde­d pensions will burn up the state’s finances. As David Roeder reported in Wednesday’s Sun-Times, the Civic Committee of the Commercial Club of Chicago released a report this week calling for a 10-year income tax surcharge and exploring other measures to get the state’s pensions back into balance. The Legislatur­e should follow up by enacting pension reform.

Illinois’ five statewide pensions are underfunde­d by about $140 billion. The state now is on a “ramp” that requires ever-increasing payments into the pension funds each year until 2045, when the state will pay some $18 billion in 2045 alone. That will make it hard to pay for all the other things the state does, including education, public transporta­tion and roads and bridges.

In the current fiscal year, the state’s budget is close to $50 billion, which shows how hard it will be to come up with $18 billion just for pensions.

If there is to be a graduated income tax surcharge, we’d like to see top earners pay a higher percentage than those on the bottom rung. That would require a constituti­onal amendment, and the most recent effort to pass a progressiv­e income tax amendment failed in 2020.

The Civic Committee, which opposed the 2020 progressiv­e tax referendum, is now proposing a surcharge of 0.5% on individual­s and 0.7% on corporatio­ns, which would raise an estimated $2.9 billion. It also is recommendi­ng broadening the sales tax to include services. All of that money would go toward funding pensions and the state’s rainy-day fund. Individual­s now pay a flat rate of 4.95%.

“If you do this in a responsibl­e fashion and adopt proper actuarial and accounting methods ... we will actually solve the problem,” said state Sen. Robert Martwick, D-Chicago, a longtime proponent of pension reform.

Fully funding the pensions would boost Illinois’ bond rating, which at BBB+ is now the lowest among all states.

Illinois already has taken sensible measures. For the state’s fiscal years 2022 and 2023, Gov. J.B. Pritzker added a total of $500 million to pension payments beyond what is required by law. What’s needed, though, is a plan that covers every year going forward until pensions are properly funded.

The Civic Committee plan includes suggestion­s the Legislatur­e is likely to find unpalatabl­e, such as a tax on retirement income and eliminatin­g the estate tax on assets above $4 million. It also suggests cutting state agency spending by 2% to 3%, which might sound reasonable until you remember some state agencies are trying to recover after have been hollowed out by year after year cuts.

But a comprehens­ive plan that bumps up revenue to front-load repayments while flattening out the upward curve of the existing repayment “ramp” could get Illinois on a path toward fixing the problem. Any element that can help make new taxes progressiv­e should be included.

With healthy revenues coming in, the Legislatur­e may not be in the mood to raise taxes. But the time to act is now.

 ?? TAYLOR R. AVERY/SUN-TIMES ?? The Illinois State Capitol in March 2022.
TAYLOR R. AVERY/SUN-TIMES The Illinois State Capitol in March 2022.

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