At their June 27 meeting, members of the School District 65/202 Legislative Task Force (“Task Force”) discussed legislative proposals to shift the cost of funding teachers’ pensions from the State to school districts. The cost shifting could have significant ramifications for both Districts 65 and 202.
Teachers at School Districts 65 and 202 are members of the Teachers’ Retirement System (TRS). Currently, teachers in TRS contribute about 9.4% of their salary to the pension fund, and the State is responsible for contributing the balance needed to adequately fund pension payments that are and will become due under state law.
The State’s “normal cost” (e.g., the cost attributable to the current year) to fund TRS is about $800 million per year. This does not include the amount needed to pay down the unfunded liability, which is about $43.5 billion, according to the Director of Research of Retirement Security for Illinois Educators.
One Cost-Shifting Proposal
Governor Pat Quinn and state legislative leaders support shifting all or a portion of the “normal cost” to fund TRS to school districts. House Speaker Michael Madigan and Senate majority leader John Cullerton argue that it is fair to do so because teachers are employees of the school districts, not the state, so school districts should bear the cost. They also say the State does notpay the pension cost of teachers in the Chicago Public School System, and it is not fair to pay the pension costs for suburban and downstate school districts and not pay them for the Chicago Public School System.
Opponents of the move say the State has set by statute the amount of pension payments due under TRS, and, further, that the State is responsible for failing to properly fund TRS to the tune of $43.5 billion. In addition, the State pays Chicago public schools a lot more in State aid than it pays to school districts, so there is some balancing out, critics of the legislators’ plan say.
If the entire “normal cost” of funding TRS were shifted to school districts, the cost per school district is estimated to be about 7.65% of a school district’s cost for teacher salaries, said Illinois Statewide School Management Alliance, which often partners with the Illinois Association of School Boards, in a recent legislative report. The Alliance says, though, “No one can provide an accurate and realistic amount of what the cost would be for the local school districts.”
The “normal cost” and the unfunded liability could be much higher if they were estimated using more conservative assumptions, such as a lower expected rate of return on investment of the funds held by TRS.
State Representative Robyn Gabel told the RoundTable that a bill presented by Speaker Madigan provided that the cost shift would be phased in so that 1% of the cost of teacher salaries would be paid the first year and the amount would be increased by 1% of the salary cost for the next five years, and then after the sixth year the amount would increase by ½% a year until school districts were paying the full “normal cost.”
Erika Lindley, executive director of ED Red (an advocacy organization for suburban school districts), told members of the Task Force on June 27 that legislators are scheduled to meet in Springfield in the next two to four weeks, and then Governor Quinn may call a special legislative session to address pensions. She said she did not think any bills would be passed before the general election in November, but there were no guarantees. She said, “In my view, I think, practically speaking, there’s a greater chance that the shift will be going through than not going through.” With that in mind she said, she viewed ED Red’s role as “working toward making that manageable for school districts.”
When asked if legislators would eliminate or raise the property tax cap applicable to school districts if pension costs were shifted, Ms. Lindley said, “Many legislators say there’s not a chance they’re going to be lifted.”
If State legislators shift significant pension costs to school districts without enabling them to levy increased property tax revenues to pay those costs, the only realistic option for many districts may be to cut personnel.
Impact on D65 and 202
At recent District 65 and 202 Board meetings, District 65 administrators estimated that if the District was required to pay 1% of teacher salaries to TRS, the cost would be about $500,000; District 202 administrators estimated the cost at about $300,000. If the cost amounted to 7.65% of teacher salaries, the costs would be in the range of $3.5 million for D65 and $2 million for D202.
Gretchen Livingston, a member of the District 202 School Board and a member of the Task Force, said when these potential pension liabilities are considered together with delays in payments from the State and continued threats to reduce State aid, that could amount to a loss of between $2 million and $5 million for District 202. “That’s a ton of teachers,” she said.
Martha Burns, also a member of the District 202 School Board and the Task Force asked, “What do we [the Task Force] need to do now that could be significant in terms of making sure our voice is heard from a legislative standpoint?”
Ms. Lindley said ED Red was at the table in Springfield and taking the position that pension costs should not be shifted to the school districts. As a fall back, she said ED Red is arguing that if pension costs are shifted: a) the shift should be a gradual transition over a period of years; b) the State should review and eliminate a multitude of unfunded mandates to lessen the financial burden on school districts; and c) the pension costs passed onto the school districts should be exempt from property tax caps.
She said on a local level, what would be helpful is if school districts presented information to their local legislators explaining how the shift would impact their operations, and lay out what the State could do to relieve the financial burden placed on school districts through unfunded mandates or “to make your life easier.”
Ms. Livingston said she would not argue that state mandates such as providing bilingual education be eliminated, but felt there may be room to argue that the State’s funding formula be revised.
Task Force Co-Chair Bob Heuer said he thought there was a value in putting together a cohesive message in the form of a resolution for the District 65 and 202 School Boards to consider for adoption. He suggested sticking with the position, “Don’t shift the pension cost,” but if the cost is in fact shifted, the Boards’ position should be that the new cost should be made manageable for the Districts.
The legislature is considering other changes to the pension laws, including two bills filed by State Representative Daniel Biss of Evanston, one of which would set up a cash-balance plan, and the other a benefit-buy-out plan.
A joint District 65/202 committee was scheduled to meet regarding pension issues on July 18, after this paper went to press.