The quest for a pension amendment: Can Pritzker and Lightfoot save Illinois from itself ?
There are certain words and phrases Democratic political leaders in Illinois don’t utter often enough: $133.5 billion unfunded state pension obligation, worsening crisis, junk bond status, ambitious solutions …
We’ve watched as pols prioritized and governed. We’ve kept tabs on General Assembly discussions. And we’ve waited, and waited, for the light bulb to go on: Illinois has a pension obligation crisis that must be solved, so here’s what we’ll do right now.
Instead, the debt keeps rising, as does the number of taxpayer dollars that must be siphoned away from other uses to feed the pension python. Chicago, for example, must make a new $270 million contribution to its underfunded pension system in 2020. Within four years that annual pension upcharge will rise to nearly $1 billion.
A few days ago all of us saw something positive: Gov. J.B. Pritzker and Mayor Lori Lightfoot acknowledged the $133.5 billion beast in the statehouse and its dire impact on Illinois finances. They presented no specific fixes, but they met privately to talk through some options, according to Crain’s Chicago Business, then spoke publicly.
We’re not yet giving the pair an “A” for effort, or anything above “Baa3,” which is the Moody’s Investors Service rating for Illinois general obligation bonds (the lowest of any state, and just above junk status). But it was good to see a governor and mayor talk out the scope of the crisis rather than avoid the subject.
“We have got to get this problem solved,” Lightfoot said. “When we have a package of options finalized, we’ll present them to the governor and senior leadership.” She reportedly would like to see the state consolidate Chicago’s pension funds with more than 650 suburban and downstate police and firefighter pension funds.
That notion might help Chicago, sure, but is of dubious value to state government. That’s because while a consolidated, bigger investment fund could yield higher returns, the hit to Illinois’ creditworthiness could be severe. As Pritzker noted: “The state is at just above junk status in its credit rating, so there are not liabilities that can be adopted by the state that would not drive us into junk status.”
The governor said there are other options. A Pritzker administration task force is supposed to release a pension proposal this summer. We’re not big fans of task forces. Like blue-ribbon panels, they’re often bureaucratic do-si-dos. We’d prefer the governor think through the options — they’re pretty straight-forwrd — and commit to a plan. Again, though, talking about the problem is better than denial.
One of Pritzker’s ideas for generating some revenue to help stabilize state financing is to switch from a flat-rate income tax to a graduated-rate tax. Every citizen of Illinois knows too much about Springfield’s spending habits to believe the Democrats’ promise that they only want to raise the tax rate on the highest income earners. Under graduated tax rates, bet that almost everyone soon would have to pay more in taxes, and still lawmakers won’t change their profligate ways. Voter approval is required for Pritzker to replace the flat-rate tax. The General Assembly approved a referendum to be put on the November 2020 ballot.
Every citizen of Illinois knows too much about Springfield’s spending habits to believe the Democrats’ promise that they only want to raise the tax rate on the highest income earners. Under graduated tax rates, bet that almost everyone soon would have to pay more in taxes, and still lawmakers won’t change their profligate ways.
But Pritzker and Lightfoot ought to reach the same realization Mayor Rahm Emanuel reached: The best, perhaps only way to tame the pension python is to amend the state constitution’s rigid pension clause. Along with the graduated-rate vote, they should support a companion referendum. A relaxed pension clause could, for example, free Illinois taxpayers from compounded, overly generous costof-living adjustments.
To fix the pension mess, Illinois politicians should strike a fair deal with voters: We want you to approve a graduated-rate income tax, and at the same time we’ll give you a chance to reduce our biggest cost driver, the pensions.
As the governor and mayor strategize, they should agree that giving voters an opportunity to change the pension clause will be part of their plan.