* Republican Governors Association…

Despite not paying his own fair share in taxes, Illinois Democrat gubernatorial candidate J.B. Pritzker has promised an “immediate increase” in the state’s flat income tax if elected. Now, the Wall Street Journal editorial board is slamming Pritzker’s tax hike plan, saying it will do nothing to solve Illinois’ massive pension crisis.

The Wall Street Journal explains, “The solution, according to unions, is always to raise taxes. But no tax hike is ever enough because [pension] benefits keep growing faster than revenues… Yet the Democratic candidate for Governor, J.B. Pritzker, and unions are now campaigning to kill the state’s flat tax rate and raise taxes again.”

The contrast in the Illinois governor’s race could not be more clear. GOP Governor Bruce Rauner favors lowering taxes to grow the economy and reforms to fix the pension system, while J.B. Pritzker is already pledging a massive tax hike if elected. Illinoisans need tax relief, not a massive tax increase on every family.

No surprise that the WSJ editorial page would publish a missive entitled “Why Your Pension Is Doomed.” The piece was based on a Wirepoints study…

The real problem plaguing public pension funds nationwide has gone largely ignored. Most reporting usually focuses on the underfunding of state plans and blames the crises on a lack of taxpayer dollars.

But a Wirepoints analysis of 2003-2016 Pew Charitable Trust and other pension data found that it’s the uncontrolled growth in pension promises that’s actually wreaking havoc on state budgets and taxpayers alike.1 Overpromising is the true cause of many state crises. Underfunding is often just a symptom of this underlying problem.

Wirepoints found that the growth in accrued liabilities has been extreme in many states, often growing two to three times faster than the pace of their economies.2 It’s no wonder taxpayer contributions haven’t been able to keep up.

The reasons for that growth vary state to state – from bigger benefits to reductions in discount rates – but the reasons don’t matter to ordinary residents. Regardless of how or when those increases were created, it’s taxpayers that are increasingly on the hook for them.

* Also from Wirepoints…

Total promised benefits in Illinois are nearly 1,100 percent higher now than they were in 1987. In contrast, Illinois personal income – a proxy for GDP – was up just 236 percent during that 30-year period.

Illinois is the poster child for why the common narrative surrounding pensions – that crises are due to taxpayer underfunding – is false. The real problem has been the enormous growth in accrued liabilities across the nation.

* Meanwhile, the Champaign News-Gazette recently published this editorial…

Financial problems swirling around state and local pension systems across the country will be coming to a head in the next few years, and financial experts contend that Congress and the states must be prepared to address the problem.

That’s why James Spiotto, managing director at Chapman Strategic Advisors, is urging Congress to create a special federal bankruptcy court to deal with these impending bankruptcies.

In an address delivered to the Brookings Institution’s seventh annual Municipal Finance Conference, Spiotto said it’s imperative for Congress to act because states and localities won’t be able to continue to ignore the problem.

* However, Rep. Mark Batinick (R-Plainfield) sent me his pension funding idea, entitled “How to Solve the Illinois Pension Crisis And Dramatically Lower Property Taxes”…

Arguably the two biggest issues facing the State of Illinois are its unfunded pensions and high property taxes. Past misdeeds and underfunding has led to a massive unfunded pension liability. Annual required pension payments are increasing quickly. Just a few years ago our annual payment was less than $6B. This year it is almost $9B and it is scheduled to reach $20B by 2045. Every annual increase requires either a cut elsewhere in the budget, or a tax increase.

Illinoisans pay some of the highest property taxes in the nation. This has been a driver of job and population loss. It is a regressive tax that disproportionally affects the poor, unemployed, and elderly. It also hurts small business growth as they are required to pay the tax whether they are profitable or not. Manufacturers are hit extra hard as they have a large real estate footprint. That footprint comes with a large property tax bill.

This article will outline a long-term solution to address both issues.

The Center for Tax and Budget Accountability (CTBA) recently offered a solution on pensions. Their idea was to use the power of compound interest to help drive down massive pension costs in the future. Relatively small skips in pension payments, sometimes called “pension holidays”, in the past led to large-long term debt because of compound interest. Their idea was to reverse that mistake by increasing upfront payments in order to avoid more dramatic increases in the future.

The CTBA’s plan would level pension payments out over the next 25 years until we reach the required funded status. However, this plan would require the state to contribute additional funds over the next 8 years. The initial additional investment by the state would be $2.4 billion which would then slides downward to $320 million in the eighth year. Over the course of eight years additional, and significant funds, would be invested into the pension plans. In total roughly $11 billion extra would be invested quickly. The net effect of this would be that our annual pension payment would never rise above $12 billion. In fact, around the tenth year, our pension payments would actually start to decrease. One important note is that if our system was fully funding pensions in the past, our ongoing costs would only be $2 billion per year.

The CTBA recommends borrowing the additional $11 billion investment. That is where the plan can be tweaked. Borrowing another $11 billion adds additional pressure to the budget. It also does not allow us to phase in property tax relief which is part two of the plan. We need to, and can, find the additional $2.4 billion per year elsewhere.

As the additional pension payments decrease from the initial $2.4 billion, the remainder should be used to lower property taxes on a per pupil basis. So year one, $2.4 billion is going to shore up the pensions. By year nine, all $2.4 billion is going to property tax relief. For every additional dollar in state funding a school district receives, its levy will be required to drop by exactly $1. $2.4 billion is roughly $1200 per pupil. That amount would lower the property taxes where I live by 20 percent. The exact amount of relief per district would vary based on local per pupil spending but it would be significant throughout the state.

Actually having a long term solution to both problems would dramatically improve our credit rating, business climate, and borrowing costs. This would lead to the best way to improve our debt situation – growth.

So where would we get the $2.4 billion? There are several options. First, we need to be much better stewards of the taxpayer’s dollars. Things like workers’ comp reform, expanding the pension buyout plans, reforming Medicaid are some immediate areas that can be addressed. We also need to prioritize our spending. Remember the $3 billion we committed to “medium speed rail”? Wish we had that back.

$2.4 billion separates Illinois from solving the pension crisis and significantly addressing high property taxes. All of us in the legislative and executive branch should be working to find that $2.4 billion. If we don’t, we will be looking for much, much more in the near future.

That $20 billion payment by 2045 is a bit of a misnomer. As we’ve already discussed, the ramp shoots way up in the final few years before 2045 even though the pension systems will be close to fully funded by then. I seriously doubt that the General Assembly will keep that ramp in place.

Anyway, your thoughts on Rep. Batinick’s proposal?