Saturday, January 5, 2013

Illinois Pension Reform Bill (and Ten Solutions Instead...)

Representative Elaine Nekritz filed a House Amendment (No. 9) to Senate Bill 1673 (Senate Sponsor: Kwame Raoul; House Sponsors: Michael Madigan, Elaine Nekritz, and Barbara Flynn Currie). Its content is similar to House Bill 6258 (House Sponsors: Elaine Nekritz, Daniel Biss, Linda Chapa LaVia, et al.)

The legislative leaders and governor are meeting today, January 5, 2013.

Monday, January 7, 2013, 10a.m., Room 115, Capitol Building Springfield, IL

Chairperson Elaine Nekritz
Vice-Chairperson Daniel Burke
Republican Spokesperson Raymond Poe


Legislative Solutions instead of “Pension Reform” or the Breaking of a Contract

·         The current “Pension Ramp” does not work for the five public pension systems. The “Ramp” entails larger payments today as a result of the 1995 funding law – Public Act 88-0593 – to pay the pensions systems what the state owes. The pension debt needs to be amortized for a longer frame of time (a flat payment) “just like a home loan that is amortized.” Though the initial payment will be greater in the beginning, over the long term it will become a reduced cost and a smaller percentage of the overall Illinois budget as it is paid off throughout the years;

·         Raise revenue to pay the state’s debts. With a constitutional amendment, “given an appropriately designed graduated-rate structure, Illinois could cut the overall state income tax burden for 94 percent of all taxpayers—on average providing a tax cut to every taxpayer with less than $150,000 in base income annually, raise at least $2.4 billion more in revenue, and keep the effective individual income tax rate for millionaires well below five percent… Illinois taxpayers with the bottom 94 percent of base income collectively would receive an annual tax cut of $1.06 billion… [T]he combined effect of this policy would be a stimulus to the economy from tax cuts and additional state spending (assuming that the additional revenue is used to fund current public services that would otherwise not be funded) that would create at least 36,000 private sector jobs in communities across Illinois…” (Executive Director Ralph Martire, Center for Tax and Budget Accountability, CTBA);

·         “The State shall provide for an efficient system of high quality public educational institutions and services… The State has the primary responsibility for financing the system of public education (Article X, Section 1 Constitution of the State of Illinois). There needs to be a required annual payment from the state to the pension systems;

·         Tax services. Broaden the sales tax base to include selected consumer services. Illinois is one of five states with sales taxes on fewer than 20 services (The Center on Budget and Policy Priorities)

·         Eliminate the tax loophole for “Tax Increment Financing Districts”;

·         Eliminate “Edge Tax Credits” and other tax loopholes for large corporations in Illinois;

·         Increase taxation on the wealthy: Illinois is in the top 10 of regressive state tax systems where the wealthiest taxpayers do not pay as much of their incomes in taxes as the poorest and middle-income wage earners (The Institute on Taxation and Economic Policy);

·         Implement a more timely system of payments (cash management practices are greatly affected by budgetary practices in relation to deferred liabilities which place additional pressures particularly in the first and second quarters of the year to pay those expenses; timing of tax payments also affects the state's cash flow and should be adjusted accordingly);

·        Madigan will bring this back in another bill! Shifting the state’s “normal costs” for the public pension systems to school districts will have negative consequences. “Property tax bases would not be sufficient to absorb any shift in the employer normal cost for teacher pensions… School districts are demographically and financially varied, and it would be difficult to impose a uniform normal cost shift on them… Illinois ranks last in terms of state spending on K-12 education, and school districts are already relying heavily on local property taxes… While shifting the state’s normal cost obligations onto school districts may provide some relief to the state’s budget, it will not mitigate these financial obligations and will instead push them onto school districts that, on average, already derive the majority of their revenue from local sources” (CTBA). The state should continue to pay the normal costs for the five "public pensions."

·         Examine and improve the efficiency of the state’s government. This includes establishing term limits for Illinois legislators.

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