Olson: No painless fix for Illinois pension crisis

State Rep. Jeanne Ives speaks to the Northwest Herald Editorial Board in Crystal Lake. Ives has said increasing property taxes to pay for the state's pension shortfall would be "thievery."
State Rep. Jeanne Ives speaks to the Northwest Herald Editorial Board in Crystal Lake. Ives has said increasing property taxes to pay for the state's pension shortfall would be "thievery."

A trio of Chicago Federal Reserve economists recently proposed a special property tax aimed at erasing Illinois’ pension funding shortfall.

Their report, released last week, called for a
1 percent property tax increase on homeowners only for 30 years, or however long it takes to cover the pension shortfall. They reasoned that people wouldn’t be able to escape it simply by selling their homes because it would reduce the amount they could get for them. It would be a means of locking people into paying, one way or another, and the more their homes were worth, the more they’d be billed.

“Because the debt is so large, it’s unrealistic to think that new taxes (such as a tax on legalized marijuana or financial transactions) or increases that affect only a narrow segment of the population will be enough,” Chicago Fed economists Thomas Haasl, Rick Mattoon and Thomas Walstrum wrote.

This, of course, opened the floodgates of hyperbole. One columnist called the plan “inhumane, desperate and foolish.” State Rep. Jeanne Ives, who almost won the Republican nomination for governor, said it would be “thievery.” Dan McCaleb writes on this newspaper’s opinion page that retirees are going to be looking up U-Haul’s number.

That all sounds bad, although not as bad as what we’re doing to solve the problem now, which is nothing.

I understand resistance to a property tax increase. In 2014, the property tax bill was $7,018 for my home in Sycamore. This year, it was $7,926, an increase of 12.9 percent in four years. In fairness, we did approve a referendum during that time for the Park District to improve its offerings, including a beautiful new community center – I guess we weren’t too overtaxed for that.

Columnists and editorial writers who never miss a chance to tell us how people are leaving Illinois for Alabama have yet to show how to solve the state’s problems without increasing fees or taxes.

“Illinois residents will be paying higher taxes one way or another,” the Fed economists wrote. “Would you rather pay your higher taxes through a higher sales, income or property tax?”

They’re obviously not running for office.

Illinois government at the moment seems like someone who wants to lose weight without eating less or exercising. But that new paleo-keto-disparates diet isn’t a long-term solution.

Likewise, there’s no financial alchemy that’s going to solve Illinois’ pension problem – it will require a combination of more money and fewer benefits.

The way Illinois’ Constitution is written, there’s no way to go back on what’s already been promised to retirees, and there’s a strong argument that it would be unethical to do so.

Here are some basic options to fix the problem:

A. Pass a constitutional amendment that will allow Illinois to cap or slash the benefits of retirees. These are people who worked as detectives and teachers and firefighters for decades, paid what they were required to pay and who now are senior citizens. (Attacking this plan is a political consultant’s dream.)

B. Start taxing retirement income. (Grandma didn’t pay enough in taxes already, we need a piece of her Social Security, too?)

C. Policy changes to reduce government spending and reduce some pension costs. (Also, pass a budget on time, every year.)

D. Increase taxes and/or fees at the state or local level to go directly to the pensions that we promised people. (Thievery!)

E. Some combination of all of these.

If there was a painless solution to this problem, we’d have solved it by now. But there’s not, and people – like the state’s creditors – are growing tired of waiting.

It’s possible that more people will move away if taxes increase. So maybe a solution that makes it less attractive for people to move to nearby states and still work or do business here does make sense.

What we need most, however, is to end the uncertainty.

When businesses are considering sites in Illinois, we need to be able to tell them, “Here’s how we’re addressing the state’s issues, and here’s how it will affect your bottom line when you locate your business here.”

We need to figure a way forward, together, and soon.

• Eric Olson is general manager of the Daily Chronicle, a Shaw Media publication. Reach him at 815-756-4841, ext. 2257, email, or follow him on Twitter @DC_Editor.

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