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Batinick responds to Msall critique of pension funding plan

Friday, Sep 23, 2022 - Posted by Rich Miller

* As we discussed earlier this week, Rep. Mark Batinick has a pension funding proposal. Here’s Crain’s

Batinick would dedicate a chunk toward property tax relief. Specifically, in any year in which required pension spending drops below 25% of total general funds spending, an amount equal to a quarter of the drop would automatically be used to reduce property taxes. […]

Batinick’s proposal drew a mixed reaction from Laurence Msall, head of the watchdog Civic Federation.

“What happens if the state’s pension contribution increases to above 25% of the budget?” if, for instance, stock market returns go down as they are this year, Msall asked. “We see some significant potential positives in the proposal, but also have questions about whether it will work as indicated if the state economy slows or slips into recession in the coming years.”

* I asked Rep. Batinick to respond to Msall…

I very much appreciate the Civic Federation and specifically Laurence Msall for taking the time to review my proposal. A couple of important points. I’ve been working on this and thinking about scenarios for at least 6 months. The Civic Federation and others have had less than a day to digest the proposal. While the plan is a simple concept, implementation is more complicated. I understand the questions and thoughts many have had and have had those same questions. I’ve had the time to think them through. I recall much blowback when I first introduced the pension buyout proposal years ago. This summer Governor Pritzker signed an extension of the program because it is working well.

Laurence Msall’s concern is what happens if the state’s pension contribution needs to go back to 25%. It is a legitimate concern although an unlikely scenario. But my plan would actually help that situation. By designating 25% of the budget to go towards pensions first with the remainder going to property tax relief you are creating a buffer zone. If we don’t create that buffer zone, future politicians will not make the tough choices to keep spending in check. The savings opened up in the budget will be spent on new or expanded programs. Under Msall’s scenario something would have to be cut from the General Revenue Fund. Under my scenario the property tax relief would simply be less than expected or delayed.

Several others have commented that the local school districts would just continue to spend the money and no relief would reach taxpayers. Any proposal needs to include language that requires the levy to be reset dollar for dollar. Simply put they won’t have the opportunity to do that.

There certainly will be ideas others will have to improve the plan. As always I welcome the collaboration. But since I have been involved in politics people have talked about fixing our high property taxes. It’s a regressive tax that hurts the poor the most. If the Civic Federation anyone else has a better idea I’m all ears.

Thoughts?

       

40 Comments »
  1. - TheInvisibleMan - Friday, Sep 23, 22 @ 11:17 am:

    I still dislike how he is calling this a property tax relief. It’s a school funding bill more than anything.

    How does this plan help the taxes of the fire district, which is the 2nd largest item on my tax bill? It doesn’t. How does it help the other half dozen agencies on my tax bill? It doesn’t. How does it address TIF districts? It doesn’t.

    It does attempt to address the largest item on my tax bill, which is the school district, which is why this would better be called a school funding bill than a tax relief bill.

    –Simply put they won’t have the opportunity to do that.–

    Wrong. I’m fully confident my(and his) district will simply ‘front-load’ the expenses onto the levy before the calculation. The then inflated levy is what will be ‘reset’ dollar for dollar. I’ve seen them perform far more questionable budget tricks than this quite often.

    Again, this is an interesting school funding bill
    - but without any mechanisms added to state laws to restrain school boards or reform TIF it will not be able to accomplish its stated goal of property tax relief goal.


  2. - James R. Anderson - Friday, Sep 23, 22 @ 11:22 am:

    STOP THE PRESSES! An earnest, good-faith disagreement and legitimate debate over an important policy/political issue!


  3. - Big Dipper - Friday, Sep 23, 22 @ 11:26 am:

    Well they can enact property tax caps. Whether they are wise is another matter.


  4. - Oswego Willy - Friday, Sep 23, 22 @ 11:29 am:

    === Several others have commented that the local school districts would just continue to spend the money and no relief would reach taxpayers. Any proposal needs to include language that requires the levy to be reset dollar for dollar. Simply put they won’t have the opportunity to do that.===

    This has always-always been my fear, in so far as New Trier, as an example, may see equal funding as regressing the district’s opportunity to advance education, so, no real relief, just “some” relief…

    … and while any district should not lose its rights to the levy, the funding st the state level, plus relief can’t make the distance between the “haves” and “have nots” greater, by mere “accident”.

    I’d hope this to be more than discussions, I hope someone can champion this to build a legislative work product.

    I thank both for the continuing dialog.


  5. - New Day - Friday, Sep 23, 22 @ 11:29 am:

    FWIW, I don’t think Msall was throwing cold water on the idea. He was just raising one concern.

    Everyone is looking for creative solutions to solve the pension crisis, especially Msall and the Civic Fed. Batinick’s idea holds a lot of promise. Not sure the legislative leaders will be on board because as the pension contribution slowly drops as a percentage of the budget, they’re going to want to spend the money. Batinick’s approach is a great way to impose discipline.


  6. - Anyone Remember - Friday, Sep 23, 22 @ 11:42 am:

    ” … they’re going to want to spend the money.”

    Or cut taxes. If there is “excess money” the stories of onerous taxes that need abatement will come rolling out of the woodwork. From both sides.


  7. - JS Mill - Friday, Sep 23, 22 @ 11:44 am:

    =Any proposal needs to include language that requires the levy to be reset dollar for dollar.=

    I doubt he asked anyone in a school business office or a county clerk’s office if this is possible or how it would be accomplished. Setting the Levy begins in October and ends in April/May.

    it would take time to “reset” the Levy. A better way would be to lower the state aid and send the money to the counties who would refund the property owners.

    Unless you get the money for the offset and lower the levy and equal amount the following year.


  8. - Oswego Willy - Friday, Sep 23, 22 @ 11:46 am:

    === Or cut taxes===

    That’s more of a “hope”

    Spending monies is always the reality.

    How much tax relief are you talking?

    Right now folks are “complaining” about the rebates issued in these past days and days coming.


  9. - Pot calling kettle - Friday, Sep 23, 22 @ 11:47 am:

    Batinick’s idea is a good starting point (I’m always happy to see an actual proposal). However, as several of us brought up on Wednesday, many school districts are underfunded. A straight, mandated property tax offset would not help those schools. The formula should move a portion (if not all) of the excess funds to filling in that funding gap without taking away other resources (property tax offset). I would like to see Rep. Batnick consider (and address) that concern.


  10. - Techie - Friday, Sep 23, 22 @ 11:51 am:

    Are we sure Batinick is a Republican? He’s being far too reasonable and actually caring about policies to improve people’s lives. /s

    But seriously, if Republicans were more like this then they would stand a much better chance of winning elections.

    Getting into serious policy discussions, and having a genuinely open mind, “If the Civic Federation anyone else has a better idea I’m all ears,” doesn’t seem to be a thing from most Republicans.

    Take, for instance, the SAFE-T Act. It should be uncontroversial that we are all better off when bail is determined by the threat someone poses to public safety, and not their ability to pay to get out of jail. Yet so many Republicans are crusading to eliminate the reform altogether, rather than fix any real or perceived shortcomings of the legislation. If they focused on the latter, they would sound a lot more intelligent and garner more support. However, it seems that in this political climate, they would have a hard time winning primary elections because “owning the libs” and being completely opposed to anything Democrats put forward seems to be a requirement for respect from the GOP base.


  11. - Soccermom - Friday, Sep 23, 22 @ 11:51 am:

    Anonymous —

    Taxation is a hydraulic system. You push down on one spot, and it flows up somewhere else.

    Property taxes are ridiculously high in some communities because the State of Illinois is not paying enough to support public education. It makes sense for the State to rebate funds to taxpayers to offset those high property tax bills.

    It’s not whistling in the wind — it’s trying to solve two very serious problems in a thoughtful, connected way. (Because these problems are indeed connected.)


  12. - JS Mill - Friday, Sep 23, 22 @ 11:53 am:

    =Everyone is looking for creative solutions to solve the pension crisis,=

    Meh, there has been a of lot of talk for decades. In the early 2000’s Ralph Martire had a plan that would have had us mostly there by now and no one wanted to do it. Tier 2 came a long and, even when they adjust, will ultimately solve most of the problem. The only real solution is paying the debt. In that regard, Batnick’s plan is very reasonable.


  13. - Rich Miller - Friday, Sep 23, 22 @ 11:54 am:

    ===2nd largest item on my tax bill===

    Schools are the number one item, by far, on any property tax bill. Nothing’s gonna perfectly solve every single problem. Try to take a breath.


  14. - Back to the Future - Friday, Sep 23, 22 @ 11:55 am:

    We just saw Crain’s publish a very solid report by a renowned investment professional with decades of experience who pointed out that the state funds had incredibly poor performance compared to market averages.
    Now here comes Batinick who sat around and did nothing as the trustees and staff for these funds gave up billions in market gains. His”solution” is just another meaningless word puzzle.
    Perhaps an independent study like the one reported on in Crain’s would be a better use of time and money than a very naive “gimmick” which the Civic Federation points out is really not particularly helpful and at worst will make funding levels lower.
    Time for union members, the Governor and taxpayers to improve the quality of the trustees and staff that are costing our state a fortune and harming the long term safety of these funds.


  15. - Oswego Willy - Friday, Sep 23, 22 @ 12:04 pm:

    - Back to the Future -

    Should property tax relief and school funding go hand in hand as the paying down (which we are doing via the ramp) pension liability

    If you don’t agree with that premise than any of the other issues you have too don’t address what each man is trying to discuss.


  16. - Back to the Future - Friday, Sep 23, 22 @ 12:15 pm:

    First fix one of the major if not the major problem these funds have.
    If returns were better then funding levels would go up and taxes would go down.
    Property taxes and funding levels already go “hand in hand”.
    This is not the time for a “gimmick”.
    For example, we have an election for State Treasurer. Taxpayers can start the ball rolling on improving the quality of investing by voting for a change.


  17. - JS Mill - Friday, Sep 23, 22 @ 12:19 pm:

    =We just saw Crain’s publish a very solid report by a renowned investment professional with decades of experience who pointed out that the state funds had incredibly poor performance compared to market averages.=

    Pension funds are not invested in the same way as private investments. The risk profile is far lower and returns will be impacted by lower risk investments.


  18. - Oswego Willy - Friday, Sep 23, 22 @ 12:24 pm:

    === If returns were better then funding levels would go up and taxes would go down.===

    Tell that to homeowners paying property taxes.

    You’re looking for a solution that isn’t remotely to the *question* at hand.

    You have yet to answer my question.


  19. - Oswego Willy - Friday, Sep 23, 22 @ 12:27 pm:

    === Property taxes and funding levels already go “hand in hand”.===

    How so, given there’s still inequity being discussed.


  20. - Back to the Future - Friday, Sep 23, 22 @ 12:32 pm:

    We are not talking about private investments.
    The study was using market averages.
    Of course, the state funds don’t get average returns. They fail to market indexes year over year.
    Taxpayers through the property tax system keep paying more and more. Reason number one is the quality of the Trustees and staff.
    The options in improving funding are raising taxes, raising employee contributions or improving performance. The only option currently taking place is raising taxes.
    IMHO, the easiest fix available is improving performance not another word puzzle from someone who was part of the problem.


  21. - Oswego Willy - Friday, Sep 23, 22 @ 12:33 pm:

    === Taxpayers through the property tax system keep paying more and more===

    That’s on the school boards.


  22. - Oswego Willy - Friday, Sep 23, 22 @ 12:34 pm:

    === The only option currently taking place===

    Friend, we’re talking about this new option.

    Take a breath and read instead of ignoring the discussion to this option, as you are doing… admittedly… in your own typed words.

    Sheesh


  23. - Stu - Friday, Sep 23, 22 @ 12:38 pm:

    ==Everyone is looking for creative solutions to solve the pension crisis==

    There is no more “pension crisis”. The crisis has been solved with Tier 2. It is now a healing process that will last 23 more years.

    In 23 years when it cost drops from 18% to 5% there will be a HUGE influx of money. The issue is that nobody that is in power today, those that are paying the bill, will be power then and cannot spend that money. They want it today.

    Stay the course, keep calm, carry on.


  24. - Back to the Future - Friday, Sep 23, 22 @ 12:40 pm:

    OW
    Good question.
    Local boards do not set the actuarial targets or do the investing.
    The State sets the actuarial rate and (according to the Crain’s article) is consistently underperforms the market.
    Local school folks, in terms of the pension mess, tax according to what the state does.


  25. - Soccermom - Friday, Sep 23, 22 @ 12:41 pm:

    The more appropriate metric is to compare Illinois pension fund performance with other large states’ pensions funds. Anybody got that one?


  26. - TheInvisibleMan - Friday, Sep 23, 22 @ 12:44 pm:

    –Schools are the number one item, by far, on any property tax bill.–

    Yes they are, which is why I think this is better described as a school funding bill and not a property relief bill.

    Without TIF reform, a school district could abate property taxes for xyz development fox xyz years. The levy amount would be the same, but the taxes to an individual homeowner could still potentially go UP under this plan because the levy is now being split among a smaller total number of payers than previously or what would be paid to the district in the absence of a TIF.

    This bill hides the difference between total levy, and what a taxpayer pays individually. The two things aren’t rigidly connected, as demonstrated above with the TIF example.


  27. - Oswego Willy - Friday, Sep 23, 22 @ 12:45 pm:

    === Local boards===

    … set the local tax levy

    With property tax relief, and additional funding, that’s the issue.

    Are you grasping what the actual argument is here?

    With respect.


  28. - Back to the Future - Friday, Sep 23, 22 @ 12:47 pm:

    Stu makes a good point about Tier 2.
    Looking at the problems, Batinick “idea” is just a gimmick to deflect attention to the long term investment problems
    If you are unhappy with your local school boards for whatever reason then just vote against them. If you are unhappy with the funding problem in State funds then you can start by voting against the current State Treadurer.


  29. - Pot calling kettle - Friday, Sep 23, 22 @ 12:50 pm:

    ==Local school folks, in terms of the pension mess, tax according to what the state does. ==

    Local schools do not pay into TRS (unless they are covering the teachers’ portion per contractual agreement). Local schools do tax based on what it takes to educate the students minus what the state sends them. “What it takes to educate the students” includes state mandates but also input from the community and (hopefully) input from their educators and educational research.

    Batinick’s proposal shifts some of the overall funding back to the state but does not address discrepancies between districts; some of which do not have the resources to provide the basics. For those districts, the proposal does not help the students.


  30. - Oswego Willy - Friday, Sep 23, 22 @ 12:54 pm:

    === Looking at the problems, Batinick “idea” is just a gimmick to deflect attention to the long term investment problems===

    Again, you’re trying to push a solution that isn’t the problem being addressed.

    People want property tax relief.

    This is an avenue to that.

    You say it’s a gimmick, fine, but your take towards it is a problem you want addressed, not what solution Batinick is looking to address


  31. - thechampaignlife - Friday, Sep 23, 22 @ 1:02 pm:

    ===The study was using market averages.===

    And therein lies the flaw. Pension systems need liquidity to pay benefits during down cycles. You cannot keep all your assets in the market, because it may drop 50% during a recession. SURS has $24B in assets and they pay $2.8B per year in benefits. To weather a 3 year recession, only 65% of their assets can be invested in the market. Any comparison of their performance needs to factor in that real world liquidity need, or it is worthless.

    By the way, if the system was fully funded, 84% of their assets could be in the market. That would improve the returns, but still never match the market.


  32. - Back to the Future - Friday, Sep 23, 22 @ 1:10 pm:

    Just not falling for a “bright shining object” that won’t actually do anything long term for property taxes. If taxes are lowered by this gimmick it will hurt funding. Then taxes will have to go up-a lot.
    As the Civic Foundation comments reflect on what happens if you have a bad year. (actually the state never seems to have a good year compared to market returns).
    This gimmick would only make things worse than they are.


  33. - Oswego Willy - Friday, Sep 23, 22 @ 1:13 pm:

    === Just not falling for a “bright shining object” that won’t actually do anything long term for property taxes. If taxes are lowered by this gimmick it will hurt funding. Then taxes will have to go up-a lot.===

    You literally read none of what Batinick proposed

    Good luck.


  34. - JS Mill - Friday, Sep 23, 22 @ 1:15 pm:

    =We are not talking about private investments.=

    You seem to struggle with reading. My comment noted the difference between risk management of investing practices when investing public funds versus the unlimited risk that may be assumed when investing private money.

    Lower risk investments usually have lower returns (think bond ratings). That lower risk profile is partly responsible for the lower than average returns. that is something Crain’s did not mention.

    =Local schools do not pay into TRS (unless they are covering the teachers’ portion per contractual agreement).=

    Most pay the full amount for their teachers (9.8901% + 1.5% or 11.3901%) but even those that do not pay 1.5% (which includes THIS).

    =Local schools do tax based on what it takes to educate the students minus what the state sends them.=

    Sort of. We pass our tax levy in December. We do not know what the state is going to send us until March in a good year and september in a lotof year (like this year). Most Districts pass a budget in August or September. That is why most districts levy the maximum allowable. That and the fact that state funding is unreliable, even in the Pritzker years.

    =“What it takes to educate the students” includes state mandates but also input from the community and (hopefully) input from their educators and educational research.=

    LOL.None of the folks you listed are accountable for the district budget or have the slightest idea how to navigate the byzantine school finance process.


  35. - Friendly Bob Adams - Friday, Sep 23, 22 @ 1:32 pm:

    This Msall guy has been singing the same song for a whole lot of years. He won’t be happy until no one gets a pension.

    The Civic Federation calls itself non-partisan, but when have they ever promoted a policy that is not anti-worker and anti-pension?


  36. - A - Friday, Sep 23, 22 @ 1:32 pm:

    ==what it takes to educate the students==

    For those not actually working inside a school, what it takes to educate the students is a vastly different thing today than it was when you were a kid in school. You need to go visit and stay for a while. You might be pretty surprised to see how things have changed.. Educating the students is quite varied, complex, multi-serving and far more expensive than when we were kids. You have to be there. Not just on parent’s nights or curriculum nights, either. Volunteer

    So my point addresses the “cost” taxpayers complain about in their tax bill for schools. Yet, apparently this is what people want. Just don’t want to pay


  37. - Blake - Friday, Sep 23, 22 @ 1:34 pm:

    I think New Day is right & gets at the usefulness of this. If the General Assembly spent the money elsewhere, it would leave things as they are now. If the levy is reduced by having this pay part of the levy on a per-pupil basis, it helps out those districts least able to pay for schools since those districts are having to charge real estate owners a higher tax rate for each dollar of levy (smaller per-pupil real estate values).


  38. - levivotedforjudy - Friday, Sep 23, 22 @ 1:38 pm:

    This is a good framework (an actual plan - WOW). But, should the state really do a mandate on how local property tax boards and school districts divvy up revenue? Sounds like it would be good for Batinick, Msall and the Illinois Municipal League to schedule a meeting.


  39. - Blake - Friday, Sep 23, 22 @ 1:51 pm:

    Pot calling kettle, it does address differences between districts. When a district has lower real estate assessment per-pupil, it has to charge a higher property tax rate for each levy dollar. When this pays the levy equal dollars per-pupil it does more to lower the rate.
    Example: District A (rich district) charges 4.6445, a 10% levy payment by this would be a rate reduction of 0.46445
    District B needs to charge twice as much, 9.289, to collect as much revenue, so a 10% reduction reduces the rate by 0.9289, which is twice the rate reduction.


  40. - froganon - Friday, Sep 23, 22 @ 2:13 pm:

    Fix school funding by addressing the lack of funding from the State. Gimmicks like this play to the crowd of lower my taxes but keep the services that I want (like small class sizes and clean, well supplied schools.). Complex systems like school finances and Levys need to be addressed directly, not with byzantine formulas for pension payments and property tax reduction. The State needs to fund education at an adequate level for every child and every school. The property tax relief will follow because residents will demand it. School tax cuts now mean cuts in school budgets and loss of educational function/quality.


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