Illinois state Rep. Lou Lang, D-Skokie, has proposed legislation to try to address the state’s pension crisis by permanently locking in the “temporary” 2011 67% income tax increase, raising employee contributions and stretching out state pension payments.
“We have close to a $100 billion unfunded liability in our pension system,” Lang said. “This unfunded liability is affecting our ability to do our budget, affecting our ability to fund services, affecting our bond rating, it’s affecting our credit rating. It’s hurting the state of Illinois and the people that live in the state of Illinois in severe ways.”
State Rep. Charlie Meier, R-Okawville, said he is not in favor of making the tax increase permanent to fund pensions.
“I am not going to support a tax increase,” he said. “They want to keep giving money away, but they aren’t doing anything to fix the budget deficit.”
Lang proposed using the tax extension to pay for the pension program. Any excess money brought in would be given back to taxpayers in the form of a rebate, he said.
“We will give back to you what we don’t need over and above the pension payment from that two percent,” he said.
But Meier is skeptical.
“It’s like giving a kindergarten kid a dollar at a candy store,” he said. “You won’t have a penny left when they are done.”
Lang’s legislation also included a provision that would shift pension costs to local employers – such as school districts, colleges and universities, – to cover employee pensions. The shift would be 0.5 percent per year over 17 years.
Meier, however, is worried that the cost increase would be burdensome to smaller communities.
“These communities can’t afford that cost increase,” he said. “I don’t know where the money will come from.”
Lang said the cost of pensions for these local employees should not be the responsibility of the state of Illinois.
“I understand the pain that this will cause some school districts and some universities, but the fact remains that Springfield – the General Assembly – should not be responsible for these costs and so to soften that blow we are doing it at one half of one percent per year,” Lang said at the news conference.
State Sen. Kyle McCarter, R-Lebanon, said he doesn’t favor the cost shift in this case, but he would under certain circumstances.
“I would propose a cost shift with something coming back to the taxpayer,” he said. “With guaranteed funding at 2010 levels for mandated categoricals like special education and transportation.’
The bill would also restructure the pension system, allowing 50 years to reach 80 percent funding.
A report by the American Academy of Actuaries said that using the 80 percent funding ratio as a basis for whether a pension system is sound is a “myth.”
“Pension plans should have a strategy in place to attain or maintain a funded status of 100 percent or greater over a reasonable period of time,” the authors said in the report.