Civic Committee recommends cuts, taxes and long-term planning to fix fiscal mess

Taxing retirement income and raising the state income tax rate one percentage point are two of the politically unpopular components of an $8 billion package of new revenue and cuts that a leading business group says will help Illinois get back on solid financial footing.

And a change in the way the state pays its pensions could bring in $2 billion more in supplemental contributions, the group concludes.

The Civic Committee of the Commercial Club of Chicago on Tuesday released a detailed report that has a slew of budget ideas. It comes just ahead of Gov. J.B. Pritzker’s first budget and State of the State address on Feb. 20. The group calls it a “solvable” five-year plan; it includes a way to pay off the state’s massive bill backlog and establish a reserve fund.

Whether many of their recommendations will pass political muster — even with Democrats in charge in Springfield — is another story.

“Identifying $8 billion a year will allow the State to fully eliminate the structural budget deficit, pay down the remaining bill backlog, establish an appropriate reserve fund and properly address the State’s unfunded pension liabilities,” the report from the private, not-for-profit group of senior business executives says.

Cuts could include “healthcare plan reforms” for state employees, constitutional pension reform changes and “reducing state spending through operational improvements,” among other recommendations.

The group estimates: raising the income tax to 5.95 percent — up from the current 4.95 percent — would bring in $3.7 billion; taxing retirement income would bring in $1.9 billion; additional sales taxes could bring in $500 million; and increasing the corporate income tax would bring in about $300 million. Regarding retirement income, the report recommends increasing the value of the 65-and-over exemption from $1,000 to $15,000 to protect senior citizens with low and moderate incomes.

Former Gov. Bruce Rauner entertained expanding sales taxes and was roundly dismissed. And while taxing retirement income — including pensions, 401(k)s and Social Security — is a regular recommendation from the group and others, it has generally been a political non-starter, in large part because of the high level of political participation among older voters.

The report also recommends local government consolidation to try to drive down the cost of property taxes, another Rauner recommendation that saw little movement during his term. But the group notes in a press release there is a “unique opportunity” to address the state’s fiscal problems “with political leadership alignment in Springfield.”

Kelly Welsh, a member of the Civic Committee’s Tax Policy Task Force, said the retirement income tax is essential.

“Tax increases generally aren’t popular but they are, as our report demonstrates in this case, needed to stabilize the state and change the narrative about Illinois, to enable growth,” Welsh said. “So yes, it will be unpopular but also, yes, we think this is one of those moments where it’s something that needs to be done.”

The report also suggests creating a “2+2” pension funding plan that would restructure the pension contribution schedule so that the state’s baseline contributions would grow at 2 percent a year, and the state would provide an additional $2 billion in supplemental contributions until the plans are 90 percent funded. The plan would pay off the remaining unfunded liability over 10 years, the report says.

“One of the most important themes that we have in this report is that action is required now and that eliminating uncertainty and changing the narrative about Illinois’ fiscal climate is very important. And if a plan of this nature were put in place it would enhance Illinois’ competitiveness and position the state for strong economic and job growth in the future,” Jay Henderson, chairman of the Civic Committee’s Tax Policy Task Force said. “Despite the significance of the fiscal challenges that exist, we believe that our plan can in fact solve the financial issues facing the state over the long-term.”

Pritzker has resisted an across-the-board increase in the state income tax, instead pushing for a graduated income tax, with higher brackets for upper income taxpayers. His administration declined to weigh in on the Civic Committee’s specific proposals.

“Illinois will need years to dig out of the fiscal mess this administration inherited, and as we recover we must invest in critical areas like education so that our state can grow and thrive,” said Jordan Abudayyeh, the governor’s press secretary. “We appreciate the recommendations the Civic Committee is making as we begin this journey, and we will continue to listen to and work with all stakeholders as we move forward.”

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