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Stand for Children floats new school funding idea

Monday, May 13, 2019

* As we all are painfully aware, our statutory pension payment mandate is not high enough to allow Illinois to get ahead of the unfunded liability curve for several more years. The much-lauded school funding reform law contains the same basic flaw. The K-12 annual payment increases are significant, but not high enough to stay ahead of the growing inadequacy gap. From Stand for Children

To ensure that poorly funded districts increase in adequacy, the [Evidence-Based Funding Formula] legislation established a Minimum Funding Level of $350 million per year. But in FY20, the system will be $7 billion short. That gap grows over time unless sucient money is invested, as inflation drives up the costs of education while the value of $350 million diminishes. So, while $350 million drives equity – it does little to close the gap.

* Stand for Children press release…

During passage of education funding reform in 2017, lawmakers committed to increasing school funding each year by at least $350 million. While $350 million new dollars each year is a significant commitment, Illinois schools are so inadequately funded that it barely makes a dent. Depending on inflation, the adequacy gap will continue to grow even with a $350 million annual increase, possibly even as soon as next year. New revenue through the fair tax is essential to getting schools across the state funded adequately.

Illinois can accelerate equity even further while still protecting teacher pensions by integrating their state pension normal cost payments into evidence-based funding. This proposal, known as the “equity boost” would immediately move the state over $230 million closer to adequacy without costing the state any money. It would also fix the other alarming inequity in Illinois that remains unaddressed: in Illinois, state government picks up the pension costs for school districts that have greater local property wealth at a significantly higher level than it does for poorer districts. The equity gap is startling: districts funded over 100% of adequacy receive $328 per pupil more than districts funded below 80% of adequacy.

* How would this work? From the fact sheet

The Equity Boost uses the new school funding formula to address the inequity of payment of teacher pension costs and brings the state closer to fully funding education. There are four parts to the Equity Boost.

    1 Calculate Adequacy Targets using calculated normal cost, instead of actual cost.

    2 Move responsibility for paying normal pension cost to school districts (a total of about $1.15 billion). At the same time, offset these amounts by having each district receive from the state an amount equal to its normal pension costs through the “hold harmless” or Base Funding Minimum (BFM) of the new formula.

    3 Make the pension portion of the BFM subject to a continuing appropriation, just like the current pension payment is. If normal costs increase in any future years, those increases should be put through the formula and not count towards the $350 million Minimum Funding Level.

    4 Gradually phase out $70 million in excess state payments that some districts will have in their Base Funding Minimum, then equitably re-distribute that amount through the formula. This approach means these dollars will first flow to the districts that need them the most, reducing the gap further.

* Here’s how this would help a “Tier One” district, which would be most in need

Pre-Equity Boost

    The District’s Adequacy Target is $14,500 per pupil. Its Local Capacity Percentage is 24%, so it is expected to raise about $3,500 locally. The District’s Base Funding Minimum is $5,000, leaving it just 59% funded and with a $6,000 gap to adequacy. It will get $473 per pupil when $350 million is allocated to the formula. The district gets a benefit of $600 per pupil from the State’s normal cost payment, but this is not reflected in the formula.

Post-Equity Boost

    The District’s Adequacy Target is now $15,100, which is higher because its calculated pension costs have been added. Its Local Capacity Percentage of 24% remains the same and it is now expected to raise about $3,600 locally. The District’s Base Funding Minimum is now $5,600, which is increased because its normal cost payment is added to the BFM, and it will pay that $600 per pupil to TRS for its normal cost payment. The district is 61% funded with a $5,900 gap to adequacy. It will get $500 per pupil when $350 million is allocated.

* Here’s an example of a Tier 3 district being moved to a Tier 4 (lower need) district with this proposal

Pre-Equity Boost

    The District’s Adequacy Target is $11,500 per pupil. Its Local Capacity Percentage is 78%, so it is expected to raise about $9,000 locally. The District’s Base Funding Minimum is $2,000, leaving it 96% funded and with a $500 gap to adequa- cy. It will get $26 per pupil when $350 million is allocated to the formula. The district gets a benefit of $600 per pupil from the State’s normal cost payment, but this is not reflected in the formula.

Post-Equity Boost

    The District’s Adequacy Target is now $12,000, which is higher because its calculated pension costs have been added. Its Local Capacity Percentage of 78% remains the same and it is now expect- ed to raise about $9,400 locally. The District’s Base Funding Minimum is now $2,800, which is increased because its normal cost payment is added to the BFM, and it will pay that $800 per pupil to TRS for its normal cost payment. The district is 101% funded with an Excess State Payment of $200, which would be phased out over three years. It will get $1 per pupil when $350 million is allocated.

Methodology is here and the full report is here.

* The group also wants the $350 million annual increase boosted to $500 million after the graduated income tax is approved. Click here to see how that would work.

- Posted by Rich Miller        

23 Comments »
  1. - cover - Monday, May 13, 19 @ 9:59 am:

    = New revenue through the fair tax is essential to getting schools across the state funded adequately. =

    I’m guessing that Bruce Rauner is no longer associated with Stand for Children then…


  2. - wordslinger - Monday, May 13, 19 @ 10:04 am:

    Maybe it’s a Monday morning thing, but I’ve read this three times and still can’t figure where any extra dough is actually coming from. Is it a backdoor pension shift to wealthier districts?


  3. - City Zen - Monday, May 13, 19 @ 10:06 am:

    ==Illinois schools are so inadequately funded that it barely makes a dent==

    Can someone identify the slide in the EBF PowerPoint presentation where it states the plan “barely makes a dent”? I don’t recall my local state reps saying this either during their sales pitch.


  4. - Rich Miller - Monday, May 13, 19 @ 10:13 am:

    ===Is it a backdoor pension shift to wealthier districts===

    Away from those districts.


  5. - wordslinger - Monday, May 13, 19 @ 10:50 am:

    ===Is it a backdoor pension shift to wealthier districts===

    Away from those districts.–

    As in, wealthier districts will pick up more of their pension costs?


  6. - Rich Miller - Monday, May 13, 19 @ 10:53 am:

    === wealthier districts will pick up more===

    Yes.


  7. - Donnie Elgin - Monday, May 13, 19 @ 10:56 am:

    Makes sense - the “true” cost of teacher pensions would be quantifiable to local voters. School Boards may become more sensitive to the expense side of school budgeting. Not sure how this could be implemented within the current Property Tax Extension Law Limit.


  8. - Thanos Snap Judgement - Monday, May 13, 19 @ 11:08 am:

    If a true debate over pension cost-shifts to local school districts ever does gain traction, one issue that must be a part of the conversation needs to be the relationship between school districts and TIFs.

    With each new TIF district created, more and more potential revenues for schools become frozen at outdated property value levels. Were school districts allowed to have a choice on whether they want education dollars diverted into a TIF, or had the opportunity for said dollars to be TIF-exempt, more revenue potentially becomes available and can then be allotted for pension obligations.


  9. - wordslinger - Monday, May 13, 19 @ 11:10 am:

    thanks


  10. - Donnie Elgin - Monday, May 13, 19 @ 11:17 am:

    “education dollars diverted into a TIF”

    Nothing is delivered. Without the “TIF” $ provided to develop the properties they would have remained “outdated”. The school will get the benefit in 23 years and the community has economic vibrancy. All property must pass the so called “but for” requirement in order to gain TIF status.


  11. - Elliott Ness - Monday, May 13, 19 @ 11:37 am:

    Donnie Elgin- your comment is true IF the TIF is properly established in a blighted area in order to assist economic development, many TIFs inn Chicago are NOT in blighted areas and create a loss of funding to CPS that allows more state money to flow to CPS. The Stand proposal makes some sense, especially in wealthy districts that have higher salaries but the TIF issue is a much bigger issue in school funding and should be addressed by assuring that a TIF accomplishes the intended development in blighted areas….


  12. - Huh? - Monday, May 13, 19 @ 11:38 am:

    At the risk of seeming ill informed, what is “calculated normal cost”? Is this a wonkish jargony way of saying “average cost”?


  13. - Donnie Elgin - Monday, May 13, 19 @ 11:44 am:

    ” IF the TIF is properly established…many TIFs inn Chicago are NOT in blighted areas and create a loss of funding to CPS ”

    Sounds like a local problem.


  14. - Juice - Monday, May 13, 19 @ 11:47 am:

    Huh?, from my reading, the calculated normal cost is that amount that the formula says should be paid for a district’s pensions based on its adequacy target. Since the formula looks at the student population, and then includes how many teachers should be hired based on the population, and has a salary estimate. You can then take those figures for total estimated payroll, multiply it by the normal cost rate (10.1%) and arrive at the calculated normal cost of what the district “should” be paying under the formula.

    Actual normal cost would be based on what the district currently has for payroll. So in some wealthier districts, where class sizes are smaller than the formula might recommend, and salaries are greater, reimbursing for the actual normal cost would be regressive.


  15. - BothSidesofHisMouth - Monday, May 13, 19 @ 11:47 am:

    Huh. I believe normal costs usually references the actual annual cost of providing/maintaining the benefit as opposed to the accrued or total costs which have been exponentially driven up by the State skipping or shortly past payments.


  16. - Honeybear - Monday, May 13, 19 @ 12:35 pm:

    blink…blink….blink
    scrolling
    scrolling
    scrolling
    (looking for RNUG’s comments to read the explanation of what this means)


  17. - Chicagonk - Monday, May 13, 19 @ 12:38 pm:

    This is a great idea. I’m a big fan of a funded pension cost shifts.


  18. - Lurker - Monday, May 13, 19 @ 12:47 pm:

    Ugh. How did this become about TIFs? In Illinois, Because PTELL caps the *dollar amount* a district can levy, districts are going to get that same dollar amount with or without TIFs. TIF’s do not “divert”. In fact, they are back-door ways to increase and shift the burden of school taxes since the money in a TIF fund is not subject to PTELL. TIFs are notoriously opaque and deliberately confusing, and I wholeheartedly support reform on those grounds. But through that opaque decision process, they provide *additional* money to schools, especially for capital projects — whether or not they serve their purported economic development purposes. In Chicago, this is exactly how they have been used for decades.


  19. - Lurker - Monday, May 13, 19 @ 12:51 pm:

    To the post - this is a lot of words from Stand that don’t amount to much. Have wealthier districts pay a larger share of pension burdens. That’s what they should have said. I think that is a good idea…but good luck with that.


  20. - City Zen - Monday, May 13, 19 @ 1:06 pm:

    ==Have wealthier districts pay a larger share of pension burdens.==

    It’s in the teacher unions’ best interest to keep the pension costs incurred in those “wealthy” districts as far away from those “wealthy” districts, lest they impact the salaries that can be paid in those “wealthy” districts.


  21. - Boone's is Back - Monday, May 13, 19 @ 3:41 pm:

    Why doesn’t Stand for Children replace steps 1, 2, 3, and 4 with one step… make people pay more property taxes. Because that’s all this plan really calls for.


  22. - Jessica Handy - Monday, May 13, 19 @ 3:59 pm:

    Thanks for highlighting this, Rich.

    There is such a huge equity issue with how teacher pension funding is structured. Districts funded ABOVE adequacy get an in-kind benefit of $328 more per pupil than districts funded below 80% of adequacy.

    What might not be clear, based on the questions I’m reading here, is that the Equity Boost would treat the teacher pension normal cost payment like the mother funding streams that were consolidated into the new formula (GSA, some MCATs, Bilingual). However much districts got last year, they’d continue to get through the hold harmless (Base Funding Minimum). But going forward, new money would be distributed in a more effective way to close equity gaps. Integrating teacher pension funding into the evidence-based model is a creative way to address the inequity while ensuring no district “loses.” Districts would pick up their normal costs in future years, but they would have received ongoing hold harmless funds to pay for it.

    That step alone–integrating teacher pension normal cost–into EBM moves the system $230 million closer to adequacy.

    So while fixing the existing inequity is a big reason to do this, it also will ensure that we don’t lose ground on closing the adequacy gap. The $350 million per year is significant—but since the costs in the model rise with inflation and the $350 doesn’t, it will not take long before the increases are not enough to keep pace with inflation. That could happen very soon. The Equity Boost helps boost equity and close the gap to adequacy, especially while we wait for the Fair Tax components to work their way through so we can find a more permanent solution to reach full funding.


  23. - A 400lb. Guy on a bed - Monday, May 13, 19 @ 4:47 pm:

    =wealthier districts will pay more=

    I’ll bet McSweeney will be against it.


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