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Commentary By Diana Furchtgott-Roth

Congress Can Solve Illinois' Pension Crisis

Cities, Governance, Governance Public Sector Reform, Pensions, Civil Justice

Most people don't care whether pensions are underfunded. After all, retirement is far in the future. But if their income taxes are going to go up because state pensions are underfunded — that's another story.

“Congress can empower the Illinois legislature to make the changes to state and municipal pensions that the Illinois Supreme Court has blocked.”

One advantage Illinois has is that the state has a low individual income tax rate. But now some legislators want to raise it from 3.75 percent to a max of 9.75 percent. That would be the fourth highest individual income tax rate after California, Oregon and Minnesota.

This tax hike is proposed partly because unfunded liabilities for Illinois' pension plans stood at $111 billion for fiscal year 2015, and shortfalls have grown faster than the state's ability to fund them. Liabilities increased by more than 450 percent between 1999 and 2013 after adjusting for inflation. For fiscal year 2016, $7.6 billion is scheduled to be transferred into state pension funds.

Even tax hikes that large would not fix the problem because unfunded liabilities grow exponentially. The only way forward is to change the obligations and add new funding. Politicians tried to fix the pension problem in 2013, but potential reforms were overturned in 2015 by the Illinois Supreme Court.

What to do?

One new idea that has not yet been proposed is for Congress to empower states to have the ability to reform their insolvent pension plans...

Read the entire piece here at Chicago Tribune

This piece originally appeared in Chicago Tribune