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Ill. pension proposal calls for permanent tax hike

Published: Thursday, Feb. 21, 2013 5:30 a.m. CDT

SPRINGFIELD – A two-year-old temporary Illinois income tax increase should become permanent to pay an increasing state portion of employee pension costs through 2019, a top House Democrat said Wednesday.

Deputy Majority Leader Lou Lang’s proposal to shrink a $96 billion deficit in five state retirement systems also would increase the retirement age to 67 and increase employee contributions by 3 percentage points.

The Skokie Democrat called his entry into the yearslong struggle to find a pension solution an idea that would meet with a judge’s constitutional approval, compared to others that tinker with post-retirement cost-of-living increases.

“This is a plan that’s constitutional, that’s fundable,” Lang said at a state Capitol news conference.

Lang did not address the common claim that the state’s annual obligation to long-term retiree programs – more than $7 billion in the budget year that begins in July – already eats up the 67 percent income-tax increase Gov. Pat Quinn pushed into law in 2011 to reduce the state budget deficit. The evidence is in the $9 billion in overdue bills Illinois owes for goods and services, which has barely budged in that time.

“Including the income tax increase as part of the solution, to me, is already being part of the solution,” said Rep. Elaine Nekritz, a Northbrook Democrat who has been the focal point at a House solution. “It’s actually how we’re making the pension payments right now.”

Lang said he had given House Speaker Michael Madigan an outline of the measure. Madigan spokesman Steve Brown later said Lang’s legislation is among those the Chicago Democrat is considering in seeking a solution.

Plans by Nekritz, Democratic Senate President John Cullerton of Chicago, and Gov. Pat Quinn all have included other cost-saving measures, including increased worker contributions, less-generous benefits, and a shift of some teacher-pension costs to local school districts.

The idea is that because of decades of the state skimping on what it is supposed to pay, reform has to include measures to reduce the state’s cost going forward. A payment of $7 billion is roughly one-quarter of what the state raises annually in general tax revenue.

“We have to deal with it on a comprehensive basis so it’s not just about revenue. It’s a lot more than that,” Democrat Quinn said Wednesday when asked about Lang’s proposed income-tax extension. Quinn would not say whether he supports keeping the tax increase in place beyond its 2014 expiration.

Lang, who also would shift teacher costs over several years, would offer taxpayers a $1 billion-a-year rebate beginning in 2020, the year a decade-old bond sale to raise pension-fund money is paid back.

Since 2011, new employees must work until age 67 before retiring. Current employees generally may retire at 60 with full benefits after eight years of state work.

Nekritz would raise the retirement age of current employees with allowances for their age and how close they are to retiring.

Her plan would completely reduce the system’s deficit in 30 years. Lang proposes revamping the payback schedule to come within 80 percent of full funding within 50 years.

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The bills are HB2375 and HB98.

Online: http://www.ilga.gov

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AP Political Writer John O’Connor contributed to this report.

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