Home Extra-Income Side Business Illinois pension crisis requires swift action, Civic Committee says – Crain's Chicago Business

Illinois pension crisis requires swift action, Civic Committee says – Crain's Chicago Business

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It’s not every day that a group of corporate chieftains makes a forceful and concerted argument for a tax increase. And yet, Chicago’s largest employers, members of the Civic Committee of the Commercial Club of Chicago, did just that on Feb. 5, recommending to new Gov. J.B. Pritzker a plan to pay off more than $130 billion in state pension debt largely through a series of significant tax hikes.

Under the blueprint unveiled by the Civic Committee, the city’s most elite business organization, the state would increase personal and corporate income taxes by 1 percentage point across the board, pulling in $4 billion in the process. The state would net an additional $1.9 billion by beginning to tax retirement income—Illinois is among only a handful of states that don’t do this already—and would raise $500 million by extending the sales tax to cover more consumer services. The resulting $6 billion a year in higher taxes would be matched by $2 billion in spending cuts.

That $8 billion nut, the Civic Committee reckons, is what the state needs to pay off its IOU backlog in reasonable time, put Illinois’ public employee pensions on an actuarially acceptable funding path in four years, cover the existing deficit in the state budget (which, we learned Feb. 8, will be $3.2 billion in the coming fiscal year) and create a necessary rainy-day fund.

A proposal like this coming from an organization representing corporate giants like McDonald’s, United Airlines, Northern Trust, Morningstar and Citadel would be next to unimaginable in any other state. Illinois is, however, the rolling dumpster fire of the public finance world, and CEOs are typically a pragmatic bunch, discerning in this case that there isn’t much appetite in a Democratic-controlled Springfield for the hard structural reforms needed to put Illinois on sounder financial footing—and recognizing that time is of the essence even if the Pritzker administration did appear ready to wrestle with the pension crisis. The Civic Committee’s plan notably does not call for constitutional changes that would generate savings by requiring workers to pay more, accept reduced benefits, or both. That’s unfortunate. But the organization seems to be betting that a nearer-term infusion of new revenue will buy the state the time it needs to pursue more fundamental reforms.

In essence, the Civic Committee is proposing to do what Mayor Rahm Emanuel did with city pensions—impose the taxes needed to move toward the annual funding recommended by actuaries—only do it more quickly. Such “front funding” of pension debt indeed has been recommended by numerous officials lately, including Pritzker. But there has been no agreement on the question of where to find the needed revenue.

Unfortunately, there are no pain-free answers to that question, Illinois. The only thing the Pritzker administration can do now is point the way toward solutions that spread the pain around as fairly as possible.

Despite the inherent shortcomings of its plan, the important thing the Civic Committee has done with its report is to underscore the immediacy of the crisis. Other solutions—such as a constitutional amendment that would allow the state to renegotiate its existing agreements with public employees and perhaps to even create a progressive income tax—may have their place in the state’s ultimate fiscal cure, but ideas like these will take time to enact. Years, in fact. And with pension costs ballooning by the day, time is not on Illinois’ side. It never was.

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