State Government Illustration

State Government Illustration (Nancy Stone / Chicago Tribune)

SPRINGFIELD — A top House Democrat on Wednesday suggested a new plan to fix the state’s massively indebted retirement system: make the temporary income tax hike permanent, have state workers and teachers chip in more toward their pension and raise the retirement age for full benefits to 67.

The proposal by Rep. Lou Lang drew immediate criticism from Democratic Gov. Pat Quinn, who said a pension fix needs to have more reforms than simply more tax money.

“We can’t just be meandering along,” Quinn said. He added that lawmakers must move quickly so the state’s economy won’t be “held hostage” by the current “pension cloud.”

Lang said he unveiled the legislation to address the state’s $96 billion pension debt now because proposed alternatives roll back benefits and fall short of being “constitutional and comprehensive.” But Lang’s proposal aims to fund retirement plans at 80 percent rather than 100 percent, the level Quinn and other reform proponents desire.

The governor said he met this week with allies of Senate President John Cullerton, D-Chicago, who is sponsoring a pension package that incorporates Senate and House concepts. Cullerton spokeswoman Rikeesha Phelon dismissed Lang’s constitutional concerns but welcomed his bill as a potential sign of an “increased appetite for action.”

The 67 percent hike in the personal income tax rate and a corporate tax increase were billed as temporary when Democrats approved it in early 2011. The tax increase is supposed to start dropping off in 2015, but Lang said lawmakers realize the state needs the money.

To soften the blow, Illinoisans could get an income tax rebate of potentially hundreds of millions of dollars, Lang said. The rebate would kick in if the entire $7 billion-plus netted each year from just the tax hike is more than what is needed to pay annual pension costs.

Taxpayers also could get back up to a billion dollars more a year once loans to cover prior pension expenses are paid off in 2020, Lang said.

Lang, a ranking member of House Speaker Michael Madigan’s leadership team, also incorporated a Madigan demand to shift the costs of teacher pensions for schools outside of Chicago onto local school districts. The shift, decried by critics as a potential property tax hike, would take 17 years—time enough for school districts to adjust, Lang said.

Madigan, emerging from a closed-door meeting with House Democrats, had “no comment” about Lang’s bill.

In Chicago, Senate Republican leader Christine Radogno of Lemont said it would be a “betrayal of trust” to use proceeds from the income tax hike to pay for pensions. She said the Democrats wanted the money to pay down bills and eliminate red ink.

Lang’s plan would reset the current 50-year repayment clock for a system only about 40 percent funded. The current five-decade payback plan started 18 years ago and is set to expire in 2045, and few believe it will reach the 90 percent funding level targeted for legislators, judges, university employees, rank-and-file state workers and teachers.

Lang said overall savings are not yet calculated for his bill but $675 million would be saved each year by raising the retirement age to 67.

Tribune reporter Monique Garcia contributed from Chicago.

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