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Get ready to pay… Again

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Illinois

* My weekly syndicated newspaper column…

Last week, powerful Illinois House Speaker Michael Madigan appeared to all but endorse an idea to force downstate and suburban school districts to pay a significant share of their state pension contributions.

Senate President John Cullerton (D-Chicago) floated the same proposal last year, and Gov. Pat Quinn added his support not long ago.

Needless to say, if all three Democratic leaders are talking about it, you can probably expect some action this year. However, there will be strong pushback from suburban and downstate legislators who undoubtedly will fear a voter backlash over potentially massive local property tax increases to pay for the idea.

Madigan (D-Chicago) spoke for well over an hour last week at an Elmhurst College event at the invitation of his old nemesis Lee Daniels, who served as speaker for two years after the 1994 Republican landslide. Madigan almost never talks for that long in public, so his speech was heavily covered by the media.

As is his custom, Madigan didn’t officially endorse the plan to ease the state’s ongoing budget strain by passing pension obligations down the governmental food chain to school districts and public colleges and universities, but he did indicate that he was strongly leaning in that direction.

The “normal arrangement,” for pensions, Madigan said, was that the employee and the employer both pay into the pension system. But school districts pay just 0.054 percent of payroll into the Teachers’ Retirement System, Madigan noted (and when he has it down to the decimal like that, you know he’s focused on the issue). He also said the universities pay “zero” toward employee pension costs.

“And let’s understand,” Madigan said about public school employees, “these are people who never got a payroll check from the state of Illinois.”

The speaker went on to note that the state paid $4 billion this year into its five pension funds, half of which went to the Teachers’ Retirement System (TRS).

“So over one half of our obligation to pensions, which is the subject of great public debate today, is for people (teachers) who never worked for the state of Illinois,” Madigan said.

Madigan also correctly pointed out that the Chicago Public Schools has its own pension fund and pays its employer share.

“You’re never going to read this in a newspaper article. … They’re never going to put a paragraph in there talking about that,” Madigan said, echoing others who’ve wondered for years why Chicago taxpayers fund the schools’ pension fund while they and the rest of Illinois taxpayers pick up the tab for suburban and downstate school districts.

“Even I don’t remember why that happened,” Madigan said jokingly. “I’ve never found anybody who can tell me why the state of Illinois stepped up one day and said, ‘OK, school districts, we’ll just pick up all your pension costs.’”

He also pointed out that school districts pay the employer share for pensions for support staff, such as janitors and cafeteria workers, but not for teachers.

This is truly an odd arrangement. All state taxpayers finance TRS, but the Chicago Public Schools receives just a relatively small amount of state cash for its pension fund. It doesn’t seem fair, but often life ain’t fair.

The teachers unions haven’t taken a position yet on this issue, probably knowing that freeing state money could mean more cash for education and that school districts couldn’t short the pension fund because state law forbids it.

The state is the only government entity in Illinois that can legally shortchange pension funds and has done so for years, which is what got us into this long-term pension crisis to begin with.

It’s doubtful that anything close to the state’s annual $2 billion contribution to TRS will be passed down to school districts right away, but property owners may be about to get hit with a bigger bill nonetheless. Get ready to pay. Again.

* Related…

* Speaker Madigan says it’s high time school districts pay for their own pensions

* Michael Madigan and Illinois’ governors

* Finke: Madigan graces us with his presence

* FOX Chicago Sunday: Mike Madigan and Illinois Budget Problems

* House Speaker Spreads Blame for State’s Mess

posted by Rich Miller
Monday, Jan 30, 12 @ 2:58 am

Comments

Backlash? I highly doubt it. With a depressed housing market, and highly gerrymandered redistricting, voters will have little recourse.

Sure, there will be much handwringing, brow furrowing, and beard stroking in the media, but when all is said and done, Illinois will still be one of the lowest taxed states in the union, will continue to lead Midwest job growth (especially in manufacturing) and will still be a much, much better place to live than Indiana, Wisconsin, Iowa, Missouri, Michigan, or Kentucky.

Comment by Randolph Monday, Jan 30, 12 @ 4:37 am
Rich, It’s not “get ready to pay again” as you assert. It is “get ready to pay”.
Te problem stems from not paying our bills in the past whether it be pensions, medicaid, or whatever.
The state has maxed out on its credit card, not because of profligate spending, but because of an antiquated tax structure- e.g. flat tax, no tax on services.

We need to expand the sales tax base and amend the constitution to allow for higher rates for the rich.

Comment by truthteller Monday, Jan 30, 12 @ 5:52 am
Wait a second. I thought that the Dems have been telling us that we must pay the pension obligations to the teachers because that is what was agreed to so many years ago? Does not that same logic apply to the state covering the downstate obligations too?

Comment by Downstate Monday, Jan 30, 12 @ 6:56 am
==He also said the universities pay “zero” toward employee pension costs.==

Wait a minute. The big headline from the Statehouse News Bureau blared that “Increased higher ed funding goes toward pensions”. So which is it? University empoyees are state employees paid by the State of Illinois. Could the esteemed Speaker be trying to confuse and mislead the public?

Comment by Bill Monday, Jan 30, 12 @ 7:29 am
If Chicago property taxpayers are paying their share of the Chicago teachers pension fund, then suburban and downstate property taxpayers should pay for their share of TRS. After all, they’re your teachers, educating your students, and Chicago taxpayers shouldn’t be paying for both their teachers and yours.

In addition Downstate, I have no idea what “so many years ago” agreement you are referring to. If they’re not working for the state, the state shouldn’t be paying for them. Let the members of the Civic Committee, pay their fair share.

@Truthteller - I agree wholeheartedly.

Comment by PublicServant Monday, Jan 30, 12 @ 8:07 am
If the consensus is that the state needs to reduce its pension obligations, then the locals will need to step up if they wish to continue funding their teacher pensions at current levels.

If Chicago is paying for its teacher pensions, why should they be kicking in for New Trier, Stevenson and Hinsdale Central, too?

Comment by wordslinger Monday, Jan 30, 12 @ 8:16 am
Looks like this will be fun

Comment by CicularFiringSquad Monday, Jan 30, 12 @ 8:30 am
Well if locals are solely responsible for paying for pensions, then I guess locals should be allowed to design the pension plans, right???

Hello? Hello? Anyone listening?

Comment by Shemp Monday, Jan 30, 12 @ 9:09 am
== If Chicago is paying for its teacher pensions, why should they be kicking in for New Trier, Stevenson and Hinsdale Central, too? ==

Because Chicago reaps the rewards of the educational system those communities provide.

We are all in this together, Wordslinger.

Comment by Hillside Monday, Jan 30, 12 @ 9:11 am
What we are really talking about here is imposing additional taxes on a local level as a means of taking pressure off of state finances. Kind of sounds like a shell game if you don’t see a corresponding decrease of some sort in the state taxes that have been supporting this “perk” all these many years. This of course is never going to happen given the poor state of financial picture in both the short and long term. As a downstater I can’t really argue with the logic of local taxpayers funding local pension obligations though. However, I would hope that any plan would gradually phase in increases to lessen their initial impact.

I would be very interested in hearing how the original deal happened to have the state fund the downstate pension system if anyone knows. Surely it was not just given for nothing in return!

Wordslinger - “If the consensus is that the state needs to reduce its pension obligations, then the locals will need to step up if they wish to continue funding their teacher pensions at current levels.”

I’m not sure what you are saying. What makes you think that locals will have a say in the level of funding that they must step up and pay for teacher pensions. It will still be dictated to them by the state. I can’t see every school district potentially having a different level of benefits.

Comment by Kerfuffle Monday, Jan 30, 12 @ 9:14 am
For anyone who claims that the schools are the emplore for the local teachers- that is not what the pension code says- The State is the employer for pension purposes for all down-state and suburban Teachers as the term is defined in the pension code- If Illinois dictates the terms of the benefit, Illinois should beresponsible for the “employer” contribution and that is exactly what the law says

Comment by Sue Monday, Jan 30, 12 @ 9:24 am
FDR was right Government workers should not be allowed to origanize. Look what it has gotten us,pensions at 50 years old.Over a dozen paid holidays,3to4 weeks vacations.The best health care
money can buy.Little to no chance of ever getting
fired.And politicans who are fat cats and have taken a parttime job, and given themselves the same privilages. Just look in the mirror and you know who is paying for all this.We all know who in Springfield put this system in place,the same people who are lecture us today.More is never enough for this group.Our kids are getting the shaft, with art and music being cut.We get BS’ed
that catsup is a vegetable, they take us for complete idiots.

Comment by mokenavince Monday, Jan 30, 12 @ 9:47 am
As the law currently stands, any contributions schools make to TRS would need to come from the Ed Fund. The Ed Fund rate can only be raised by referendum which is pretty unlikely. If the rate cannot be raised, the TRS money will come out of the classroom, which, in many schools, is not exactly well-funded.

This means that any law shifting TRS payments to local districts would need to include language allowing the money to come out of the same fund as social security and IMRF. That fund is uncapped, but is limited by the amount needed to make the legally required payment.

So far, so good. Except that there are still property tax caps of various sorts that still put barriers to districts raising revenues to pay this new cost without hitting the kids in the classroom.

To solve that last item, the GA will need to create some sort of one or two year holiday from tax caps so school districts can realign their property tax streams.

All this is happening when property tax revenues are flat or falling due to the recession.

If not done with proper care, this shift could send many districts into an even more serious financial situation than they are already in.

And, before someone spouts off on irresponsible school boards and profligate spending. I suspect that most districts spend their money very carefully.

Comment by Pot calling kettle Monday, Jan 30, 12 @ 9:51 am
Currently, local education districts (less than 500k population) have the ability to levy for Illinois Municipal Retirement Fund (See 40 ILCS 5/7-171).

But I don’t know if the IMRF applies to teachers, or just non-teaching employees.

Would this be an additional local property tax levy where the funds would be collected locally and distributed directly to the State TRS for administration?

That would be an interesting “Sell” job….

I could see why the locals would be really upset (apart from a potentially substantial increase in local property taxes) when they find out that a portion of their local property taxes are being sent to a pension board where the local taxpayers have little, if any say in how things are being administered.

The teachers unions may not want the additional “visibility” that tends to come with funding from local property tax money. In my experience, when you get substantial funding from local property taxes, visibility and questions tend to increase - dramatically.

Comment by Judgment Day Monday, Jan 30, 12 @ 9:55 am
–FDR was right Government workers should not be allowed to origanize–

That’s revisionism, Vince, by right-wingers who can’t read based on a letter FDR wrote to the National Federation of Federal Employees (an organized group of federal employees, no less).

In the letter, FDR expresses support for public employees right to organize for the purpose of bargaining for wages, benefits, working conditions, etc., but without “militant tactics” such as strikes.

http://www.presidency.ucsb.edu/ws/index.php?pid=15445#axzz1kxSoZldJ

Comment by wordslinger Monday, Jan 30, 12 @ 10:12 am
Lots of finger pointing going around. Don’t you also have to consider the amount of state funding going to the various schools systems? The dollars per student coming from the state to Chicago dwarf those coming to the suburban districts.

It would not surprise me that the amount required to fund the retirement systems would nearly equal the state’s contribution to the suburban school districts.

The bottom line is that benefits were over promised and funds deposited to pay those benefits were insufficient.

Comment by Plutocrat03 Monday, Jan 30, 12 @ 10:32 am
I am a new to Illinois. I find the property taxes are higher than other states I have lived. In previous states we were able to vote on property tax increases, or vote on the passage of the school districts budget. Are there any provisions like this in Illinois, or are the tax caps the only controls on school spending?

Comment by Anonymous Monday, Jan 30, 12 @ 10:48 am
I don’t know suburban and downstate propert taxes are already pretty high. No easy way out of this one. I am shocked that Chicago already pays these costs.

Comment by Fed up Monday, Jan 30, 12 @ 10:51 am
Wordslinger… one sentence in the letter you provided, “The very nature and purposes of the Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.”, seems to belie your interpretation.

Comment by Today Monday, Jan 30, 12 @ 10:56 am
Madigan omits the money CPS gets from the State “off the top” topaz for Pension and other expenses that other schools don’t get.
Very selective memory on the Speaker’s part.
I guess he also didn’t mention the extra 10% charge(to make up for the State”s under funding pensions) the State hits school districts with on teacher being paid under federal total 1 money. So if you get title money, you lose 10% of anything going into salaries because the state has under paid pension for so long.

Comment by frustrated GOP Monday, Jan 30, 12 @ 11:36 am
===Madigan omits the money CPS gets from the State “off the top” topaz for Pension and other expenses that other schools don’t get.===

Per capita, it’s nothing in comparison.

Comment by Rich Miller Monday, Jan 30, 12 @ 11:44 am
Today, that’s why you should read the letter in full.

Comment by wordslinger Monday, Jan 30, 12 @ 11:54 am
==Today, that’s why you should read the letter in full.==

Why do that when quote mining provides good, high-grade material?

Comment by Pot calling kettle Monday, Jan 30, 12 @ 12:31 pm
Kettle and slinger….I have read it fully and I still can get to your conclusion. I think your “stretch” is farther than the other side. I think FDR was adding another argument for his opposition.

Comment by Today Monday, Jan 30, 12 @ 12:57 pm
the state of illinois already owes our school district money. so how can we now owe them /

Comment by buck Monday, Jan 30, 12 @ 1:05 pm
What problem was the government trying to solve when they picked up a share of suburban and downstate pension costs. There must have been some reason. Was the idea that it would free up more local tax dollars for direct educational costs-more teachers, and so on.

Of course there is no bill yet, but I wonder if this wouldn’t have the effect of increasing the funding disparities between school districts. The districts might not be able to pass all the costs onto taxpayers, affluent suburbs yes but less affluent suburbs might have difficulty coming up with the money so would skimp on other things.

Comment by Cassandra Monday, Jan 30, 12 @ 1:21 pm
For all of the regulars on this site who have taken to bashing what Scott Walker and Chris Christie have been doing in WS and NJ, you should read the two articles in Saturdays Wall Street Journal which focused on the fiscal turnaround which has transpired in those states- Both NJ and and WS have achieved balanced budgets. (NJ is even putting through a tax reduction) As it turns out, challenging the public sector unions and tackling employee health insurance and pension contribution levels actually results in major savings to the taxpayers. Contrast all of this to our situation and our governor who continues to look for new ways to spend money we don’t have

Comment by Sue Monday, Jan 30, 12 @ 2:32 pm
Sue, you do realize that NJ “balanced” its budget by skipping pension payments, right?

Comment by Rich Miller Monday, Jan 30, 12 @ 2:33 pm
LOL. Rich, you and your pesky “facts”.

Wisconsin has also posted six straight months of job losses since Walker’s budget was enacted. Hurray for a “balanced budget.”

Comment by Yellow Dog Democrat Monday, Jan 30, 12 @ 5:59 pm
Frankly, I think its way past time for the State of Illinois to stop acting as a pass through for local government revenue in most cases. The lack of transparency and accountability is appalling.

Want to make sure your sales tax dollars are wisely spent? Good luck. A hefty chunk is passed through to local government to provide discretionary spending. Part of it goes in the pocket of the retailer who collects it to cover the cost of calculating, collecting and forwarding the taxes. Which is all done electronically.

Comment by Yellow Dog Democrat Monday, Jan 30, 12 @ 6:06 pm
I live in DuPage. My tolls just almost doubled. Sorry no freeways out here. My Metra pass goes up 35% in 2 days. After going up 10% a year or so ago. In a zero inflation economy. Since PQ has been governor, my income taxes went up 60 some % and fees even more. Now he’s got his progressive eyes on more tax breaks for lower income, which means higher taxes for the middle class, either immediately or down the short road.

MJM has gerrymandered the State. Experienced R politicians are not running again. The ones who are still ’safe’ have made no public outcry about all the cost increases targeting the suburbs. PQ will be gov for almost 3 more years.

So go ahead Mr. Madigan. Why not?

Comment by park Monday, Jan 30, 12 @ 6:24 pm
So, are local schools to be an activity of local governments or the state? Recall that some in Chicago have filed a lawsuit arguing that they’re not getting a “fair share” of state funds for their schools. But, then I read arguments that suggest that the suburban and “downstate” (how I hate that word) districts are being funded by the state inappropriately, ie, teacher retirements.

Let us be consistent and clear as to what is the state’s and what is the local community’s.

Comment by Peggy R/Southern Tuesday, Jan 31, 12 @ 9:36 am
It’s only partially true that Chicago funds its own teacher pension plan. According to the last Chicago pension plan report it was 66.9% funded as of FY2010. And it’s being deliberately underfunded by state law for 2011, 2012 and 2013. The FY2010 annual report says “the anticipated impact of the legislation is a decrease in the funding level to 58.3% in fiscal year 2011.”

As Plutocraft03 alluded to there is also a significant piece of the puzzle missing from the discussion about Chicago and other teacher pension systems. The missing piece is the amount of non-pension funding school districts receive from the state.

Illinois has a complex funding formula that reduces funding for “property rich” districts. Following are some examples of Illinois state funding per student for FY2010:
- State-wide average except Chicago: $2,730
- Chicago: $4,201
- Springfield SD 186: $3,535
- Palatine CCSD 15: $1,596 (northwest suburban Cook County where I’m a school board member)

Non-Chicago districts often have significantly higher property tax rates in part to make up for less funding from the state.

To put the non-pension funding into perspective, the FY2010 actuarially required contribution for the Chicago pension plan calculates out to $1091 per student (total of $393 million).

Comment by Scott Herr Tuesday, Jan 31, 12 @ 11:06 am
Like Scott Herr I live in CCSD-15. Madigans plan is a nothing more than another tax increase on top of the 67% increase in the State Income Tax.

The state, that would be the taxpayers, has been contributing $2.0 billion per year to the TRS. Now Madigan wants to shift that to the local community and I haven’t heard a word about an income tax reduction since the state would no longer have the funding responsibility for TRS. Moreover, I don’t expect to hear one. All commenter’s need to look at their school budgets and see exactly how many tax dollars go to the TRS and what portion is paid for by Springfield, and I’ll say it again, by the tax payers through their income taxes. In CCSD-15 that number is on the order of $17 million dollars. If we pick up that responsibility, that means an immediate Property Tax increase of 12% for the residents of the District. And that’s just for D15. We’ll probably see the same increase in the amount levied for D211.

Contact your State Rep and Senators and tell them you don’t want a 12% property tax increase.

Comment by Joe Heater Tuesday, Jan 31, 12 @ 1:32 pm