Chicago’s Dubious Distinctions

Chicago is a world class city that needs a world class transit system.  Unfortunately, we don’t have funds that even come close to covering the $15 billion in work needed to keep our transit system working properly and expanding service.  That will remain the case for the foreseeable future unless the state gets its fiscal issues straightened out.

It’s difficult to know where to begin with such huge problems like that. The Chicago region’s Riders for Better Transit has proposed legislation that would tie the gas tax to inflation. We like that idea. We also think our elected officials need to get serious about dealing with our antiquated sales tax and pension systems.

It’s been nearly four months since Chicagoans received a quarter-cent sales tax cut. Have you noticed? Probably not. That’s largely because even with the cut, Chicago residents still pay among the highest sales tax in the country—a dubious distinction, one that we would rather not own.

The combined state, county, and city of Chicago sales tax is 9.5 percent on a narrow range of goods and a few services. Given Illinois’ manufacturing and industrial past, taxing goods made sense back then.  But our taxing structure hasn’t kept up with the evolution of our economy. Our heavy industrial past has been replaced by a knowledge and service economy.  The tax base needs to evolve as well.

A shift from a narrow range of taxable goods to a broader range of goods and services could result in a lower overall tax rate. We’d lose the unsavory distinction of having the highest sales tax while gaining more public funding from more sources.

And what could we do with additional tax receipts from a broader base?  We could create a dedicated revenue stream to invest in capital projects that would fill existing transit gaps.  We’d replace a dubious distinction with one we’d be proud to tout: the most extensive transit system in the country.

And then pensions. It is no secret that a reformed pension system is long overdue. Our pensions are funded at only 38 percent, with liabilities exceeding assets. No wonder the rating agencies lowered the state’s bond rating in December 2011. To make matters worse, Moody’s Investors Service lowered the rating again in January, making Illinois’ credit rating the lowest in the country. Standard and Poor’s strongly warned the state of another possible downgrade and put Illinois on negative watch.

Having the worst-funded state pension system in the country is another dubious distinction we don’t need.

Pension reform is a vexing public policy issue that our state’s political leadership must tackle if we are to live up to the contract we made to thousands of Illinois employees over several generations.  I’m encouraged to see that Gov. Pat Quinn has committed to reform Illinois’ pension system, starting with funding teacher pensions.  He has a myriad of solutions, including raising Illinois higher education spending by 12 percent to help fund the pensions of state university employees and shifting at least some of the responsibility of funding teacher pensions to the schools, universities, and school districts.

I am hopeful that we’ll make headway on this in 2012.

Pension reform, like sales tax changes, requires our elected representatives to make difficult choices.  Choices that taxpayers will support them for if only they make it clear how taxpayers will benefit.

Bond ratings and sales tax rates help determine how expensive it is to borrow funds for needed capital projects and to assure bond purchasers that there is enough dedicated revenue to pay back those bonds.

Unmet transit capital needs in northeastern Illinois exceed $15 billion. A Triple A+ bond rating and a dedicated revenue stream would go a long way towards closing the transit funding gap and giving our world class city the world class transit system it deserves.

Sales tax and pensions—it’s time for our elected representatives to take action.