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SPRINGFIELD – Taxpayers would pay more to Springfield and more in local taxes to cover Illinois’ $130 billion pension debt under the latest plan floated at the Capitol.

By Benjamin Yount

SPRINGFIELD – Taxpayers would pay more to Springfield and more in local taxes 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.

State. Rep. Lou Lang

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.

State Rep. Darlene Senger, R-Naperville

“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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11 Comments

  1. Democrat politicians care more about unions than anyone else

    This is a terrible plan that will dig us in a deeper hole.

    We all knew that Democrats who raised our income taxes 67 percent the same year government unions employees marched on Springfield demanding a tax hike would break the promise that the income tax raise was temporary.

    Lou Lang among so many other Democrats ignore the real problem – the pension benefits are unsustainable. You can't promise a guaranteed 3 percent annual raise that pays 75 percent of the final salary for the rest of the employees' lives that also provides nearly free healthcare benefits. The Illinois pension system is set to go insolvent this decade. Raising the employee contributions while keeping the current income tax level will not solve the problem.

    Lang also wants to kick the unfunded liabilities down to the local level, which means we will pay MORE taxes as school districts get hit with a huge deficit.

    Meanwhile, businesses are leaving Illinois and more definitely will if the state income tax increase becomes permanent. So as more people and businesses leave the state that means less tax revenue which means legislators will have to increase taxes even more to make up the difference. The City of Evanston alone has increased taxes 20 percent in the past five years. Illinois has the most government entities in the nation and these governments have been consistently increasing their tax rates.

    We need to do what Wisconsin has done. Turn Illinois into a right to work state and eliminate collective bargaining for government unions. Instead, Democrats who rule Illinois just keep raising taxes to try and stop the bleeding. As a result, Illinois is in the worst fiscal condition in America.

    It's no wonder that Democrats after seven years of economic decline continue to raise taxes as people have lost a good chunk of their private retirement investments and property values. Is anyone surprised about the fact that Democrats receive almost 90 percent of all union campaign donations.

    The Democratic party cares more about government unions than they do for everyone in the private sector. Bottom line: if you're not in a union you'd better vote Republican next time or the dire financial straits Illinois is in will get worse. 

  2. Another math issue

    Rep Senger, here is another math issue for you.  31 states already have higher individual income tax rates than Illinois' 5%. And most of those have progressive rates with the top rate being quite a bit higher than 5%

  3. pension plan solved

    Lang's plan solves nothing. In fact, Lang and his pals in springfield are the problem. To fix the pension, we need to fix the groups that caused the mess. Therefore, the following groups will not receive any raises, pension benefits, or medical benefit until the pension problem is solved without hurting yhe Illinois taxpayers.

    • The Illinois governer and other state officers.
    • The state legislature, senate and house.
    • The state courts, including the supreme court.

    In addition, the above groups, will receive a 50% reduction in pay and expense reimbursements. All state commities will be cut in half. The state will make plans to make Illinois a right-to-work state and make union participation optional..

    These ideas will make Illinois a lot cheaper to reside in and make political jobs a lot more honest.

    Yhere is no reason that these ideas could not be implemented at the county and city level.

    I am fairly certain there are more ideas that will make Illinois fiscally sound and have the state do a 180, make Illinois the least corrupt state.

    Share your ideas and send them to Lang and his cronies.

  4. Teachers’ union membership

    Just a quick point of clarification–union membership is not required for Illinois teachers. While many opt to belong to the union, it is not a requirement and there are those who choose not to, even in Evanston.

    1. Pay the union

      But don't you still have to pay into the union? Isn't there some wording about not paying a small percentage of the dues if you elect not to be "technically" in the union but the bottom line is you still must pay into the union to cover a portion of "their" cost, declared member or not.

      1. Response to Pay the Union

        You are correct that some teachers are required to pay union dues, but this depends on the district and what each individual district negotiates.  Some districts vote not to be in the union at all and negotiate without the aid of the AFT or IEA.  Some have a majority of teachers in the union, but offer no penalty if an individual chooses not to pay dues or participate.  And some districts require a percentage of membership dues to be paid by all teachers, but even that percentage can be donated to charity if an individual has a moral or religious objection to contributing to a union. To the best of my knowledge, though, in all districts in the state, a teacher has the right to sign a waiver that prohibits any part of their union dues being sent to fund any political organization or candidate. 

        Here on the North Shore, all teachers that I have met (and I am from a family of teachers in multiple schools), do not support their unions due to the political clout that supposedly the unions purchase in Springfield, but rather to ensure fair contract negotiations with their administrations and to take advantage of the legal aid that is included in their dues. 

        1. Another response to unions

          In Illinois, there is a fair share law- meaning that if there is a union, teachers can be forced to pay the dues, regardless if they want to join with the rationale that the union negotiates on your behalf whether or not you want them to do so.  You can opt out of the union, but the fair share dues are still taken from the paychecks. The Illinois Education Agency says that the fair share is 80% of union dues.   So basically, if you choose not to join, you have to pay 80% of the dues anyways. 

          You can opt out of the IPACE contributions. TO the best of my knowledge, the IPACE money is the part used directly for political campaigns.   IPACE is only about $20. To get it back, you must "submit a written request to the Government Relations department. This request should include the name of the local, the name of the local president and/or local treasurer and the mailing address where the check is to be sent."   I actually jumped through the hoops and did this, but still have not received back my money. 

          Union dues are about $1,000/year. Does it really cost $800/year to negotiate on my behalf?   Personally, I'd rather take my chances, negotiate for myself, and opt out of paying all union dues. 

          In Illinois, I do not have this choice.  In Wisconsin, with the right to work law, I could choose whether or not to pay/join.  I have no objection to people joining unions,  but I feel that I should have a choice not to join and not to pay. 

           

  5. People will vote with their feet

    According to records compiled from "How Money Walks", from 2005-2010 the Chicago area ranked 363rd (of 365 areas measured) in outbound residents and capital.  During this period, 211,623 residents left the area along with $21.07 billion in capital.

    While this does not prove that tax increases cause resident/capital flight, it illustrates that a strong correlation exists between taxation/regulation and resident/capital flight.

    If government spending and taxes continue to outpace wages, resident flight will increase, thereby requiring even greater taxation from the remaining citizenry.  This destructive cycle will increase in size and scope until taxation prevents people and businesses from moving here (subsidies demanded by business prospects in recent years are a symptom of this downward trend).

    In summary, once proud cities like Detroit did not collapse overnight. Neither will we.  However, we are following their path.  Unless we change course, our destination becomes an eventuality.

    1. We don’t pay enough

      It's ok, union leaders and their supporters have told us all how we in Illinois have gotten away without paying enough in state taxes. (never mind the size of the local and states overall per capita tax burden, or the waste within) They say we taxpayers pay way to little in state income taxes and it should be no problem for us to hack up some more under all sorts of various schemes. Guess we haven't been living up to our responsibilities and the Unions want us all to step up and pay our fair share. I guess some people and companies are leaving because they just didn't get the union memo.

  6. True solution to pension “crisis”

    How is this costing us more money?  The facts are as follows:  

    Money was spent elsewhere and/or borrowed to pay for the States portion of the pension fund.  Those diversions of money benefitted all residents of Illinois.  

    Currently the state income tax increase pays for the States contribution to the funds and debt incurred by the above mentioned borrowing.  This bill continues the income tax increase for the purpose of doing exactly what it does now; pay for pensions.  After the debt is paid off any income tax increase funds not necessary to pay the States portion of the pension contributions would be returned to the taxpayers.

    Cost shifting non-Chicago teacher pension responsibility back to their employers from the State over a 17 year period is easily budgeted for.  It also makes for more thoughtful negotiations with the Teachers union for future contracts perks.  Tax caps for the school districts are maxed out each year already so property tax payers cannot get socked by higher tax levies unless they vote for a referendum to do so.  The savings from shifting pension responsibility for these teachers eliminates the great majority of the unfunded pension liability over all.  These shift savings allows for more State funds for education (we're currently last of all 50 states) and helps with the States problem of over reliance on local property taxes to fund our public education system.

    An 80% funding goal over the next fifty years frees up a ton of money to pay down the 9 billion in over due States bills.  The current 34 years left on the current 90% funding goal law is heavily back loaded and just now ramping up.

    Employees are sacificing too by having to retire at a later age and pay more of their income into the pension funds in order to keep their already constitutionally guaranteed retirement benefits and COLAS.  

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