Madigan: Time for cost shift
Wednesday, May 8, 2013 - Posted by Rich Miller
* Speaker Madigan said he was holding a meeting this Thursday to discuss the cost shift…
House Speaker Michael Madigan is moving forward with a plan to require local school districts to pay their share of teacher pensions.
Currently the state covers pension payments for teachers in suburban Chicago and downstate Illinois.
Madigan says it’s a “free lunch” for those districts. He says the practice has exacerbated Illinois’ nearly $100 billion crisis and “should come to an end as soon as possible.”
More…
The announcement prompted questions from House Republican leader Tom Cross of Oswego, who has opposed the shift over concerns that property taxes would rise. Cross supported the comprehensive Madigan pension overhaul that the House passed last week.
But Madigan’s move on the cost shift prompted Cross to worry that the focus on fixing the overall retirement system would be lost.
“It’s a matter of staying on point,” Cross said. He said all legislative energy should be centered on getting an overall pension reform bill to the governor. After that happens, he said, the speaker could “talk about anything.”
* It faces a tough road ahead, but…
Jessica Handy, policy director for the education advocacy group Stand for Children, said if the state would pay for everything that it owes for public education, then it would be not be a problem for some schools to pay for their teachers’ pensions.
“We have incredible disparities within our school systems, and general state aid is the one funding mechanism that is fighting that,” Handy said. […]
Handy’s group is pushing a map that she says shows 26 of Illinois’ 102 counties would lose under a cost shift. But that means the majority of Illinois counties could see their schools helped if the state paid for classroom education and not teacher retirement.
“The districts with high property wealth and low poverty counts would prefer to have money (go to pensions),” Handy said. “The districts with high poverty counts and low levels of property wealth would be better if they took that money in general state aid.”
- RNUG - Wednesday, May 8, 13 @ 10:49 am:
If we’re going to do this, let’s make sure we also change the school aid formula to eliminate the favorable treatment for CPS that is there because CPS does (kind of) cover their own pensions.
- plutocrat03 - Wednesday, May 8, 13 @ 10:55 am:
BEat me to it. Chicago has been getting a subsidy for their pension system forever. I don’t know whether it is not enough, enough or too much, but it is there.
The fiction being put out that the burbs and down state are somehow coasting needs to be corrected.
That said, it is nothing more than a revenue dodge by the state to move costs out of it’s budget to the local budget while maintaining the revenue stream that was supposed to take care of things.
Simply a massive tax increase - just what we need.
- siriusly - Wednesday, May 8, 13 @ 11:01 am:
They will have to lift the tax caps if they do this. Many suburban districts are already near the max.
- walkinfool - Wednesday, May 8, 13 @ 11:03 am:
Madigan is pushing for a real, long-term fix — and some cost-shifting has long been part of his solution. The difficulty is that cost-shifting is the hardest to pull off politically, and had to be separated out from the primary bill to get some GOP support.
Cross is right in that Madigan is probably a week early with this second push, and should wait to see how the Senate might deal with his primary bill before stirring the pot. He is going all out, and disregarding traditional partisan concerns as much as is practical.
- siriusly - Wednesday, May 8, 13 @ 11:10 am:
Your analysis is probably accurate walkinfool. Perhaps he is trying to show the Tribbies that “the real problem is in the Senate” when he muscles out the cost shift bill from the house and then the Senate isn’t able to pass either . . .
- cassandra - Wednesday, May 8, 13 @ 11:14 am:
I’d also look at school aid for low-income children. Is the aid truly proportionate and does it adequately reflect child poverty outside of Chicago? The latter must be considerable given the economic struggles of rural and semi-rural areas of Illinois.
- Anonymous - Wednesday, May 8, 13 @ 11:18 am:
in some school districts, it will not be politically possible to raise taxes enough to cover the cost of pension and maintain current educational offerings . the cost shift, although I understand the reasoning behind it, and it is difficult to argue against it, the cost shift will be very tough on property poor districts. they will cut staff and programs. it will happen, watch the headlines if this is signed into law.
further there is the issue of these school districts having no say as to whether they participate in the pension plan, but being forced to support it financially. it doesn’t make sense from this perspective. i’m actually in favor of a cost shift to cover pension costs, but these districts must be given the choice at some point in the future to opt of the program for their staff (even if it is new hires, people below a certain age, etc.).
- biased observer - Wednesday, May 8, 13 @ 11:19 am:
the above comment are mine “biased observer” (haha) not anonymous. must be some glitch.
- walkinfool - Wednesday, May 8, 13 @ 11:30 am:
Just beginning to wonder why Madigan is pushing so hard for a comprehensive fix right now, caring little about political image, and burning bridges as he goes.
Could it be a swan song?
Will he be surprising us, and stepping out of Lisa’s way?
- Cincinnatus - Wednesday, May 8, 13 @ 11:31 am:
If the cost shift occurs, in addition to leveling the state aid formula, all pension-related and hiring decisions should then default to the hiring district. If you’re paying for it, you should control it.
- wordslinger - Wednesday, May 8, 13 @ 11:39 am:
There’s some pretty hefty surpluses in many of those suburban school districts.
OPRF District 200 has a $71 million annual budget, but is running a surplus now close to $120 million — a bump of about $7 million over last year.
They pay real well, too, so the state-supported pensions are pretty sweet.
- dupage dan - Wednesday, May 8, 13 @ 11:40 am:
walkinfool has a point. If MJM clears the table then one of the biggest, if not the biggest, issues facing Illinois will be dealt with before the next gov election. Can PQ take any credit for this? I see he is working day and night on this - week in and week out - 24/7 as it were.
- biased observer - Wednesday, May 8, 13 @ 11:43 am:
cincinnatus is correct. if cost shifts occur, which actually make sense to me, the local districts need to be able to decide whether to participate in the pension program, and this needs to be part of the legislation.
- Out Here In The Middle - Wednesday, May 8, 13 @ 11:45 am:
Given the condition of most school district budgets its difficult for me to see how pensions costs can be shifted to the schools without enacting a “TRS” tax levy similar to the IMRF levy that is now available to participating entities. This would mean that the pension “shift” is simply a local property tax increase enacted by ILGA with (as per IMRF) no rate limit. THAT will be popular.
- biased observer - Wednesday, May 8, 13 @ 11:49 am:
yes, in some school districts it will go beyond having to raise taxes to pay for these pension…in some of these districts it will be politically impossible to pass tax increases.
so essentially, you will have school districts becoming nothing more than retirement plans for its current and retired teachers, and educational offerings will be slashed to bone.
much like state of Illinois is becoming nothing more than a taxpayer supported pension plan.
- Anon - Wednesday, May 8, 13 @ 12:04 pm:
Another value of the cost shift seems to be that the districts & teachers will really need to think about what’s important in the contract negotiation process. It’s easy for a district to say, ‘ok, fine, here’s a bunch of retirement perks’ since the state has picked it up - with the cost shift some tough conversations will have to happen. I welcome those tough conversations.
- wordslinger - Wednesday, May 8, 13 @ 12:05 pm:
– all pension-related and hiring decisions should then default to the hiring district. If you’re paying for it, you should control it.–
What’s your pipe dream here, exactly? Districts could hire non-certified personnel as teachers and not offer pensions?
Yeah, that will attract the best and brightest to Hinsdale Central and New Trier. It would put districts in the Social Security business, however.
- RNUG Fan - Wednesday, May 8, 13 @ 12:13 pm:
Year after year Teachers will have no COLA, everyone ex Chicago will have higher property taxes and no school sports……and all these people will have this in Nov 2014.
This is good new for Lisa?
- Observing - Wednesday, May 8, 13 @ 12:17 pm:
Maybe they ought to try to pass the cost shift bill first. If it passes, wouldn’t the impact on state revenues allow for an adjustment in the thinking about what is needed for the state employee pension fix?
- RNUG - Wednesday, May 8, 13 @ 12:30 pm:
R-Fan,
If they clean up the school aid formula, Chicago will have property tax hikes also.
- RNUG Fan - Wednesday, May 8, 13 @ 12:49 pm:
Lets rewrite this
Cross started worrying that massive property tax increases would blow back on his alliance with Madigan resulting in a bunch of primaries from anti-tax groups
- Cincinnatus - Wednesday, May 8, 13 @ 12:50 pm:
Not offering pensions in a school district should indeed be an option, as would be offering a pension. A state requirement that all teachers be certified doesn’t bother me a whole lot, but keep in mind that hiring uncertified teachers can be an option under certain circumstances.
I guess you must have a bunch of ideas yourself. Why not share them, or are you just a defender of the status quo and/or a dictatorial cost shift where all school districts have to pay for whatever the poobahs in Springfield demand? See how easy it is to put words in your mouth and shot ideas down, just like you all the time?
- Endangered Moderate Species - Wednesday, May 8, 13 @ 1:40 pm:
Contingent upon the School Aid formula becoming equal, I am also in favor of the cost sharing.
- ProblemChild21 - Wednesday, May 8, 13 @ 1:42 pm:
==in some school districts, it will not be politically possible to raise taxes enough to cover the cost of pension and maintain current educational offerings . the cost shift, although I understand the reasoning behind it, and it is difficult to argue against it, the cost shift will be very tough on property poor districts. they will cut staff and programs.==
It is more problematic that that. With a large portion of the rural districts in Illinois unable to meet payroll already (see State Supt Chris Koch’s newsletters), a pension shift to local districts will doom some districts financially. Several superintendents in my area, who have already made deep cuts, have noted that they have two or three years at CURRENT revenue/expenditure levels before the doors are closed. GSA is down, transportation and other categorical reimbursements are down, and in many rural areas EAV isn’t moving, while costs and costly mandates continue to increase. And the Affordable Care Act is kicking into high gear. A pension cost shift to the local districts would be devastating.
- Rod - Wednesday, May 8, 13 @ 1:56 pm:
Wordslinger in his post has to a degree presented the OPRF District 200 budget surplus in too simple a manner. OPRF had a projected ending balance of $119,379,685 in FY 13. The budget projections made by OPRF indicate a budget surplus of $6,929,955 for the 2012-2013 school year. Readers of this blog can see the budget at http://www.oprfhs.org/business-office/documents/FY2013MBABudget%7BF%7D.pdf
The $119 million is actually a reserve, but very few districts have such good fortune.
OPRF in April 2002, received a voter approved property tax referendum increase of $.65 per $100 of EAV in the Education Fund tax rate. The district states in its budget that tax rate increase which was incorporated into their Five Year Financial Projections in 2002, and it was expected to result in an improvement in fund balances and surplus for several years. Hence, the total surplus of about $120 million.
The increased revenue generated by the voter approved tax increases was projected to
fully support the costs of the district until approximately 2020. Education Fund reserves for OPRF were projected to accumulate until approximately 2017. But in FY 2017, expenditures will begin to exceed revenue, thereby causing deficit spending. The fund balance was projected to diminish over time until the eventual need for another referendum in the spring of 2018 generating revenue for FY 2020 and thereafter. This five year analysis was done without any pension cost shift provision, all of these numbers will change once that is factored in and it is likely a referendum would have to be called before 2018 if OPRF is faced with these pension costs.
- GA Watcher - Wednesday, May 8, 13 @ 1:57 pm:
The oost shift is going to be an interesting fight. If you haven’t seen it, here’s a link to a report House Dems have put out which refutes the one the Senate GOP put out in March re overall funding inequities between Chicago schools and the rest of the state: http://www.housedem.state.il.us/SchoolFunding042213.pdf.
- thechampaignlife - Wednesday, May 8, 13 @ 2:05 pm:
Why not just shift the expense and the funding? That would result in no impact on locals’ budgets in the short term. Then inevitably the State will start delaying payments and eventually cutting back funding. But by that point it’s just an appropriation decision, not a requirement of the pension ramp law.
- Nickypiii - Wednesday, May 8, 13 @ 2:09 pm:
Couldn’t a large portion of the State’s saving from getting out of the TRS (worst funded pension in State) be tied to increasing the State’s percentage of funding, let’s say 50%, for the total cost of education Statewide. It’s currently at about a third only.
- RNUG - Wednesday, May 8, 13 @ 2:20 pm:
Nickypiii @ 2:09 pm:
Whether you agree it’s fair or not, the point of the shift is to actually reduce state spending, not relabel it.
- Griz - Wednesday, May 8, 13 @ 2:26 pm:
Why not throw out the “Fair Share”?
From Illinois Education Labor Relations Act, A Fair Share agreement provides that every person employed in a status position in a classification covered by that bargaining unit must either pay union dues or a fee which represents a fair share of the costs of the services provided by the union.
Use the money thrown to Unions and fund the retirements at the local level.
- Ahoy! - Wednesday, May 8, 13 @ 2:27 pm:
– if the state would pay for everything that it owes for public education, then it would be not be a problem for some schools to pay for their teachers’ pensions.–
1) If “ifs” and “buts” were candy and nuts, oh what a merry Christmas it would be.
2) If only the State doesn’t create the same burden that it has on cities by passing pension sweeteners. The State should at least pay half or develop a formula that ensure they are impacted for passing pension enhancement bills.
- ProblemChild21 - Wednesday, May 8, 13 @ 2:28 pm:
Nickypiii - If TRS is the “worst funded pension in the State”, only the legislature is to blame for it. Too many years of underfunding and “borrowing.”
Anyway, the idea that the State is funding about a third of education really doesn’t pan out. My Education Fund expenditures last year were around $2.5 million, and state sources provided around $550,000 of that, or around 20%. Outside of the Education Fund, for the other $870,000 expenditures, no state dollars were provided at all - including such mandated or necessary items as IMRF/SS, Health Life Safety, and Tort. The real % of education paid by for the the state for my district is around 16%.
For us, even if the state increases its input from “one third” to “50%”, that would bring a whole $93,500 to our district to offset an Ed Fund deficit of $650,000. Still doesn’t come close to cutting the ice.
And by the way, we run a very tight ship…
- archimedes - Wednesday, May 8, 13 @ 3:07 pm:
OK - let’s look at this Cost Shift in light of SB1 as amended.
TRS (teachers) Normal Cost is 18.7% and teachers pay 9.4%. With SB1, the Normal Cost is reduced 30% (logical since UL is reduced 30%)to 13%. Teachers pay 2% more - so are paying 11.4%. And this amount goes down each year since Tier 2 was introduced. So, with cost shift, local school districts end up paying maybe 1.5% for Normal Cost, and that amount goes to nothing in a few years.
The Cost Shift discussion timing is pressure to support SB1-amended versus SB2404. SB2404 would only reduce the Normal Cost by about 10% - so local school districts would have to pick up between 5% and 7% for Normal Cost versus almost nothing with SB1 as amended.
- archimedes - Wednesday, May 8, 13 @ 3:09 pm:
Edit above:
“And this amount (the Normal Cost) is going down each year since Tier 2 was introduced.”
- Madison - Wednesday, May 8, 13 @ 3:38 pm:
i understand the fundamental problems of the school districts suddenly be accountable for their actions; however, the problem would go away if farm property were assessed at its real value as income producing property. Index the valu
- Madison - Wednesday, May 8, 13 @ 3:41 pm:
The valuation to commodity prices, and all of the suden the problem, and the disparities sp? Between suburban districts and downstate districts go away.
- Holdingontomywallet - Wednesday, May 8, 13 @ 8:08 pm:
I have to put back 1/2 of my house payment now (each month) to pay for my tax bill. If this happens, I will be looking to move or rent. Just the facts….simple math.
- Arthur Andersen - Wednesday, May 8, 13 @ 8:13 pm:
To be frank, labeling this pending cram down “a meeting to discuss” is akin to handing a dude the blindfold and cigarette and saying “this is a meeting to discuss punishment. ”
I’m hopeful that the shift is phased in over a reasonable period of time, allows the districts to levy and label separately, and have a hold-harmless to TRS in the event of any tomfoolery at the local level.
- Shemp - Wednesday, May 8, 13 @ 9:07 pm:
Cincinnatus is dead on. If you want to fund pensions locally, then they should be designed locally. It’s too easy for the State to increase benefits when they have no stake in it. Ask anyone who has to oversee a local police or fire pension fund and isn’t in the wealthiest 5 or 10% of Illinois cities. Without changing tax caps and increasing local control, the cost shift is just shirking responsibility.
- Pot calling kettle - Wednesday, May 8, 13 @ 9:51 pm:
The cost shift would not be an automatic tax increase unless the bill included the authority to levy for TRS expenses from the uncapped “retirement fund.” None of the proposals I have seen would allow that, so the TRS money would be pulled from the education fund. The most logical way to cover that cost would be to lay off 7-8% of the faculty; that would not enhance learning…
Curiously, the suggestion to allow districts to opt out of TRS made by several previous commenters would, as wordslinger wrote, “put districts in the Social Security business.” Districts are allowed to levy for Social Security costs in the uncapped “retirement fund,” resulting in an immediate tax increase very close to that which could be expected if TRS costs could be levied from that fund.