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Both sides to the pension shift debate

Friday, Jun 22, 2012

* This should help put things into perspective about the school pension cost-shifting plan

Quinn aides released an internal report suggesting that almost all school districts are capable of assuming their own retirement costs.

Specifically, the report says that 95 percent of districts have reserves exceeding minimum recommended standards and that phasing out state payments over several years would affect their budgets only about 0.4 percent a year.

In my world, 0.4 percent is a budgetary rounding figure.

* Earlier this week, the governor’s office released a report showing that lots of school districts were sitting onbig cash reserves

Of local school districts, Limestone-Walters Community Consolidated School District 316 could fund the most days with its FY2011 cash reserves - $2.1 million for 484 days. The rural Peoria school district is one of eight feeder districts into Limestone High School and has an enrollment slightly over 200 students.

Dunlap Community Unit School District 323, which is considerably larger, has $34.6 million cash on hand, according to the state data. That’s enough to keep the district going for 441 days.

* But

The data showed that Peoria District 150 had $48.1 million on hand at the end of fiscal year 2011, or almost 70 days worth of funding.

Dave Kinney, comptroller at the city’s public school district, said his figures show the district with about $41 million in total reserves, though he believes that number is misleading. He said of that amount, about $38 million comes from borrowed funds used to infuse money into depleted cash accounts from previous years’ expenditures.

* And

The figures don’t take into account further school funding cuts passed this year by the General Assembly, the fact that many districts are using their reserves to deal with previous state budget reductions, delayed payments and rising costs — points echoed by the school districts themselves.

The data showed that the Springfield School District had $16.9 million on hand at the end of fiscal year 2011, about 82 days’ worth of funding.

District spokesman Pete Sherman said officials estimate the Springfield school system will have only $1.9 million in its main education fund by the end of fiscal year 2013. The state board is even less optimistic, guessing that the district will have $667,308 on hand by the end of FY13.

Discuss.

- Posted by Rich Miller        

20 Comments
  1. - Liberty_First - Friday, Jun 22, 12 @ 11:06 am:

    They last section says it all. Like universities, schools have to keep cash on hand to cover short fall in state funding.

    Quinns mentality is what has the state in trouble all these years. See a nickle and spend it.


  2. - wordslinger - Friday, Jun 22, 12 @ 11:20 am:

    The state is tapped. The tax hike club is no longer in the bag. Given that, the gradual pension shift is reasonable.


  3. - Solution Man - Friday, Jun 22, 12 @ 11:42 am:

    The only way to pass the state’s share on to the school districts is to set up a pension fun with a tax rate, just like the Ed fund, Transportation Fund, etc. If you Don’t set up the fund, then you are taking away resources from Children. Period. Yes we need a funding source for the pensions. The employee is putting in 9.4% of the salary, the state NEVER set up a funding source for their end. So if they give up and pass it on to schools, school will need to set up a take rate for the fund. Yes this means the tax payer will have to pay, they always had to. The tax payer is the state of Illinois.


  4. - The Elderly Man You Used to Love - Friday, Jun 22, 12 @ 11:42 am:

    Perhaps someone could enlighten me as to why the property tax is so much more onerous than the sales tax or the income tax. Money is fungible – a dollar is a dollar, right? Perhaps someone could also enlighten me as to why the parties are seemingly taking the opposite position that one might expect given their usual ideological predispositions. Aren’t the Republicans the party of local control? Wouldn’t the Repubs object to the idea of a taxpayer in Cairo paying for the pension of a $300k-a-year superintendent in Winnetka? Aren’t the Dems the party of the sugar daddy? Wouldn’t the Dems rather pick up the tab for everyone to appease their teacher union allies? Without injecting too strong a note of partisanship into my comment, I must say the Repubs have taken a seemingly nonsensical position in bemoaning the possibility of property tax increases while not admitting that income or sales taxes might have to be hiked again to pay for pensions if nothing changes. According to the latest COGFA report on pensions, the State pension payment hits $10 billion by 2030. Can any lawmaker honestly look a taxpayer in the eye and say that a $10 billion annual pension payment can be made just by natural revenue growth alone?


  5. - Mark - Friday, Jun 22, 12 @ 11:47 am:

    Libery is correct. It’s not uncommon for suburban school districts to issue Tax Anticipation Warrants (TAW), which is short term borrowing, at the end of the fiscal year, while awaiting state funding. The balance of the Working Cash Fund of suburban school districts vary greatly and the amount in the fund varies throughout the year. Quinn wants the suburban schools to draw their savings account down to zero? Makes no sense. With that said, the teacher unions IFT and AFT watch the budgets like a hawk and during collective bargaining squeeze out everything they can for salary and benefit increases. That being said, the main reason we have the pension mess is the astronomical benefit increases passed into state law by the General Assembly and signed by Governors since the Pension Protection Clause was added to the Illinois State Constitution at the 1970 Constitutional Convention. Comparing 1970 to 2011 benefit levels of TRS pension plan, here are a few additions which jacked up teacher pensions. Early Retirement Option (ERO), COLA increases from 1.5% not compounded to 3% compounded, Accumulated Sick leave credit allowed to be exchanged for years of service so one can retire earlier increaed from .5 year to 2 years, the age for maximum pensoin decreased from 66 to 54. 5 years, number of years worked to receive maximum pension decreased from 45 years to 33 years, annual accrual rate which is multipled by years of service credit which is in turn multipled by pensionable salary (pensionable salary is typically annual average of last 4 years worked) increaesd form 1.5% to 2.2%. And that’s just a few. From 1970 to 2011 over 100 benefit increases were passed into state law, every year except 1976 and 1992. Look at the benefit increases.


  6. - Rich Miller - Friday, Jun 22, 12 @ 11:47 am:

    ===Perhaps someone could enlighten me as to why the property tax is so much more onerous than the sales tax or the income tax.===

    Property taxes aren’t based on the ability to pay.


  7. - Right-click Rick - Friday, Jun 22, 12 @ 11:57 am:

    One other aspect of the pension cost-shift debate that is being completely overlooked is the fact that the total normal cost in TRS will begin declining in 2030 – this also according to the latest COGFA report on pensions. This is a result of the Tier 2 reforms made by SB 1946. When you take out the contributions that the teachers kick in, the employer’s normal cost becomes a negative number in 2035. When you factor in teacher contributions, the employer’s normal cost starts to decline immediately. What this means is that the school district share of normal cost would be a declining number every year until 2035, and in 2035 the school districts would be paying absolutely nothing towards TRS because the teacher contributions will exceed the total Tier 2 normal cost of the system. This is all adequately displayed on Page 41 of COGFA’s Report on the Financial Condition of the State Retirement Systems.

    Hence, I present you with my solution, which I call the 3/3/3 solution. School districts will pay 3% towards the normal cost, plus they will pay the present value of any increase in liabilities associated with pay raises over 3% granted in the teacher’s final 3 years of employment. This is a reasonable compromise.


  8. - mythoughtis - Friday, Jun 22, 12 @ 12:09 pm:

    Property taxes are (as Rich imples) based upon the current value (or estimated value) of the property. That has nothing to do with your current ability to pay. Especially for the elderly, who paid their homes off when they were working, and who now have a much more limited income. Many retired folk end up selling their homes in small towns and moving to an apartment in a bigger town because the rent is less than the property taxes they were paying.

    Honestly, is there anything covered by the property tax that really relates to the value of the property? Should your cost of the library, community college, road commission, etc really be more because your house is more valuable?


  9. - The Elderly Man You Used to Love - Friday, Jun 22, 12 @ 12:14 pm:

    Allright, then I would re-prhase my question: why would a property tax hike that resulted from a TRS normal cost shift be so much more onerous than a property tax hike associated with IMRF? When Bellwood decided to pay their village manager 9 different salaries concurrently (or whatever the number was), were they concerned about seniors living on fixed incomes?


  10. - Shemp - Friday, Jun 22, 12 @ 12:17 pm:

    Locally, our district has a fund balance, but they keep eating into it due to delays and cuts from the State. So what good is the balance when they are already eating into it yearly and now they’re going to get stuck with an added expense? Those reserves are just going to disappear faster. It’s not difficult to understand, unless you spend any time at the capitol….


  11. - Ahoy! - Friday, Jun 22, 12 @ 12:18 pm:

    Here is a proposal to the pension shift -

    Eliminate the School’s ability to pay the employee cost (set a timeframe so it does not interfere with current contracts)

    State pays half the actual pension cost and the employer pays the other half the actual pension cost. If the State is going to control the bennifits and the employers are going to control the salary’s, they should split the cost that way they both have a stake in keeping the costs down.


  12. - Right-click Rick - Friday, Jun 22, 12 @ 12:29 pm:

    Ahoy, I agree with the first part of your proposal. However, the second part ignores the declining normal cost due to Tier 2. Better to make school districts pay a flat percentage.


  13. - Foxfire - Friday, Jun 22, 12 @ 12:48 pm:

    ===In my world, 0.4 percent is a budgetary rounding figure.===

    Maybe on a one-time basis, I can agree with this statement. But, we’re talking about a period of 10 years or more, right?

    Look, I agree that locals should have some responsiblity for pensions. But the Governor is wrong in saying that the amount is “imperceptible.” You can’t make that argument at the same time that you say it’s an important part of the pension solution. At least not with a straight face.


  14. - Yellow Dog Democrat - Friday, Jun 22, 12 @ 2:01 pm:

    === They last section says it all. Like universities, schools have to keep cash on hand to cover short fall in state funding. ===

    Actually, I believe that the hoarding of reserves can be traced back to enactment of property tax caps (Thanks Rick Winkel!)

    In response to tax caps, school districts began raising their property taxes the maximum amount allowable and hoarding the excess, to create a “rainy day” fund for the eventual time when expenses would exceed the cap.

    === Look, I agree that locals should have some responsiblity for pensions. ===

    Some?!? I’d love to hear your argument for why it should be less than 100 percent.


  15. - Foxfire - Friday, Jun 22, 12 @ 2:09 pm:

    ===I’d love to hear your argument for why it should be less than 100 percent.===

    Because the locals have zero say in pension benefits. For most local governments, the state writes the check and the locals get to cash it.

    There hasn’t been accountability for those decisions, even now. No one has stood up and said, “I screwed up” even though there are many in both parties that should be lined up to do so.


  16. - Rich Miller - Friday, Jun 22, 12 @ 2:11 pm:

    ===Because the locals have zero say in pension benefits===

    Um, huh? Salaries drive pensions, and Spfld doesn’t control salaries, locals do.


  17. - Anonymous - Friday, Jun 22, 12 @ 2:44 pm:

    * This should help put things into perspective about the school pension cost-shifting plan…”

    Quinn aides released an internal report suggesting…”

    Why and how? ‘perspective…aides….internal’ report


  18. - Endangered Moderate Species - Friday, Jun 22, 12 @ 2:58 pm:

    We talk about the State and Locals as if they are great uncles. They are both us! If you live in a school district with administrators and teachers making below normal rates why are you happy that your state income taxes are paying for school district pensions with higher than normal rates?

    The difference is the income tax is a payroll deduction, we don’t see it so it doesn’t feel like we ever had it. The property tax is another animal all together and it causes us to dip into our accounts twice a year.


  19. - Yellow Dog Democrat - Friday, Jun 22, 12 @ 3:04 pm:

    @Foxfire -

    Rich is correct.

    Moreover, as was reported earlier this week on CapFax, “many” school districts have written end-of-career raises for teachers into their contracts. Clearly, the cost-shifting is intentional.

    The only way to discourage fiscal irresponsibility is to end the pattern of cost-shifting from local school districts to state taxpayers.

    Its called “budgeting with hard constraints”, and its embraced wholeheartedly by every conservative economist.


  20. - Yellow Dog Democrat - Friday, Jun 22, 12 @ 3:29 pm:

    As I’ve said before, the way to deal with school finances honestly is to eliminate the pension payments but fix the school funding formula, either by funding all schools at 100% of the EFAB recommended levels or funding the poorest districts at 100% first.

    Peoria would get roughly $13 million more per year from the state if K-12 education line items were fully funded. That would more than offset their pension costs.


Sorry, comments for this post are now closed.


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