Question of the day
Wednesday, Sep 21, 2022 - Posted by Rich Miller
* From the Chicago Tribune’s state legislative candidate questionnaire…
State budget figures put Illinois’ unfunded pension liabilities at roughly $130 billion earlier this year. That’s a massive deficit that wreaks havoc on the state’s long-term financial stability, and discourages employers from bringing jobs to Illinois. What should Illinois do to fix this problem? […]
Illinois has the second highest real estate property taxes in the country. Please lay out two ways that the state can provide a measure of relief to Illinois homeowners and citizens, and please be specific with your answer.
* Retiring Rep. Mark Batinick (R-Plainfield) has come up with a plan which addresses both of these topics. First, Batinick points out, the pension problem isn’t as bad going forward as the Tribune editorial board and others make it out to be…
I’ve identified three reasons why we’ve turned the corner on pensions. The first reason: Tier 2. There is no doubt the switch to Tier 2 roughly a decade ago is producing savings. We are near the point where 50% of employees in one of the five state systems are under the Tier 2 program.
The second reason is our payment schedule. Usually referred to as the “ramp,” which requires our pensions systems to be 90% funded by 2045. We are reaching the point of the schedule where we are no longer in a negative amortization situation where we continue to make larger payments while the unfunded liabilities continue to grow.
The third reason is inflation. This is the least recognized item that has helped reduce our pension liability in real dollars. Inflation is generally bad, but if you’re a debtor, it can actually help your financial situation.
* More to the point, as we’ve discussed before, the percentage of the state budget going to pensions is dropping…
If you reference Appendix R at this link, in Fiscal Year 2017, our pension payment peaked at 29.4% of our budget. It has been decreasing since, getting as low as 20% in FY21. There is a bump in the current budget (FY23) resulting from an additional pension payment that was made. Next year, it is scheduled to drop to 22.9%. It then continues to drop until 2045, where it will be 18.5% of the budget. Then the ramp ends and we reach the point where we only pay normal costs, which is about 5% of the budget.
* This is how Batinick brings things together…
My plan would designate that 25% of the general revenue fund budget toward the traditional pension payment and a new property tax relief component. If the pension payment in any given fiscal year is less than 25% (as it is projected to be) then the dollar difference would go directly to property tax relief. The result would be a flat percentage payment, which lawmakers have already grown accustomed to, that will target direct relief to property taxpayers. In short, as the pension payment drops, so would the overall property tax burden.
The savings would be distributed to local school districts on a per-pupil basis, which would then be used to reset the levy to account for the relief on a dollar for dollar basis. Plainly, this means that $1 in additional funding to a school district would, in turn, lower the base levy by $1. The additional money would add to what is referred to as “local capacity” (an ability to self-fund schools through property tax revenue under the current Evidence Based Funding (EBF) formula). The EBF formula would then be implemented on top of the new, lowered base levy in order to distribute the normal state funding for schools. In the end, areas with lower local capacity and high tax rates would win the most.
This plan would designate nearly $1 billion in property tax relief in the next fiscal year. Using the formula in my school district would roughly equate to a 4% reduction in Property Tax Year One. By 2046, we will be able to designate 20% of the budget to property tax relief. If we could do that now, that would equate to approximately $4,000 per student. Imagine how much that would lower property taxes! Obviously this would vary per district, but lower income areas should see the most relief.
There’s more, so click here if you want.
* The Question: Your initial thoughts on Batinick’s idea? No drive-by comments, please. Explain yourself.
- Second Chance - Wednesday, Sep 21, 22 @ 2:07 pm:
My initial thought is Mark is not going to do well in retirement. Miss him already:)
- Soccermom - Wednesday, Sep 21, 22 @ 2:17 pm:
This is nice. Has the Civic Federation weighed in? It would be great if this idea drew some champions.
- Jeepers - Wednesday, Sep 21, 22 @ 2:19 pm:
He has me up until he presumed per pupil direct spend will result in the locals not going to the max levy. They always will.
- Lucky Pierre - Wednesday, Sep 21, 22 @ 2:21 pm:
No chance a sensible Republican proposal like this goes anywhere in Illinois
No wonder he is retiring
- Stormsw7706 - Wednesday, Sep 21, 22 @ 2:23 pm:
Well presented. Obviously knows what he is talking about and is focused on data driven solutions to pensions. He has no place in the new era Illinois GOP.
- Soccermom - Wednesday, Sep 21, 22 @ 2:26 pm:
One question for Batinick — on that inflation issue, have the actuaries confirmed that all tier 2 employees will receive at least as much as their projected Social Security payments? I know there was a question a while back.
- G'Kar - Wednesday, Sep 21, 22 @ 2:29 pm:
I’m not an actuarial, so I can’t really comment on the nuts and bolts, but it looks like a reasonable path to me. However, I do agree with Jeepers, local districts will always levy to the maximum.
It is also nice to see a Republican present a reasonable solution.
- TheInvisibleMan - Wednesday, Sep 21, 22 @ 2:30 pm:
–Please lay out two ways that the state can provide a measure of relief to Illinois homeowners and citizens–
Reform TIF at the state level. The state has to take the levers away from the local areas abusing it, and driving up the costs for residential taxpayers.
Batnicks solution doesn’t fix the problem of why some areas have high local taxes. It has nothing to do with the state. If the state sends out money to property owners, the local boards who have been abusing the process can continue to do so. Nothing in the plan Batnick proposed even addresses that reality, which is probably deliberate considering plainfield in his district is one of the worst abusers of TIF.
How does Batnicks plan address what one of the largest school districts in the state recently did, by finding loopholes to build a new school, even in the face of massive declining enrollment, without putting it on the ballot for residents to vote on. Instead, a leaseback agreement was made and the district is leasing a brand new school building. That isn’t free, and is an example of why who you elect locally has far more impact than anything the state could or should be doing.
Batnicks plan falls short on the locally moving gears in the property tax system, and would even incentivize locals to increase faster than they otherwise would.
It’s an interesting school funding bill, but it isn’t going to do anything to property taxes.
- Soccermom - Wednesday, Sep 21, 22 @ 2:31 pm:
Jeepers - actually, the new property tax reform act removes the “perverse incentive” to go to the max each year, by allowing a lookback if a district runs into unexpected financial headwinds.
And, while I haven’t drilled down, it sounds like Batinick’s plan would be especially helpful for those hard-hit south suburbs with crazy high tax rates on an evaporating tax base. I think they would be incredibly thankful for relief.
- Vote Quimby - Wednesday, Sep 21, 22 @ 2:35 pm:
After reading this well-thought-out, articulate, seemingly feasible plan… I thought we need more people like this in the legislature. Then, I remembered Rich saying he was retiring. Oh well.
I agree it is a plan, a discussion point. I also concur with a commenter above who said it gets lost when it depends on the local school board to lower its levy. One of the current governor candidates who says can testify to whether that happens or not.
- Batinick - Wednesday, Sep 21, 22 @ 2:42 pm:
–He has me up until he presumed per pupil direct spend will result in the locals not going to the max levy. They always will–
The bill will be drafted requiring a $1 for $1 levy “reset”. The extra money goes to property tax relief. Nothing else.
- Lurker - Wednesday, Sep 21, 22 @ 2:44 pm:
I would add another reason that pension will be going down as we move towards all Tier 2 employees. There will be less people to retire as no one is applying for jobs.
As the local college placement offices are explaining to graduates, the public sector pays lower these the private sector and they used to make up for that with benefits like retirement. However, with Tier 2, it is no longer sufficient in making up the difference.
- Pot calling kettle - Wednesday, Sep 21, 22 @ 2:45 pm:
==The savings would be distributed to local school districts on a per-pupil basis, which would then be used to reset the levy to account for the relief on a dollar for dollar basis.==
==He has me up until he presumed per pupil direct spend will result in the locals not going to the max levy. They always will. ==
Nice idea, but I think some schools need that money plus the property tax money to meet student needs (and, it still might not get the district to where it should be) while others will keep their very nice school and give money back to their already financially fine residents. I would rather see a formula that distributes the money to school districts based on need and/or helps disadvantaged students pay for post-secondary education (college, trades, etc). Education funding has not been equitable and I don’t see how this plan would change that. Educating our future citizens has an excellent return on investment.
- Grandson of Man - Wednesday, Sep 21, 22 @ 2:55 pm:
An apparently good idea that doesn’t soak workers, and would not trash the state’s finances deliberately to do so. That’s hard for certain interests to handle, paying bills without nasty cuts and stripping pensions and rights. Paying bills in general is hard for the “fiscal responsibility” set (voting against the budget).
- Norseman - Wednesday, Sep 21, 22 @ 3:04 pm:
=== No chance a sensible Republican proposal like this goes anywhere in Illinois ===
LP, you finally made a reasonable point. I recall a seeing a couple of reasonable GOP pension proposals get chopped down by the MAGA GOP zealots because they failed to extract enough blood from the workers and retirees.
- TheInvisibleMan - Wednesday, Sep 21, 22 @ 3:07 pm:
–Obviously this would vary per district, but lower income areas should see the most relief.–
Income level of the district wasn’t mentioned as one of the metrics in his plan. Where is this claim coming from, and can he provide an example of a lower income district to demonstrate this in comparison to the example he gave for the more well off district he and I both live in.
I will say one good thing, it doesn’t appear any of this money is being distributed to private schools. That’s surprising.
- bear 3 - Wednesday, Sep 21, 22 @ 3:09 pm:
Has merit.
- Annonin' - Wednesday, Sep 21, 22 @ 3:18 pm:
How do fund legally required state services with 25% less.
How do you control local school spending?
How do you manage state labor contracts to meet the revenue loss?
Lots of questions
- Occam - Wednesday, Sep 21, 22 @ 3:21 pm:
The 25.0% threshold means that actual dollars have to be carved out of the spending budget and redirected to ISBE to distribute to the schools. This means that for next years budget, with the pension rate at 22.9%, the budget would have to reallocate 2.9% of the total budget into this EBF/Levy reduction plan. And then every year after that.
Of course inflation is NOT the friend of the State’s annual budget as the State’s costs will roughly rise with CPI, while there is no guarantee that revenue will rise at the same rate.
So its quite possible that the annual carve out for the EBF/Levy reduction plan will grow and squeeze out any additional funds the administration needs for new programs or even to just keep up with inflation.
As to the EBF formula impact, I’d love to see his calculation for his district because, typically, the higher a district’s Local Capacity, the less EBF funding the district receives.
- Demoralized - Wednesday, Sep 21, 22 @ 3:24 pm:
==No chance a sensible Republican proposal like this goes anywhere in Illinois==
Can you whine any more in your comments? That’s all you ever do it seems like.
To the proposal:
I like Rep Batnick’s takes on pensions because he actually understands what’s going on. He isn’t a scorch and burn pension taker. He has a reasonable solution and he articulates it well.
- New Day - Wednesday, Sep 21, 22 @ 3:25 pm:
I’m a Dem but I love Batinick and I love this idea. Hope it gets properly vetted.
- New Day - Wednesday, Sep 21, 22 @ 3:26 pm:
“Has the Civic Federation weighed in?”
Not yet. Hopefully they will soon.
- Oswego Willy - Wednesday, Sep 21, 22 @ 3:51 pm:
This premise is what I’d like to see from state government, allowing local taxing of property to see relief… but not lose any monies for k-12 education.
I like where this is going. The reality is an overhaul would bring absolute relief, this plan relies on the reality of pensions, and the paying schedule to that.
This has my attention, I’d need to see how the “relief to funding equity” is modeled in its functionality
- Dunwich Snorer - Wednesday, Sep 21, 22 @ 4:31 pm:
Given that half the students in Illinois are still in districts that are below 70% adequate funding (per EBF), the underfunding by the state will continue to pressure school districts to keep increasing taxes.
Rather than taking the difference and spending it per pupil across the state, it would be far better to take that money and feed it into the EBF formula on top of the regular EBF payment so that it gets targeted at the school districts furthest from adequate funding. We need to get schools fully funded (i.e., 90% adequacy) before the projected 2042 date.
- Eastern Bloc Gulag - Wednesday, Sep 21, 22 @ 4:38 pm:
As far as Tier 2 not being attractive enough: I recommend public employees opt for Defined Contribution instead of Tier 2.
The money’s your once you are vested, it follows you if you leave state employment, and it doesn’t disappear upon your death (or your survivor’s death). It is wealth that passes on to heirs beyond yourself and one survivor.
In a state with a shaky reputation for pension security, why mess with a weak one like Tier 2?
- RNUG - Wednesday, Sep 21, 22 @ 4:52 pm:
The idea has potential. Due to family matters, I don’t have time to run any numbers but it sounds good. May need some tweaking on exactly how to ensure (force) the school’s levy reduction actually happens as proposed.
- Oswego Willy - Wednesday, Sep 21, 22 @ 4:53 pm:
=== In a state with a shaky reputation for pension security, why mess with a weak one like Tier 2?===
Constitutionally protected and Illinois hasn’t missed, nor will it miss, contributing or doling out pensions.
It’s only weak if one believes silly and erroneous takes.
- Big Dipper - Wednesday, Sep 21, 22 @ 5:13 pm:
== I recommend public employees opt for Defined Contribution instead of Tier 2.==
And what happens when they spend it down and live another ten years?
- Not Your Gramma - Wednesday, Sep 21, 22 @ 5:17 pm:
The plan is well thought out and makes sense. Leave it to Batinick to actually understand the details and not rely on antagonistic talking points! But, as others point out, the necessary partner to this would be a change to the way schools are funded - full stop - in Illinois. Schools in wealthy areas may be able to see some relief - but if they don’t, and continue to take their full opportunity, then those taxes remain high (albeit with good schools as a result). Schools in poor areas will have to continue to “tax to the max,” keeping property taxes rates exorbitant and while barely keeping up with services. So the gulf between the haves and have nots will continue to grow.
- Retired SURS Employee - Wednesday, Sep 21, 22 @ 5:21 pm:
My background at SURS (and IMRF, but that’s a whole different story) leads me to believe that Rep. Batnick has a very good understanding of pension issues. Indeed, I have been saying for years that Tier 2 ultimately goes a long way to solving the pension deficit. His other points concerning the deficit are also correct as is Rich’s comment concerning the diminishing percentage of the state budget devoted to the pension payments. I haven’t given a lot of thought to Rep. Batnick’s remedial plan but he certainly understands the overall pension situation.
- Walker - Wednesday, Sep 21, 22 @ 5:30 pm:
There will be plenty of interest in moving these ideas forward.
- Early Wynn - Wednesday, Sep 21, 22 @ 8:44 pm:
When Amendment 1 passes maybe ,regular citizens can get in on the pension largess as opposed to being on the hook for it
- Oswego Willy - Wednesday, Sep 21, 22 @ 8:59 pm:
===regular citizens can get in on the pension largess===
Apply for a state job.
Join a union.
These are life choices.
- pro bono - Wednesday, Sep 21, 22 @ 9:11 pm:
The stock market losses will pump up the state’s unfunded pension liabilities. I don’t see that factored into the otherwise really interesting proposal. Also, EBF needs to be fully funded by 2027, not 2045. I agree with Snorer.
- Father Jones - Thursday, Sep 22, 22 @ 10:03 am:
As a former Tier 2 TRS member and labor guy in general, I’d be remiss if I didn’t point out some of the flaws in the Tier 2 “fix.” There’s a real chance that Tier 2 doesn’t pass safe haven requirements. It’s saving the state money because it’s putting their prior mishandling and misappropriation of their portion of the pension debt onto the backs of young teachers (and other comparatively underpaid public sector jobs).
That said, EBF has been a godsend for many Districts across the state that looked at both shrinking applicant pools and property tax revenues, and any plan that allows Districts to see continued state funding while sensibly abating some of the property tax burdens on families is a good one.