This week, we released our Pension Funding and Fairness proposal, which offers a groundbreaking solution to our state’s growing pension funding crisis. Our proposal provides a path to fund the system, which now faces a whopping $83 billion in unfunded liabilities, without breaking the bank.
Our plan has received considerable media attention—and some criticism. Greg Hinz of Crain’s Chicago Business summed it up well. The Institute “rolled out its vision of how to close an $80-billion-plus gap in Illinois’ employee pension plans,” he wrote, “and, though portions will offend just about everybody, it’s worth a look…This is a serious report that offers a good starting point for some much needed discussion.”
Innovative, effective, pro-growth policy ideas are often misunderstood, at least initially. Few economists instantly embraced the principle of the Laffer Curve, for instance, but over time the insight that lower tax rates could spur economic growth and lead to higher revenue intake has gained widespread currency. Limited taxation is now a bedrock principle for today’s free market advocates.
The same goes for welfare reform and tort reform – both ideas were roundly criticized early on by critics who chose not to fully explore the strategy and principles in play. Many critics based their conclusions on preconceived notions or hasty examinations of the policy. Let’s not accept this attitude when it comes to solving one the biggest threats to Illinois’s future prosperity.
Illinois faces $83 billion in unfunded public employee pension liabilities. Understandably, many state employees, as well as taxpayers, are concerned. Those pensions are guaranteed by the state’s constitution, and the money to pay for these benefits has to come from somewhere. Before this week, no one in Illinois had offered a detailed path to actually funding Illinois’s pension liability, let alone meeting these commitments while protecting taxpayers. No one.
We understand that until the pension funding problem is fixed, there’s no chance of truly getting the state’s annual budget back in balance. So the Illinois Policy Institute decided to tackle this momentous challenge.
Pensions are a big, complex topic. I encourage you to review our Pension Funding and Fairness Act for yourself—either in long, detailed form, or in our two-page document that describes exactly how it will work. For now, however, let me present the concept in simple and clear terms.
Ask yourself this: If you were in charge of Illinois, would you take out a 10-year, $12 billion loan with strong provisions for quick payback in return for two things:
- tax rebates for Illinois families totaling $690 billion from 2021 to 2045; and
- a constitutionally-protected spending growth limit that reins in spending to the rate of inflation plus population and cannot be changed without voter approval?
This is the choice offered by implementing our Pension Funding and Fairness Act, in combination with the modest pension benefit reforms proposed by Governor Pat Quinn in 2009.
We think the choice is obvious. Do we stick with “business as usual” in Illinois and continue to bankrupt our state, or choose long-term, fiscally responsible programs that address the harsh realities facing our state?
The best answer to our pension debacle is our plan, which enacts a spending brake to let government grow at a restrained yet affordable rate, paying off our constitutionally-protected pension obligations, and returning taxes to Illinoisans via rebates.
True, our proposal reluctantly endorses borrowing. But it does so to address the real political and policy challenges facing Illinois in a proactive and practical way. It provides for spending discipline, it funds pensions (which is constitutionally required and morally proper), and it implements record tax relief over time. Best of all, our proposal would put voters – not the legislature –in charge of protecting the spending cap and the tax relief at the ballot box.
Compare this to the strategy of the tax-and-spenders. Even now they are strategizing on how to solve the unfunded pension system with massive tax hikes rather than tax cuts. Illinois’s budget debacle will either be fixed by massive tax increases that will further destroy our state’s economic vitality, or by implementing a proposal similar to the Pension Funding and Fairness Act.
Critics of our plan can simply throw up their hands and say, “Let the state go broke,” but that is not a substantive policy proposal. It is capitulation to the tax hikers. Those who advocate doing nothing are signaling surrender to those who want to continue our state’s disastrous tax-and-spend habit.
We’ve presented our pension funding proposal to all four caucuses in Springfield, and it has garnered interest from some legislative leaders and members of both parties. We have already examined how to implement such legislation, initially statutorily, and ultimately constitutionally. We see a clear path to progress despite the objections of some who have not been part of the process and offer no pro-growth solutions of their own. We will continue to conduct outreach educational efforts for the media, legislators, organizations and activists.
The Illinois Policy Institute is dedicated to promoting practical, substantial solutions to our state’s very real, very daunting financial problems. We hope you’ll join us as we continue to work for government accountability in Springfield and beyond.
(This is a response to the criticism of the IPI plan as offered by the Illinois Alliance for Growth as reported in an earlier posting.)
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