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In IL, ‘pension reform’ may mean ‘tax increase’

By   /   July 8, 2013  /   8 Comments

By Benjamin Yount | Illinois Watchdog

SPRINGFIELD —  Illinois does not have a pension problem. Illinois has a tax problem.

Those two sentences have long been the mantra for the state’s public employee unions.

Now, the idea of taxing Illinois out of its worst-in-the-nation pension problem is getting increased attention from lawmakers.

The state’s special pension committee spent hours Wednesday listening to a flood of numbers from Ralph Martire and his union-funded Center for Tax and Budget Accountability.

“It’s very difficult to find a way to solve the state’s pension funding problem,” Martire explained to lawmakers. “Given that (Illinois

TAXES NOT CUTS: Martire says Il needs to raise taxes, not cut pensions.

has) this structural imbalance between revenue growth, cost growth and its obligation to fund its other debt.”

Martire is saying Illinois has failed to generate enough money to pay the $8 billion per year pension payment and still pay to operate state government.

Marite’s solution? Expand Illinois’ sales taxes and adopt a progressive income tax. Martire calls both “revenue reforms that are necessary to get the state’s fiscal house in order.”

Martire has long repeated calls from Illinois’ biggest public employee unions to increase taxes in lieu of cutting pension benefits. The CTBA supported more taxes in 2012, 2011, and as far back as 2008.

If Illinois has a problem, say Republicans in Springfield, it centers around spending.

“The five years before the (2011 income tax increases) passed were the five highest revenue years the state has ever had,” Palatine Republican Senator Matt Murphy said. “Since the tax increases passed, (taxpayers) are now giving another $7 billion on top of that.”

Republican House budgeteer David Harris, R-Arlington Heights, in June told Illinois Watchdog the state is collecting record amounts of tax dollars.

“The state has never brought in more money, Harris said. “Illinois does not have a revenue problem. We have a spending problem.”

Republicans, however, have a numbers problem. Democrats control the Illinois Legislature, and top Democrats like the idea of a progressive income tax.

“I have long been an advocate of a progressive income tax,” pension committee boss Kwame Raoul, a Chicago Democrat, declared last week.

Raoul has been saying the same thing for months. He told Illinois Watchdog in January the state needs to look at a “comprehensive” tax and pension reform solution as part of a pension fix.

In a last-minute vote in January 2011, Illinois raised income tax rates for individuals and businesses.

People now pay a 5 percent tax on their income, up from 3 percent. Businesses pay 7 percent, up from 4.3 percent.

Those tax rates are scheduled to roll-back in January 2015 — to 3.85 percent and 5.25 percent, respectively, unless lawmakers vote to make them permanent.

TAPPED OUT: Murphy says IL taxpayers are paying more than enough.

There have already been calls to do so.

But Murphy warned supporters that simply raising taxes leaves the state on a dangerous path.

“How much do you think we need, above and beyond the literally billions of dollars that taxpayers have given state government? How many billion more do you think we need?”

Illinois’ pension reform committee will meet again Monday, but lawmakers are not expected to come to terms on a pension reform plan — or a tax reform plan— in time for Gov. Pat Quinn’s July 9 deadline.

Contact Benjamin Yount at Ben@IllinoisWatchdog.org and find him on Twitter @ILWatchdog.

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  • Tough Love

    Quoting … ““It’s very difficult to find a way to solve the state’s pension funding
    problem,” Martire explained to lawmakers. “Given that (Illinois”

    Not if the Illinois politicians would get some GUTS.

    Considering that the Taxpayer-funded share of pensions “promised” ALL Public Sector workers are 2-4 times (5-6 times for safety workers) greater in value at retirement than their Private Sector counterparts, all while these workers earn no less in cash pay (thereby NOT justifying ANY greater pensions), the RIGHT solution is to immediately freeze ALL of these DB Plans and replace them with DC Plans with a 3-5% of pay Taxpayer “match” commonplace in the Private Sector.

    At lease doing so would finally STOP digging the financial hole we are in even deeper … and buy some time to address the unfunded liability for PAST service accruals.

  • Opa

    Your article is partly correct and partly incorrect. Illinois has both a revenue and a spending problem. Martire is right that the IL tax structure is antiquated and better suited to the early 20th century. A service economy needs taxes on services, which IL is doing only to a very limited extent. Regardless of how much money is to be raised, our system cries to be revamped to fit the 21st century,

    The spending problem is that the state has consistently delivered more services to its citizens than it has paid for through taxes. The credit card to make up the difference has been the pension systems. There would be no pension problem today if the state had made its legally mandated contributions to the retirement systems each and every year. Instead, full payment was the exception rather than the rule. The systems have earned excellent returns on investment over time (sure, bad years hit every investor), but when the invested funds were far below what they should have been, the earnings also fell short.

    As for the nonsense that pension for public employees are too generous and unaffordable, look at the facts. FY14 pension payments will be around $6B, as I recall, not $8B as claimed in the article. Regardless of the number, roughly 2/3 of the amount is debt service on the unfunded liabilities that should never have existed at all. They are the result of the state skipping payments or paying far less than needed. Only about 1/3 is needed to meet the annual normal costs. That is totally affordable and provides a decent, but not luxurious retirement for public employees, a large percentage of whom will not receive Social Security benefits because the state prevented them from participating in Social Security. Figure out a better way to repay the debts than the 1995 Edgar RAMP plan, which no sane individual would ever replicate on a home mortgage, and you can solve this problem without violating the Constitutional protection of pensions as well as federal contract law.

  • redraspberry

    No matter how much money they take in it will not be enough.

  • Tough Love

    Quoting Opa ,.,”There would be no pension problem today if the state had made its
    legally mandated contributions to the retirement systems each and every
    year. Instead, full payment was the exception rather than the rule.”

    Baloney and here’s why ..

    ANY pension Plan NO MATTER HOW GENEROUS (even 10 times the ALREADY absurd pension levels promised today) has “scheduled payments” to fully fund it. So the SAME (lame) argument that you are making now could also be made if the pensions were 10 times richer.

    The PROPER way to answer the question ..ARE THEY TOO RICH… is to compare Public and Private Sector “Total Compensation” (cash pay plus pensions plus benefits) in comparable jobs.

    By that APPROPRIATE measure Public Sector pensions are INDEED FAR FAR too generous.

    Clearly Opa is a Public Sector worker trying to stop his gravy train from rightfully being derailed.

  • Joe

    Illinois’ biggest welfare babies

  • Fred Chittenden

    The solution is simple. Give the public union folks what they expect, then tax back what the fund doesn’t have to pay out. After all, Ocrats are all for targeted taxes to balance budgets. There’s no reason the private sector should have to pay for public unions under performing pension funds, AND for their own pensions…

    There’s also the option to add ‘choice’ into the mix — let pensioners choose the option to convert their defined benefit pension into a defined contribution pension whose payouts would be based upon private sector prosperity. Pretty soon, it may occur to some burrocrats that lowering taxes and regulations might actually improve their pensions…

  • Wendy Smith

    Looks like another case where those who were legally responsible to properly administer a financial program bungled, in this case on pensions, and are now not able to deliver. Therefore, in an essentially dead beat administrator move, they want the middle class, children, and the old to make up for their earlier lack of responsibility. Honestly, this really reveals Illinois administration to be irresponsible low-life.

  • Belinda Needler-Matayosian

    All I know being a retiree of the state I put into my retirement and was promise free medical if I retired with 20 years or over. Well I put in 34 for years in a job most people could not do. Now at 55, I have the body of a 70 year old. I hurt all the time along with other people I know in the same field. Making under 35,000 a year is very a low income and they want to take that away and make me pay more for medical. I feel the State of Illinois stole my money and kicked me in the ass and you so call law makers making over 100,000 a year continue to take what I don’t have to give. You sit on your asses and scheme how to make public employees and retirees pay for more of your mistakes and pay for your lunches at the golf courses. The state of Illinois use the retirement fund for other things and now they have come back for round two. So sick of all the corruption. Judges and higher up state electives are in deep with each other and continue to control for the good of themselves and not the people.

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