Arguably the two biggest issues facing the state of Illinois are its unfunded pensions and high property taxes.
Past misdeeds and underfunding has led to a massive unfunded pension liability. Annual required pension payments are increasing quickly. Just a few years ago, our annual payment was less than $6 billion. This year, it is almost $9 billion and it is scheduled to reach $20 billion by 2045. Every annual increase requires either a cut elsewhere in the budget, or a tax increase.
Illinoisans pay some of the highest property taxes in the nation. This has been a driver of job and population loss.
This piece will outline a long-term solution to address both issues.
The Center for Tax and Budget Accountability recently offered a solution on pensions. Their idea was to use the power of compound interest to help drive down massive pension costs in the future – increasing upfront payments in order to avoid more dramatic increases. The CTBA’s plan would level pension payments out over the next 25 years until we reach the required funded status. However, this plan would require the state to contribute additional funds over the next eight years.
The CTBA recommends borrowing an additional $11 billion investment. That is where the plan can be tweaked. Borrowing another $11 billion adds additional pressure to the budget. It also does not allow us to phase in property tax relief, which is part two of the plan. We need to, and can, find the additional $2.4 billion per year elsewhere.
As the additional pension payments decrease from the initial $2.4 billion, the remainder should be used to lower property taxes on a per-pupil basis. So year one, $2.4 billion is going to shore up the pensions. By year nine, all $2.4 billion is going to property tax relief. For every additional dollar in state funding a school district receives, its levy will be required to drop by exactly $1. That amount would lower the property taxes where I live by 20 percent.
Actually having a long-term solution to both problems would dramatically improve our credit rating, business climate and borrowing costs.
So where would we get the $2.4 billion? There are several options. First, we need to be much better stewards of the taxpayers’ dollars. Things like workers’ comp reform, expanding the pension buyout plans, reforming Medicaid are some immediate areas that can be addressed. We also need to prioritize our spending. Remember the $3 billion we committed to “medium speed rail”?
All of us in the legislative and executive branch should be working to find that $2.4 billion. If we don’t, we will be looking for more in the future.