Pension proposal would include extending state income tax
SPRINGFIELD — He called it "constitutional, credible, comprehensive and fair to those in the system," but state Rep. Lou Lang's proposed fix for Illinois' mammoth pension debt may be short of its most critical need: support.
Lang, a Skokie Democrat, on Wednesday introduced HB 2375 which includes not just one but several controversial aspects:
— Making the 67 percent income tax increase enacted in 2011 permanent and devoting virtually all of its revenue to pension payments.
— Gradually raising employee pension contributions by an additional 3 percent of their annual income.
— Raising the minimum retirement age to 67 for a full pension.
— Gradually shifting pension costs from the state government to universities and local school districts.
— And calling for 80 percent funding of system funding instead of 100 percent.
"I'm not worried about the politics," Lang said. "I'm worried about the pension system and the credit rating and the pensioners in the state of Illinois."
But while he said his plan would solve the state's pension mess, it wouldn't do anything about the backlog of bills that, according to state Comptroller Judy Baar Topinka, totals $9 billion.
"We have a responsibility to pay that backlog of bills, but we also have a responsibility to make the pension payments and so we're going to have to be more frugal, we're going to have to find economies of scale, we're going to have to cut back where we need to cut back," Lang said at a press conference.
No co-sponsors were listed on Lang's bill — he said he hadn't discussed it with anyone and had just introduced it Wednesday — but when asked about it, state Rep. Naomi Jakobsson, D-Urbana, said, "I'm not sure that that will fly. When we designate that certain things must go to one area, we set ourselves up for some problems in the future."
Jakobsson acknowledged that she hadn't seen the legislation but said she continues to believe the solution to the state's fiscal problems lies with a switch from a flat income tax to a progressive one.
Lang, a lawyer, said there are two critically important features to his bill: It is constitutional, and it would guarantee that pension payments are made every year. The state's pension debt is estimated at $97 billion.
"We know that each and every one of the current plans on the table before today is a plan that will bring about lawsuits, delaying any action on pensions," he said. "And we know from a reading of the Constitution that those plans are unconstitutional. This is a plan that is constitutional, it's fundable and it's a plan that won't take anyone's benefits away that have been promised to them under the Constitution of the state of Illinois."
Several different pension reform ideas have been introduced in the Legislature. One, introduced by Senate President John Cullerton, has been endorsed in principle by Gov. Pat Quinn, but its constitutionality has been questioned by some who claim it would diminish benefits for state pensioners.
"One of the reasons we're in the mess we're in is that the General Assembly has chosen to take pension holidays from time to time, make a payment that was less than the normal cost or make no payment at all," Lang explained. "This bill would guarantee the pension payment."
Lang also said his bill would "rebate" to taxpayers all excess revenue above the needed pension payment, beginning in 2014. But he had no estimate for that amount, and he said that actuaries for the state's five pension systems had not reviewed his proposal.
Asked if making the income tax permanent would doom his plan, Lang said, "There are people in this building who will never vote to extend the income tax increase. On the other hand, I don't think there's anyone in this building who doesn't believe we need to extend the income tax increase. If we're going to need it anyway, we might as well need it and dedicate it to a specific cause, a cause that we all believe needs to be resolved."
Illinois' individual income tax rate was increased from 3 percent to 5 percent in January 2011. But a provision in the legislation says that the rate will drop to 3.75 percent in January 2015 and to 3.5 percent in 2025. Lang's legislation would maintain the rate at 5 percent.
The income tax increase was approved two years ago without a single Republican vote, and it's unlikely any Republican would support an extension.