Fixing pensions is key to strong business future
During the past several years, I've asked dozens of suburban business owners: "What concerns you most about the state of Illinois?" A trend emerged.
From every community, from every business sector, the same response: uncertainty.
Uncertainty about the rising costs of property taxes. Uncertainty over the state economy. Uncertainty about future tax increases, such as the proposed progressive income tax that failed last year. And now, uncertainty whether COVID-19 restrictions will allow them to keep their businesses intact.
When businesses are deciding how to grow and expand, they don't just look at this year. They look five to 10 years into the future. Right now, there's a crisis of certainty.
Illinois' haywire finances and chaotic leadership have driven that. While the pandemic is the largest factor in business' recent hardships, the state has created one of the nation's least friendly business tax climates. Compared to competing, neighboring states, Illinois' high property taxes, high unemployment insurance and high corporate taxes really stand out.
And the 800-pound gorilla is pension debt.
The state of Illinois estimates about $139 billion in debt in five state pension funds, but the debt is over double that, according to a more realistic, independent estimate by credit rating agency Moody's. Despite rising taxes during the past decade - 24 new tax and fee hikes worth $5.2 billion just under Gov. J.B. Pritzker - the funds still only have about 40% of what's needed to pay retiree benefits long term. This comes at a massive risk to retirees, whose futures could go bust, and to businesses and taxpayers, who must write the checks.
The drain on Illinois' finances have meant annual pension payments that used to take up 4% of the state's revenue 30 years ago now take up 25% of the state budget. That leaves less money for serving the poor, less money for job development and training, and less money to invest in educating the next generation.
It puts more pressure on local governments to hike fees and property taxes in an endless cycle.
Which begs the question: Who is going to pay this debt?
It's not going to be the record level of people moving to other states. It will be the economic engines of this state: businesses.
Pritzker targeted small businesses last year by attempting to close "corporate loopholes" - his favored euphemism for hiking taxes on business - to free up some extra money for pensions.
The Cook County Assessor's office hit owners of commercial properties in the suburbs with massive assessment increases in 2019 and 2020. The Daily Herald reported nearly 80% of commercial property owners in Cook County received higher property tax bills in 2021, compared to 50% of homeowners.
Meanwhile, small businesses are vital to Illinois. Not only do they strengthen the economy, they strengthen our communities by connecting neighbors and providing jobs. Illinois Policy Institute research found businesses with fewer than 50 employees were responsible for 70% of all Illinois job creation from 2011-2019.
Never-ending property tax and business tax hikes leave fewer jobs, less revenue for the state and higher prices for consumers. We shouldn't be encouraging businesses to join the Illinois exodus.
The solution? Amend the Illinois Constitution to protect earned benefits while allowing for adjustments in unaccrued benefits such as annual retiree raises. This would save Illinois $2.4 billion the first budget year and more than $50 billion by 2045. It would responsibly eliminate the debt and secure the retirement benefits workers have been promised.
If we can stop government from creating so much uncertainty, I believe in 10 years I'll be asking entrepreneurs their favorite thing about Illinois. I expect the response will be, "It's a great place to grow a business."
• Matt Paprocki is president of the Illinois Policy Institute, a' nonpartisan research organization.