Pension battle goes down to the wire

State Rep. Elaine Nekritz
Springfield

By Benjamin Yount
SPRINGFIELD — Not even the authors of Illinois’ latest pension reform proposal are in love with the idea.
State Rep. Elaine Nekritz, D-Northbrook, says the plan to tweak cost-of-living adjustments and increase employee contributions is “not an ideal solution.”
State Rep. Dan Biss, D-Evanston, said the reform package is “not perfect,” but he pleaded with lawmakers to find some way to “support this legislation.”
The public employee unions that don’t want Illinois legislators to overhaul the pension system downright hate the plan.
Illinois Federation of Teachers’ chief Dan Montgomery accused lawmakers of “plunging ahead with an illegal plan that, from our point of view, violates your oath of office.”
Illinois AFSCME boss Henry Bayer told lawmakers they are trying to take away what has been “earned and is owed” to public employees.
But with time quickly running out in the lame-duck session, the less-than-perfect pension proposal is headed for a Tuesday vote in the Illinois House. Lawmakers have until noon Wednesday, when a new Legislature is sworn-in, to send a pension reform proposal to Gov. Pat Quinn.
The latest plan would freeze COLAs for all workers and retirees for six years. Once reinstated, they would only apply to the first $25,000 of a retirees’ income, and workers would have to wait until age 67 to receive a COLA bump. Public workers would also be required to pay more for their retirement benefits. But the plan does not include a cost shift that would have local schools and governments pick up more of the cost.
Illinois’ largest public employee unions — the Illinois Federation of Teachers, the Illinois Education Association, the American Federation of State, County and Municipal Employees and the Service Employees International Union — are warning lawmakers that any reform to which the unions do not agree would be met with a lawsuit. Illinois’ constitution specifically protects public pensions.
Instead of benefit reductions, the unions want lawmakers to raise taxes on corporations to pay for Illinois’ $93 billion to $130 billion pension gap.
“We don’t have a benefit problem,” said Cinda Klickna of the IEA. “We have a revenue problem.”
Illinois’ pension woes go back years and can be partially blamed on lawmakers and governors who did not make the state’s full pension payment.
But House GOP Leader Tom Cross, R-Oswego, said the time for finger-pointing has ended.
“Many of the people … that are going to complain about this solution didn’t mind when the General Assembly didn’t make payments” said Cross. “Because at the same time, more money was going to pay raises or a state contract.”
Bayer of AFSCME accused Cross and other lawmakers of trying to put the pension burden on the “backs of workers.”
But Laurence Msall, president of the Chicago-based Civic Federation, said all taxpayers are bearing the brunt of Illinois’ worst-in-the nation pension crisis.
“Our taxes are going, and will increasingly go, to pay debt and not (for) current services,” said Msall.
The Civic Federation estimates that by 2045, 60 percent of state money will go toward pensions.
Msall and other business leaders say it will be difficult to persuade businesses to move or expand in the state because of uncertainty over taxes.
The pension-reform proposal now faces a fast-approaching deadline and an uncertain future.
The Illinois House is expected to vote on the plan Tuesday. Leaders in the Senate have said they will call lawmakers back to Springfield as well Tuesday, if there is something to vote on.
The 98th General Assembly will be sworn-in at noon Wednesday.
Contact Benjamin Yount at [email protected]

Comments

Pension costs

Many of the people who are going to complain about this did in fact mind when the General Assembly didn't make payments. Many politicians did not lead when they failed to educate the wider public about pension underfunding. Any "solution" should be based on consensus. This can be reached if politicians would own up to their mistakes. If not, the best and brightest of current and future public workers will be lost. There is a real cost for this too.

Instead of benefit reductions

"Instead of benefit reductions, the unions want lawmakers to raise taxes on corporations to pay for Illinois’ $93 billion to $130 billion pension gap.
“We don’t have a benefit problem,” said Cinda Klickna of the IEA. “We have a revenue problem.”"
Hahahaha. Hilarious. The state did raise taxes on corporations already, but the fact is, most large corporations can easily relocate to Indiana or the South and after realizing this, the State bent over backwards to ensure that the biggest corporations stayed. We'd be in even worse shape if we went to some California-esque corporate tax rate and had it applied across the board because the amount of taxable activity subject to that rate would plummet within 5 years.
In addition, Article IX, Section 3(a) of the State Constitution caps the corporate income tax relative to the personal income tax, which is also mandated to be flat. Good luck getting supermajority approval to change that and if it does change, this place will empty out. Here is the text:
"A tax on or measured by income shall be at a non-graduated rate. At any one time there may be no more than one such tax imposed by the State for State purposes on individuals and one such tax so imposed on corporations. In any such tax imposed upon corporations the rate shall not exceed the rate imposed on individuals by more than a ratio of 8 to 5."
It's interesting that these folks are experts on Article XIII Section 5 of the State Constitution (which protects pensions) but that they fail to read the rest of the document.

Corporate tax rate

When did the Corporate Income Tax get raised to eight percent?  Loopholes that allow no corporate income tax to be paid is a real issue here in Illinois.  Proper funding is the only issue here.  Undiminished pensions are a Constitutional right in Illinois.  Taxes weren't raised years ago when they were needed to fully fund the State portion of pension contributions.  Now , you want employees and retirees to fix a problem created by a lack of funding?   Close loopholes and provide incentives for more hiring of workers to force corporations to pay their fair share of necessary revenue increases that are long overdue in Illinois.

Hate to break it to you

But the actual marginal rate for corporate income taxes in Illinois is 9.5% (7% state income and 2.5% of income for replacement taxes). You can live in economic fantasyland and pretend that the largest corporations in this state won't leave if they are asked to pay full freight, but I guarantee you that if the state income component goes to 8% (pushing the rate to 10.5%) and the government doesn't play ball with the larger corporations in this state, 5-10 years after enacting the change the corporate tax base will be a fraction of what it is on the date of enactment and the pensions will be even more underfunded.
The constitutional "right" is illusory, it only exists to the extent economic activity exists to support it. When you grant an ever growing chunk of the State's income to a preferred class, you necessarily undermine the economic stability of those footing the bill that funds that piece of the State's income. Illinois cannot coin currency to fund the shortfall (like our federal government can with respect to its long tail liabilities) and is completely reliant upon taxpayers voluntarily locating in and staying in Illinois.
Your use of the word "force" is misplaced because a state cannot "force" economic activity to occur within its borders, it must compete with other states and convince those with the means of production that it is the best place for business. CME alone pays about 6% of the corporate income taxes in the State. It would take some time, but it can move its infrastructure and drastically reduce the amount it pays into Illinois. Not only would that hit the State's corporate tax coffers, but it would strip out middle class IT type jobs that would move to some lower tax jurisdiction and when played out across other companies doing the same thing it would have ripple effects on housing prices and people whose livelihood depends on selling goods and services to the workers who will lose their jobs or have to move. Fortunately, our elected leaders are weighing these concerns that you have glossed over.