Two policy groups are putting forth solutions to solve the state’s money woes ahead of Gov. Pritzker’s first budget address.
Pritzker is due to present his budget on Feb. 20. He faces a $2.8 billion budget deficit, nearly $8 billion in backlogged bills and upward of $130 billion in underfunded pension and health care costs.
With more than a quarter of the state’s budget going to pension costs, the Illinois Policy Institute and the Civic Committee of the Commercial Club of Chicago’s proposals would address that burden in different ways.
In the policy institute’s proposal, state lawmakers would set in motion a change to the state constitution to allow for a restructuring of future pensions of current workers, consolidate school districts, switch out automatic pay raises for state workers with merit-based pay hikes, and other pro-growth reforms.
State workers would still be some of the best paid in the country after the proposed changes, IPI Research Director Adam Schuster said.
“Government worker health insurance and pension benefits are growing far faster than everything else in the budget,” he said. “Those are the cost drivers, so we should let the math speak for itself and tell us where we need to look for savings.”
In previous budget solution proposals, the Illinois Policy Institute has advocated for a reduction in the Local Government Distributive Fund. The measure was criticized for potentially pushing property taxes higher. Illinois has among the highest property taxes in the nation. Schuster said the new proposal doesn’t include that shift, but does include a proposed shift of future pension obligations to the local governments, something that was supported by former Gov. Bruce Rauner and House Speaker Michael Madigan alike.
In all, the policy institute predicts that its proposal would lead to a $2 billion budget surplus in five years. Schuster said that could either be invested in a rainy-day fund or given back to taxpayers in the form of a tax cut.
In contrast, the Civic Committee’s “2+2” pension funding proposal cuts $2 billion in costs and then raises personal and corporate income taxes to 6 percent and 8 percent, respectively. It also calls for taxing retirement income and expanding the sales tax to include some services. The Civic Committee predicts those changes would raise $6 billion.
“Illinois possesses great assets, including a diversified economy, an educated workforce, outstanding educational and research institutions, natural resources, and a great transportation infrastructure, but the uncertainty surrounding the fiscal health of our State has held Illinois back for too long,” said Kelly Welsh, president of the Civic Committee. “We are confident that implementation of the framework will build a foundation for growth and job creation.”
Taxing retirement income is seen as somewhat of a third rail of state taxation because retirees make up a large portion of the voting bloc. Even talk of treating pension and retirement dividends as income has resulted in resolutions opposing it.
A March 2017 poll by the Paul Simon Public Policy Institute at SIU Carbondale found that 72 percent of respondents were opposed to a tax on retirement funds. The results were more favorable for taxing retirement income above $100,000. About 55 percent of respondents favored it.
Schuster praised the Committee’s suggestions for putting state worker insurance costs more in line with workers in the private sector, but said that Illinoisans already have one of the highest total tax burdens in the nation and solving the pension crisis on their backs would only make the outflow of residents to more tax-friendly states worse.
“It’s not going to raise as much revenue as people think because it’s going to continue the economic decline that we’re seeing in Illinois and the out-migration from people fleeing to lower-tax states with growing economies,” he said.