By Doug Wilson
Herald-Whig Senior Writer
SPRINGFIELD, Ill. — A Chicago think tank is calling on Illinois lawmakers to increase the income tax rate and institute taxes on services to help the state dig out of a pension funding crisis.
Ralph Martire, executive director of the Center for Tax and Budget Accountability, said that at $42.2 billion, Illinois has the worst unfunded pension liability in the nation — and more than $7 billion in unfunded liability has been added in the past two years alone.
Martire said the state can't keep up with the current payment structure unless state revenues increase.
"For fiscal year 2007 the interest payment on the unfunded liability is an estimated $3.4 billion. This means the state must make this $3.4 billion interest payment, plus make the normal cost payment, just to keep the unfunded liability from growing," Martire said during a press conference in the state Capitol.
According to a newly released report, Martire said the state cannot keep up with the payments without drastically cutting health care, education or other services.
Chrissy Mancini, who helped draft the report, said this is not a case of state government being too big or giving benefits that are too generous.
"The average monthly pension contribution is at about the national average," Mancini said. "Illinois has the fewest employees (per capita) of any state, and we rank 42nd in state spending."
Martire said one solution is to increase the income tax to 5 percent from 3 percent. That would raise $5.4 to $5.5 billion, but Martire said proposed legislation calls for tax relief through lower property taxes.
He suggests the state also needs to tax services because that represents 77 percent of the state's annual $490 billion economy. Sales taxes only deal with goods, which represent 13 percent of the economy.
Cindy Davidsmeyer, spokesman for Senate President Emil Jones, D-Chicago, said it's premature to speculate about whether legislators will tackle an income tax increase next year. No floor action is expected during the veto session on Senate Bill 750, which would do what Martire generally proposes with income taxes.
"The first order of business is to meet with the members of the new caucus" since there will be seven new Senate Democrats this year, Davidsmeyer said. "I'm sure many (budget) options will be discussed."
Becky Carroll, spokesman for the Governor's Office of Management and Budget, said Gov. Rod Blagojevich "doesn't believe in raising income taxes on hard-working families in order to pay for a pension debt that they didn't even create."
Carroll said Martire was among those who didn't believe the Blagojevich administration could eliminate the $5 billion deficit it inherited four years ago. During that time the state has increased health care and education spending without raising the income or sales taxes, Carroll said.
"We did so by reducing the size of government, cutting state payroll by 13,000 positions ..." Carroll said. "Raising income taxes on families in this state is not the answer or the cure-all, as some may propose."
Jeff Mays, executive director of the Illinois Business Roundtable, said Martire's plan won't solve the state's long-term spending problem. Mays, a former House member from Quincy, said increasing taxes won't help unless there's "a straightjacket on government spending" to prevent lawmakers and the governor from adding costly new programs to the budget.
"We have to stop spending money elsewhere for a little bit to get out of the hole," Mays said.
"My problem with Ralph's stuff overall is, what he is worried about is finding the money to fund what we've got. He's not interested in looking at what we've got and what we should do different."
Eva Goltermann, spokesman for the Teachers Retirement System, stopped short of endorsing the tax increase proposal, but she said it's important that lawmakers find a way to fully fund the pension funds.
"Pension funding will drive much of the budget discussion during the spring," Goltermann said. "We'd like to see a meeting of the minds and hope there's the political will to solve this problem."
Contact Senior Writer Doug Wilson at dwilson@whig.com or (217) 221-3372
