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Eliminating a flawed reform?

Thursday, Jun 6, 2019

* Dispatch/Argus editorial

As expected, the devilish details lurking in the mass of legislation approved by the 101st Illinois General Assembly continue to emerge.

Today’s unwelcome example hikes statewide costs for funding teacher and administrator pensions. It was tucked — as such surprises often are — into the omnibus bill that implements the $40 billion budget for the fiscal year that begins July 1.

The move cuts in half what taxpayers statewide will save from so-called pension thresholds. The goal of such thresholds is to reduce the costs to taxpayers statewide when school boards give big raises to educators at the end of their careers so they will receive bigger lifetime state-funded pensions than they would otherwise have earned. The higher threshold wasn’t designed to stop districts from giving generous raises, but to ensure taxpayers across the state do not have to bear the burden for local leaders’ generosity.

Before the original 6 percent cost-shift thresholds were added in 2005, the burden for all pension spiking costs fell to every taxpayer, not just the taxpayers of the local school districts responsible for the spikes. So there was zero accountability and little incentive for local school boards to decline to handsomely reward longtime educators using other people’s money. A year ago, lawmaker faced with a massive and growing public pension crisis agreed to modestly reduce the teacher pension threshold to 3 percent. It was a move we and others hungry for reform applauded.

* But this is from that Center of Squares site

The initial measure passed in the budget implementation bill for fiscal year 2019 meant the school district or public university had to pay for the entire pension cost of pay raises above 3 percent directly to the pension fund.

State Sen. Dale Fowler, R-Harrisburg, didn’t like that.

“It applied to the teacher that worked overload classes, or became a coach, or became a principle,” Fowler said. “It applied to a teacher that became a mentor, to a teacher that was a band director, or even a teacher that worked on the duty of writing a curriculum for the school.”

“Teachers told me what it was doing to them in the classroom,” Fowler said. “They asked me to fight for the repeal of the 3 percent [cap] and I told them that I would.”

Last year’s cap probably could’ve been drafted better. If a teacher took on additional responsibility or was promoted, that teacher probably should not have been subjected to the cap.

* Illinois Policy Institute

Local taxpayers also suffer. True, local property taxpayers aren’t directly on the hook for TRS benefits. But they do pay the price in a painful but overlooked way: As pensions consume state education funds, school districts must resort to hiking already-high property taxes to find needed revenue. School districts currently consume nearly two-thirds of total property tax dollars collected in Illinois.

They just made a pretty sound argument for higher state taxation, or massive state cuts.

- Posted by Rich Miller        

30 Comments »
  1. - Not a Billionaire - Thursday, Jun 6, 19 @ 10:14 am:

    Also the majority are covered by raised in contracts. Very few 6 % but might be a 3 . That raise would be for all teachers not for the purpose of last minute bumps. The 6 held prevent administrators from giving themselves big bumps.


  2. - AnonymousOne - Thursday, Jun 6, 19 @ 10:18 am:

    Aren’t we all paid with other peoples’ money? Even in the private sector?


  3. - City Zen - Thursday, Jun 6, 19 @ 10:21 am:

    ==Aren’t we all paid with other peoples’ money? Even in the private sector?==

    Freedom of choice.


  4. - NeverPoliticallyCorrect - Thursday, Jun 6, 19 @ 10:22 am:

    This is a very important issue for the unions but it should be for the public also. These end of career bumps are indefensible, and most certainly not in the metro Chicago area where teacher salaries are not at all depressed. This is true also for administrators. As a school board member I have fought against these but there is tremendous pressure to “reward” staff in order to bump up their pension. Most local boards don’t want to create a labor issue and so go along. We need the state law to ensure this doesn’t happen.


  5. - Lucky Pierre - Thursday, Jun 6, 19 @ 10:24 am:

    Or just reasonable pension reform. Why should the last four years of a career with higher pay result in a $250-$400 K pension bump?

    Because union demands supersede responsibility to taxpayers


  6. - JS Mill - Thursday, Jun 6, 19 @ 10:31 am:

    =Freedom of choice.=

    Yep, Indiana or Wisconsin are calling you with their higher taxes and fewer services.

    =These end of career bumps are indefensible=

    They are called raises. You know, like most people get.

    A 6% raise hardly matches the hyperbole that many are using.

    =A year ago, lawmaker faced with a massive and growing public pension crisis agreed to modestly reduce the teacher pension threshold to 3 percent.=

    =Local taxpayers also suffer.=

    Get a grip and start with honest assessment. The annual cost of pensions is NOT the issue. It is the debt created when the state purposely diverted the funds for other uses in order to keep taxes low. The bill has come and the pay back is $7 billion a year.

    It isn’t like no one knew about this issue. The Edgar ramp is only one example that it was a well know problem, the 1970 constitution is another an protections were put in to save us from the “welcher class” almost 50 years ago.

    But yeah, that 6% is an old testament style plague on society in the warped minds of some folks.


  7. - wordslinger - Thursday, Jun 6, 19 @ 10:33 am:

    –They just made a pretty sound argument for higher state taxation, or massive state cuts.–

    They do that a lot. Recently, they’ve been arguing that the proposed graduated income tax rates won’t raise enough money.


  8. - Steve - Thursday, Jun 6, 19 @ 10:40 am:

    –They just made a pretty sound argument for higher state taxation, or massive state cuts.–

    That’s it in a nutshell. Not much else to say.


  9. - City Zen - Thursday, Jun 6, 19 @ 10:40 am:

    ==Yep, Indiana or Wisconsin are calling you with their higher taxes and fewer services.==

    They have a choice?

    ==A 6% raise hardly matches the hyperbole that many are using.==

    I don’t think folks would mind as much if those raises weren’t pensionable.

    If it wasn’t worth something, the unions wouldn’t have fought tooth-and-nail to completely abolish them.

    == is the debt created when the state purposely diverted the funds for other uses in order to keep taxes low.==

    …and pay current operating expenses for employee raises, improved health benefits, etc.


  10. - Louis G Atsaves - Thursday, Jun 6, 19 @ 10:41 am:

    So instead of fixing the flaw created in 2005, they decided to quietly eliminate the entire provision? What is next, elimination of the prohibition of working one day and being rewarded with a pension?

    You gotta love being in this state.

    Sheesh.


  11. - Chicagonk - Thursday, Jun 6, 19 @ 10:43 am:

    In the long run, the state should block grant pension funding to the school districts and then school districts will have an incentive to take pension costs into account.


  12. - njt - Thursday, Jun 6, 19 @ 10:53 am:

    ===So instead of fixing the flaw created in 2005, they decided to quietly eliminate the entire provision? What is next, elimination of the prohibition of working one day and being rewarded with a pension?===

    The article says the threshold reverted back to 6%


  13. - AnonymousOne - Thursday, Jun 6, 19 @ 10:54 am:

    My point was missed. Unless who you work for has a printing press you are paid with money out of other peoples’ pockets. Unfortunately, the transparency involved in public salaries puts it out there for everyone to scrutinize and debate the worth of employees. As if……..

    I say that if that transparency ever came to the private sector and everyone in a company got to see what their colleagues earned, there would be violence in the streets.

    Just sayin’

    Nice and easy (maybe even fun for some sick people) to direct that income anxiety at publics. Someone doesn’t like the taxation to make up for what should’ve been paid all along, for decades, move. Stop whining.


  14. - A State Employee Guy - Thursday, Jun 6, 19 @ 10:58 am:

    I think you made your point, Rich. Maybe just call them Center Square from here on out. It’s the right thing to do, on principal.


  15. - Harvest76 - Thursday, Jun 6, 19 @ 11:00 am:

    ==“It applied to the teacher that worked overload classes, or became a coach, or became a principle,” Fowler said.==

    The Squares in the Center make a compelling argument for a more robust education system with their use of principle rather than principal.


  16. - The Doc - Thursday, Jun 6, 19 @ 11:06 am:

    ==I think you made your point, Rich==

    Contra this, I enjoy Rich’s poking fun at the Artist Formerly Known As IPI.

    Chill out, dude


  17. - Rich Miller - Thursday, Jun 6, 19 @ 11:06 am:

    ===Maybe just call them Center Square from here on out===

    LOL

    We had over 100 suggestions yesterday, so the answer is “No.” https://capitolfax.com/2019/06/05/question-of-the-day-2888/


  18. - Ebenezer - Thursday, Jun 6, 19 @ 11:06 am:

    Every budgeting entity needs to bear the full costs of the pension commitments they are making.

    State funding also must be adequate, especially in poorer districts. But trying to mitigate inadequate state funding by offering a pension pickup leads to perverse behavior.


  19. - Oh? - Thursday, Jun 6, 19 @ 11:23 am:

    I am a retired teacher. When I retired it was under the six per cent bump that was in effect at the time. There are a couple ways at looking at this. One, it shouldn’t happen, it is gaming the system. Two, few would argue that teachers are overpaid and this end of career hike makes up for it. I know I lived with miserably low wages for a long time and this did feel like catch up ball. Call me ambivalent. A thing to remember though is that the 6% cap is a cap, at one time districts were handing out 20% end of career spikes, especially to administrators.


  20. - A State Employee Guy - Thursday, Jun 6, 19 @ 11:54 am:

    Very “mom’s basement” of you all. Cheers.


  21. - JS Mill - Thursday, Jun 6, 19 @ 11:54 am:

    =They have a choice?=

    Yes, they do. This isn’t totalitarian China. “They” can sell their home and go somewhere else. That is a choice.

    ==A 6% raise hardly matches the hyperbole that many are using.==

    =I don’t think folks would mind as much if those raises weren’t pensionable.=

    That is just a silly statement. So if you are covered by a pension your pay raises shouldn’t be part of it? So the pensions should be based on entry Level salary? Using the hyperbole of the hair on fire folks that is egregious.

    =If it wasn’t worth something, the unions wouldn’t have fought tooth-and-nail to completely abolish them.=

    What do unions have to do with it? I am not union and many that earn pensions are not in a union.

    === is the debt created when the state purposely diverted the funds for other uses in order to keep taxes low.==

    …and pay current operating expenses for employee raises, improved health benefits, etc.=
    Most of what that money went to had nothing to do with your myopic list. Roads, bridges, libraries, sports stadiums, pinstripe welfare, failed tech consulting, tax breaks for giant corporations.

    =I am a retired teacher.=

    Since you think the 6% bump is wrong I can get you the address to TRS and you can send them a check.

    =A thing to remember though is that the 6% cap is a cap, at one time districts were handing out 20% end of career spikes, especially to administrators.=

    Want to bet? That 20% went to far more teachers than admins based just on numbers.

    Do you know why the 20% bump was created? Insurance.


  22. - eyeball - Thursday, Jun 6, 19 @ 11:56 am:

    Illinois controls the pension system and school districts. Illinois allows school districts to control 2 variables (salary, years) subject to the minimum salary of $40K and subject to the amount of salary that is pensionable and subject to pension contributions whether regular or penalty.


  23. - Katiedid - Thursday, Jun 6, 19 @ 11:57 am:

    ==Last year’s cap probably could’ve been drafted better. If a teacher took on additional responsibility or was promoted, that teacher probably should not have been subjected to the cap.==

    This. Everyone is talking about the 6% increase as if it’s always just that the teacher is “unjustly” (and I’m only using that to reflect sentiment, not to say I agree with it) getting gifted salary bumps in their last few years to spike their pensions. While that no doubt happens, to Rich’s point, what about those who get promoted or take on additional duties? That would essentially be creating a policy that says “sorry, no one over age 59 (to reflect the Tier 2 retirement age/final average salary calculation) can be promoted.” That would be legally…problematic.


  24. - City Zen - Thursday, Jun 6, 19 @ 12:14 pm:

    ==I say that if that transparency ever came to the private sector and everyone in a company got to see what their colleagues earned, there would be violence in the streets.==

    No one would have money because they would be compelled to buy every product and/or service offered.

    ==So if you are covered by a pension your pay raises shouldn’t be part of it?==

    Not a raise that exceeds the raises of every other teacher in the district. What’s the incentive for giving the largest raise to someone who just handed in their resignation? I don’t need a 4 year notice to predict when a teacher will retire.

    ==Do you know why the 20% bump was created? Insurance.==

    Can you expand on this? My district did this a lot prior to the 6% cap but I never understood why, other than the assumption to get new, cheaper teachers.


  25. - m - Thursday, Jun 6, 19 @ 12:52 pm:

    =They are called raises. You know, like most people get.

    A 6% raise hardly matches the hyperbole that many are using.=

    That is a very disingenuous take on the end of career spikes.
    A teacher turns in their notice several years in advance, generally 3-5, then begins receiving higher pay raises faster than they would have under the same contract without the retirement notice. This is done to give teachers more money (via pensions) than the district wants to pay, and does so without paying in the proper amount that the system is based on, leaving the state on the hook to pay for it.

    Like the system or hate it, that’s how it works. We are not talking about standard raises here. You can certainly defend it based on low teacher wages, but at least be honest and acknowledge it is detrimental to the pension system and not what the system was designed for.

    If teachers were paid enough, the spiking would be indefensible. Even though they aren’t paid enough, it doesn’t make the spikes good policy, they are just another part of trying to get around the lack of resources.

    But then again, this state just decided that most schools can’t afford to pay teachers enough, so the solution is to require them to pay more money that they don’t have. Real solutions are in short supply around here.


  26. - JS Mill - Thursday, Jun 6, 19 @ 1:48 pm:

    =Not a raise that exceeds the raises of every other teacher in the district. =

    It is still a raise no matter how you slice or spin it. And maybe you should do a little research, it isn’t necessarily higher than everyone else.

    =What’s the incentive for giving the largest raise to someone who just handed in their resignation? I don’t need a 4 year notice to predict when a teacher will retire.=

    So you have a lot of industry experience with this? No you really don’t.

    For starters, they are not resigning, in those districts that have this language (more on that later) the increase is in lieu of an intent to retire. That is important because some teachers do not retire as soon as they are eligible. And, when ERO was around, some retired early which , under ERO, was very costly for districts. The agreement created definitive predictability and allowed for more accurate financial forecasting. There is a value to that.

    In my last district, I was able to bargain the 6% increase out of the contract. That was during the financial crisis years.

    The fact is that these “bumps’ or raises or bonuses are not uncommon in the private sector and that is where some got the idea.

    =Can you expand on this? My district did this a lot prior to the 6% cap but I never understood why, other than the assumption to get new, cheaper teachers.=

    Your assumption is part of the reason, but the big push came in the 90’s when there were several early retirement pushes but then teachers who retired early were without and insurance option. At the same time insurance premiums were rising rapidly. The idea was to increase their income so they would be able to cover private insurance until medicare kicked in. The reasons are intertwined, but insurance costs played a big part. Now we have two programs that address the insurance need so the big bumps are gone.

    Right, wrong, or indifferent the process exists. I am not really defending it as much as stating why it exists.

    The hair on fire screeching about 6% is way over the top and it is not even remotely what the pension issue is. It actually is near the bottom of the list of factors.

    #1 is non payment of the yearly pension contribution- The money that was due was diverted to things like that long list of capital projects and the millions each Rep. and Senator is getting for their districts (pork). Instead of raising the gas tax or whatever- they diverted the pension payments to fund these projects.

    - m - Thursday, Jun 6, 19 @ 12:52 pm:

    =That is a very disingenuous take on the end of career spikes. A teacher turns in their notice several years in advance, generally 3-5, then begins receiving higher pay raises faster than they would have under the same contract without the retirement notice. This is done to give teachers more money (via pensions) than the district wants to pay, and does so without paying in the proper amount that the system is based on, leaving the state on the hook to pay for it.=

    My response was simply true. And very genuine.


  27. - muon - Thursday, Jun 6, 19 @ 2:09 pm:

    The error in the original bill was that the 3% cap applied to all salary increases. Many contracts have clauses that provide for certain automatic increases once they retire. These end-of-career salary bumps have an outsized impact on pension system costs because there was no commensurate contribution for a number of years toward the eventual payments.

    It makes sense for the state to want to put the burden on local units when they choose to bump employee salaries just before retirement. If the goal was to minimize the state’s exposure to this type of contract, then the cap language in the law should have been written to only apply to salary increases tied to an employees irrevocable decision to retire.


  28. - Hieronymus - Thursday, Jun 6, 19 @ 2:20 pm:

    @City Zen - 10:40am

    “== is the debt created when the state purposely diverted the funds for other uses in order to keep taxes low.==

    …and pay current operating expenses for employee raises, improved health benefits, etc.”

    … which, of course, was only one part of the whole, underfunded state budget. You don’t get assign _all_ of the shortage solely to your favorite target.


  29. - Bavette - Thursday, Jun 6, 19 @ 2:20 pm:

    Indiana has a much lower state and local tax burden than Illinois. Wisconsin and Illinois are close but Illinois will be one of the highest taxed states in the country if JB gets the Constitutional amendment passed.


  30. - oh? - Thursday, Jun 6, 19 @ 2:30 pm:

    Horse feathers JS….nothing to do with insurance. TRS has provided very good health insurance at very affordable rates for eons. My coverge price…before I qualified for medicare, was cheaper than when I was working.


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