Can suburban, Downstate districts bear pension costs for teachers?
By David Roeder Business Reporterfirstname.lastname@example.org December 23, 2012 5:58PM
President of the Lake County Federation of Teachers Mike McGue of Lake Villa. | Thomas Delany Jr.~Sun-Times Media
Updated: January 25, 2013 6:07AM
Illinois’ $96 billion pension dilemma is bad enough in its own right, but it also hides a huge quandary:
What to do about the pension obligations for suburban and Downstate teachers? For people outside Chicago, it’s an issue that threatens to literally hit home when a future property tax bill lands in the mail.
As state lawmakers gingerly take up pension reform, they walk head-on into the teacher issue. It’s just one part of the state’s $96 billion pension deficit, but it’s politically noxious.
Historically, taxpayers statewide have picked up all but a sliver of the pension costs for members of the Teachers’ Retirement System of the State of Illinois. They work Downstate and in the suburbs.
Pension costs for teachers in the Chicago Public Schools, in contrast, are borne by Chicago property owners — who also help bankroll TRS.
Changing the rules so that suburban and Downstate districts pick up the pension tab would cost more than $800 million a year if the shift came all at once, according to TRS. To account for that, districts would have to raise taxes or cut costs elsewhere, probably trimming programs or increasing class sizes.
“Given that Illinois has never adequately funded education, the idea of the state shifting more costs to school districts seems like a recipe for disaster,” said Charles McBarron, communications director for the 130,000-member Illinois Education Association.
Local superintendents say the cost transfer would be unfair, as state lawmakers made things worse with underfunding. “They created the problem and now they’re asking us to fix their problem,” said Michael Byrne, superintendent of Kirby School District 140 in the southwest suburbs.
But others believe that at least a gradual cost shift to local districts has to be part of the answer. The conservative Illinois Policy Institute frames the issue as “local pension accountability” and has noted that abuses occur when districts don’t have to pay for the benefits they negotiate.
Ted Dabrowski, the institute’s vice president of policy, also said that most of the state pension assistance goes to the wealthiest districts that can afford to pay the highest compensation. “There’s nothing wrong with paying teachers well, but taxpayers downstate shouldn’t be on the hook for North Shore pension costs,” he said.
Dabrowski might be surprised at who agrees with him.
State Rep. Daniel Biss (D-Evanston), whose district covers relatively affluent northern suburbs, admits to taking a stance against his school administrators’ immediate interests. Biss is co-sponsoring a bill with state Rep. Elaine Nekritz (D-Northbrook) that, among other pension changes, would gradually increase the costs for local districts.
A mathematician, Biss has added up the pension tab and concludes that a local “pickup” of the costs is crucial to the equation. The state contribution to TRS, $2.7 billion in the last fiscal year and potentially $3 billion this year, “is by far the most regressive thing that Illinois does” because the money goes mostly to rich districts.
It partially negates the $4.25 billion in education aid targeting poor districts, he said. “So as someone who believes in education funding equality, [for me] this is a total no-brainer,” he told the Sun-Times editorial board.
His proposal, House Bill 6258, trims cost-of-living pay hikes, raises retirement ages for some current teachers, increases their contributions and changes the calculation of average salary on which the pension is based.
For the school districts, it would hike their pension contributions by 0.5 percent of payroll costs per year until they reach the full funding level, which TRS pegs at 8.23 percent of payroll costs.
The proposals would reduce the unfunded liability to $67 billion, according to a review by the state’s pension systems. The bill has not had a hearing and no legislative leader has signed on as a co-sponsor. Biss and Nekritz said that omission is intentional, because their bill is an attempt by rank-and-file legislators to address the problem.
Some in the education establishment believe local pension “pickups” have to be part of the solution, painful as they can be for districts already in fiscal hardship.
A 0.5-percentage-point increase in contributions is acceptable but needs to be capped, said Ben Schwarm, deputy executive director at the Illinois Association of School Boards. “Certainly, the phasing in would make this better, but the solution can’t be as simple as to just shift the costs,” he said.
Past proposals on the cost transfer included a measure to give local districts the power to levy taxes strictly for pensions, just like Chicago can. But Schwarm argued that those suburban tax levies are deeply unpopular and are not under discussion.
Ultimately, a large, diverse tax base supports suburban and Downstate teacher pensions. Changing that puts the onus on a smaller group of taxpayers and hits poor areas the hardest, Schwarm said.
There could be a heavy burden in suburbs such as Harvey or Robbins, where the revenue base is weak but, to compensate, local governments charge a relatively high tax rate on business and residential property. Even higher taxes would discourage businesses from setting up shop, further sapping the communities of the vitality they need.
At the same time, property taxes have soared in middle- to upper-class suburbs, and many of those districts have bumped up against tax caps that limit annual increases.
Gov. Pat Quinn, whose own attempt at pension reform was shot down in the General Assembly, agrees that state aid for teacher pensions must be reduced. But Quinn hasn’t committed himself to a specific plan, said Abdon Pallasch, the governor’s assistant budget director.
“He wants a pension-reform plan. However the members add up the numbers to make it work, he’s fine with that,” Pallasch said.
Contributing: Susan DeMar Lafferty