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Will Gov. Rauner’s cost-shift help wealthier schools and hurt poor districts?

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* Dusty Rhodes on the governor’s cost shift proposal…

Because Chicago Public Schools have traditionally paid their own pensions, the new law incorporates normal pension costs into the calculation of each district’s financial needs, called the “adequacy target.” A cost shift would require recalculating funding targets for all 850 districts, and could drastically change the amounts each district would get.

Although there’s no published models of how such a change would affect each district, Manar predicts that it would end up sending more state aid to wealthy districts, and less state aid to poor districts. That’s because wealthy districts tend to pay higher salaries to their teachers and administrators, and therefore have higher pension costs. Lower-income districts, on the other hand, tend to have lower salaries and higher teacher turnover rates, resulting in lower pension costs.

If those numbers are rolled into the formula, wealthy districts will “appear needier” and thus get more state aid, while poor districts will “appear wealthier,” and get less state aid.

Wow.

* I asked around yesterday afternoon to see if this was a real possibility. From the Center for Tax and Budget Accountability…

We haven’t actually run any numbers to see for sure, but it would certainly make sense based on how the model works, for exactly the reasons laid out in the article.

* Illinois Federation of Teachers…

We agree. All districts would show up as farther from adequacy (“needier”), but particularly the wealthier districts with higher salaries.

* Jessica Handy at Stand for Children Illinois…

The introduced budget is a net cut to education, violates the carefully-negotiated funding formula fix, and singles out Chicago to absorb the cost shift immediately while other districts have a 25% shift this year. So that’s not the way to accomplish it. But, we are very open a gradual cost shift if – and only if – the entire amount of savings in the TRS contribution is invested in the formula on top of the required $350 million increase. That’s because we know that the state picking up teacher pension costs across the board is an inequitable way to deliver state funds to schools.

The new funding formula accounts for the cost shift in the definition of adequacy by adding the exact cost that TRS certifies to each district’s adequacy target calculation. As a result, every district will look (and, indeed – be) less adequately funded. Some districts – the richest ones – will have that added into their adequacy target and still have enough local capacity to cover it and still be fully funded. But generally yes – as Manar told NPR – districts with higher payrolls will have a higher amount added to their adequacy target calculation, and districts with lower payrolls will have a lower amount added. We know that the state paying TRS is incredibly inequitable. It is better to put that money through EBM, even while recognizing it will make every district look less adequately funded with wealthier districts having a bigger gap. The formula covers that gap by a combination of state and local resources, so those with more local wealth will be expected to cover a greater proportion of the costs locally – which is better than the state paying the whole thing for everyone.

In retrospect, it would have perhaps been more true to the principles of the Evidence-Based Model to accomplish this normal cost adjustment to the adequacy calculation by including normal cost as a percentage of the payroll assumed for each district through the EBM inputs, rather than using actual costs, because EBM uses average/best-practice salaries, class size ratios, numbers of positions, etc. and leaves the actual expenditure to the locals. Thus, if a richer district has higher salaries and more experienced teachers and a higher payroll, its benefit costs would stay in line with EBM’s adequacy levels, rather than rising up to match whatever the district actually spends.

* Advance Illinois…

The pension cost shift in the Governor’s proposed budget doesn’t bring districts closer to adequacy and equity and perpetuates a system that overly relies on local sources for funding of education. Under the proposed cost shift in the Governor’s budget, all district adequacy targets will increase, and wealthier districts will likely see their targets increase more. Even with new dollars going into the formula almost all districts will be less adequately funded, but that doesn’t necessarily cause them to get additional funding through the formula.

Districts will also be expected to contribute more to the formula from local property taxes. However, districts with less property wealth and greater student need will see less of an increase in their local contributions than wealthier districts.

Whether a district will get more or less new state money is dependent on both how much their adequacy target goes up and how much their local contribution goes up. We believe that the Governor’s proposal will mean that poor districts could get somewhat more money out of the formula, but this will be offset by the money districts lose from having to pay their own pensions.

* The AP also has a cost-shift story…

Schools argue that picking up the tab would have devastating effects and exacerbate inequity, which last year’s funding change aimed to end. Educators said it would undo many of the effects of that evidence-based funding model, which gives needier districts extra money for educational services.

“The governor just poured water on our campfire,” said Tony Sanders, CEO of Elgin School District U-46. He said that if his district — the state’s largest outside Chicago — doesn’t raise property taxes, it would have to cut programs just to “make ends meet.”

posted by Rich Miller
Friday, Feb 16, 18 @ 10:06 am

Comments

So a rich guy wants to punish kids for being poor. Why is anyone surprised?

Comment by Cheryl44 Friday, Feb 16, 18 @ 10:10 am
So CTBA’s Ralph Martire, who wrote the new formula, doesn’t know how this would impact things. Sounds like a “pass it to find out what’s in it” situation.

Comment by Anonymous Friday, Feb 16, 18 @ 10:12 am
Anon 1012, this is a Rauner proposal, not a CTBA proposal so not sure why you’re taking a shot at Ralph.

Comment by Chicago Cynic Friday, Feb 16, 18 @ 10:15 am
I really can’t, maybe I can, believe that Rauner proposed this. It is an idea that the speaker has worked on for years. The speaker knows the arguments for and against. He is going to be the maestro for the symphony of criticism against the governor for the next several weeks on this issue.

Comment by 360 Degree TurnAround Friday, Feb 16, 18 @ 10:16 am
=== We know that the state paying TRS is incredibly inequitable. ===

That’s because the state pays the most for teachers from rich districts with the highest salaries, using tax revenues paid by most people in the state who don’t live in rich districts.

Comment by anon2 Friday, Feb 16, 18 @ 10:20 am
Anon1012, I fixed your typo:

So . . . [Bruce Rauner’s staff] . . . who wrote the new formula, doesn’t know how this would impact things. Sounds like a “pass it to find out what’s in it” situation.

Comment by Hamlet's Ghost Friday, Feb 16, 18 @ 10:20 am
Oh, I forgot to add

#BTIA

Comment by Hamlet's Ghost Friday, Feb 16, 18 @ 10:20 am
Yep. The article is correct. Having worked on the funding formula directly myself - this will make high paying districts appear “needier” because they will have greater pension obligations based on this higher salaries.. despite that the reason they were able to offer the higher salaries is because they are wealthier districts to begin with. This is pension “reform” that also backdoors potentially greater percentages of funding to wealthier school districts. Good for the burbs. Not good for Chicago or downstate.

Comment by BothSidesofHisMouth Friday, Feb 16, 18 @ 10:21 am
Clearly an attempt to circumvent the EBM’s most critical attribute, the movement toward equity for the poorest would be crushed. Plus, the cost of the pension benefits being shifted were CREATED and enacted by the general assembly. Cost shift and an attempted blame shift all in one. If there is any agreement on school districts assuming any part of the cost, school districts and not the G.A. Should be in control of the benefit costs- the G.A. Ran up the pension cost an now wants to dump the tab on local tax payers- disgusting!

Comment by Elliott Ness Friday, Feb 16, 18 @ 10:22 am
Comfort the comfortable and afflict the afflicted. That’s the Rauner way.

Comment by hisgirlfriday Friday, Feb 16, 18 @ 10:23 am
=So CTBA’s Ralph Martire, who wrote the new formula,=

Martire did not write the new formula. Not even close. The Evidence Based Funding Model is based on research done by professors from National Louis University.

Martire was involved in discussions, but it was not written by him.

To the post- It was known by those involved early on that a cost shift would change the funding distribution if pension costs were allowed to be part of the calculation of local (normal) costs.

It was unknown what would actually be in or out of the formula once the politicians got their hands on it. They changed a number of factors, not due to research, but to drive down the cost of the EBM.

25% a year is a non starter though. A longer ramp would be tough, but far more doable.

I have mentioned before that Madigan has wanted cost shift for years and is opposed (or was) to allowing schools the option to levy for pension costs.

As I have told many of my colleagues in k-12 education, there really are no hero’s out there in state government looking out for kids.

Comment by JS Mill Friday, Feb 16, 18 @ 10:23 am
How about this: Phase in the cost shift over several years based on salary. For instance, in year one, the district covers employer contributions for the portion of any salary over 100k. In year two, the district covers the contribution for salary over 90k, then 80k the next year, and so on. And each year, the state pumps its saved TRS costs back into the formula.

This would help address funding inequities in the current system and gradually move employer pension costs back to where they belong — with the actual employer. Though, it won’t do anything to help address the state’s budget issues because the pension savings to the state will be sent back to the school.

Comment by BC Friday, Feb 16, 18 @ 10:29 am
I took two points away from this article. First, the system where the state picks up teacher pensions helps high cost systems more than low cost systems. Naperville benefits more than Paxton. Second, the cost shift highlights the effects of the current system.

The cost shift cuts no taxes but does change who pays. One side effect of higher property taxes is that retirees will pay more. Whether that fully offsets not having pensions and IRA distributions taxed will vary by person.

With the new $10,000 federal limit on deductions for state income taxes and residential property taxes, the after tax cost of funding schools in areas like New Trier and Naperville just got a lot higher. This will increase pressure on school boards to control costs.

The limit on tax deductibility of large mortgages will put reduce prices of more expensive homes. Add in the home price reductions that come from higher interest rates and there will be a lot of high income/high wealth people feeling squeezed.

Comment by Last Bull Moose Friday, Feb 16, 18 @ 10:37 am
How do you like them apples, Downstate voters?

You realize that you are the GOP base, correct?

Comment by wordslinger Friday, Feb 16, 18 @ 10:38 am
==a lot of high income/high wealth people feeling squeezed==

The folks who wrote the federal tax bill to advantage them in almost every conceivable way would be pretty taken aback to hear that

Comment by PJ Friday, Feb 16, 18 @ 10:42 am
==It is an idea that the speaker has worked on for years. The speaker knows the arguments for and against. He is going to be the maestro for the symphony of criticism against the governor for the next several weeks on this issue==

360, this is highly misleading. While I regret having to defend the speaker on anything, his plan for the shift was a smaller total amount over a long period in small increments of like 0.5% per year. Plan offered by GovJunk is a higher total amount at a much higher rate in a much shorter period of time. See Rich’s reply to a commenter in the “Fun with numbers: cost shift” post yesterday. The two plans are only similar in that they deal with the same idea.

Comment by Lester Holt’s Mustache Friday, Feb 16, 18 @ 10:47 am
=the movement toward equity for the poorest would be crushed=

I don’t think this is a good idea, but the rhetoric is getting to be a bit much. The formula was built to pick up an additional (over the previous year) 350 million bucks every year. That increase would more than cover the amount, in theory, each year of the 25% switch. A major stall to the process of getting to equity for sure, for four years.

There is a simple fix. Change the section of the law that lets the districts count pension payments in their adequacy target. Let the new money go into the model. Rich districts would be hit hardest, poorer districts would get far more in new EBM money than they would pick up in pension costs.

Comment by m Friday, Feb 16, 18 @ 10:54 am
Word, good try, but too many “base” voters are more responsive to the rhetoric than the facts of how the policy actually impacts them. Of course you know that sad fact.

Comment by Norseman Friday, Feb 16, 18 @ 10:58 am
=The two plans are only similar in that they deal with the same idea.=

Or put another way: They are only different in the speed at which they would accomplish the same thing.

Comment by m Friday, Feb 16, 18 @ 11:07 am
===a lot of high income/high wealth people feeling squeezed===

… The folks who wrote the federal tax bill to advantage them in almost every conceivable way would be pretty taken aback to hear that …

Actually no, the top 10% of the top 1% are quite eager to squeeze those in the .990 to .999 percentile.

Comment by Hamlet's Ghost Friday, Feb 16, 18 @ 11:09 am
Illinois with the worst school funding in the nation and a plan to make it even worse.

Comment by Tequila Mockingbird Friday, Feb 16, 18 @ 11:10 am
—-This would help address funding inequities in the current system and gradually move employer pension costs back to where they belong

I think there is some confusion over the problem here. Regardless of the timeline if you shift the burden back to school districts, wealthy districts that pay teachers more are going to be shown in more need than poorer districts. This will then shift funding towards those wealthier districts. The only way to fix this would be to change the funding formula we just passed. Good luck with that.

This is another example of BTIA not having any idea of what they are talking about when it comes to actual policy and not even bothering to understand unintended consequences.

Comment by ArchPundit Friday, Feb 16, 18 @ 11:15 am
The Stand response starts to get at the real issues here, or what ought to be the real issues. For years there has been a misalignment of interests between the state and school districts, which has allowed school districts to essentially throw obligations over the transom onto the state; the state has at times succeeded in curbing or redirecting that practice, but has never fundamentally made districts responsible for their own choices when it comes to pensions. Relatedly, the districts that have the highest costs and are most effective at throwing expenses over the transom have been the districts in the wealthiest communities — which means that our current pension system is a regressive form of expenditure. Governor Rauner and Speaker Madigan have at times correctly identified the misalignment of interests, which fundamentally the state ought to solve. However, in solving that problem it should act to make sure that the new system is not itself regressive, especially now that there’s a school funding formula that’s at least less regressive than the old one.

From a political standpoint, the real alignment of interests here should be between downstate and lower-income cities, against the wealthier suburbs. But that’s a hard coalition to put together, especially when Chicago has an arrangement that’s different than the rest of the state.

The bottom line is that a sensible pension system would provide some baseline funding that guarantees support to educators in low-income districts, and allows wealthier districts to provide richer pensions at their own expense. But it seems incredibly unlikely that we can get there from here in this political moment.

Comment by Cornerman Friday, Feb 16, 18 @ 11:16 am
–Or put another way: They are only different in the speed at which they would accomplish the same thing.–

LOL, yeah, .5% a year, vs. 25% a year. What’s the big deal? Virtually no difference at all.

Comment by wordslinger Friday, Feb 16, 18 @ 11:17 am
A couple points here:

1.) A cost shift isn’t pension reform… it is really like spending reform for the state. Or even a salary dump to make room for high priced free agent. The state benefits at the expense of local government.

2.) As stated eloquently by others above, the net effect is more formula dollars going to schools with higher salaries.

3.) Speaker Madigan was the first to propose this cost shift.

Comment by Baggs McCoy Friday, Feb 16, 18 @ 11:20 am
And to be clear, individual school districts are doing exactly what they should given the rules of the game.

Comment by Cornerman Friday, Feb 16, 18 @ 11:22 am
Rauner’s class war continues.

Comment by Precinct Captain Friday, Feb 16, 18 @ 11:40 am
Martire’s response that he wants to check the numbers before giving a definitive answer, is typical of him, and highly responsible.

Comment by walker Friday, Feb 16, 18 @ 11:55 am
== This is another example of BTIA not having any idea of what they are talking about when it comes to actual policy and not even bothering to understand unintended consequences. ==

That statement assumes the Governor and his crew truly want to improve school funding

What if they fully understand the implications and don’t care?

Comment by RNUG Friday, Feb 16, 18 @ 12:02 pm
== wealthy districts that pay teachers more are going to be shown in more need than poorer districts. ==

True, but we could modify the formula so that pension payments don’t count as local effort.

Comment by BC Friday, Feb 16, 18 @ 12:04 pm
–That statement assumes the Governor and his crew truly want to improve school funding

What if they fully understand the implications and don’t care?–

I think every ounce of effort that GOMB and BTIA(TM) put into drafting the proposed budget was geared toward producing that “billion-dollar tax break” line for the TV spot that was already in the can.

Beyond that, the proposed budget is meaningless.

It was a massive use of government resources for partisan political purposes.

Comment by wordslinger Friday, Feb 16, 18 @ 12:07 pm
===What if they fully understand the implications and don’t care?

Good point.

—Beyond that, the proposed budget is meaningless.

Why does he even want a second term other than his ego would be bruised?

Comment by ArchPundit Friday, Feb 16, 18 @ 12:08 pm
===So CTBA’s Ralph Martire, who wrote the new formula, doesn’t know how this would impact things. Sounds like a “pass it to find out what’s in it” situation.

You know what Ralph didn’t do? Profit off of his 501(c)3

Comment by ArchPundit Friday, Feb 16, 18 @ 12:11 pm
–Why does he even want a second term other than his ego would be bruised?–

I think it’s been an ego trip from Day One. He spent a lot of money on politicians in his pay-to-play days, and decided he’d buy some of that status for himself in his retirement: motorcades, bodyguards, not just another rich guy.

Comment by wordslinger Friday, Feb 16, 18 @ 12:13 pm
@ anonymous at 10:12, Writing the formula and knowing how randomly changing inputs affects the results are not the same thing. The response literally said “We have not actually run any numbers to see for sure…” which is completely, completely, different from saying they don’t understand the formula/bill.

Comment by Perrid Friday, Feb 16, 18 @ 12:18 pm
The state should be paying for benefits created at the local level.

Comment by Ron Friday, Feb 16, 18 @ 12:33 pm
SHOULD NOT be doing that, sorry

Comment by Ron Friday, Feb 16, 18 @ 12:40 pm
Wonder what the folks that wrote most of the EBM think? What about the other legislative sponsors of EBM…what do they think?

Comment by Truckin' On Friday, Feb 16, 18 @ 1:31 pm
When Diana and Bruce Rauner chose to clout their denied Winnetka-living daughter over a worthy Chicago student…

That’s the last time Bruce and Diana Rauner chose a “poor” school district over a wealthy one “New Trier”

… and that was because they wanted “better for Me, too bad for Thee”

Comment by Oswego Willy Friday, Feb 16, 18 @ 2:11 pm
So Bruce “The only strategy I got is to Demonize Mike Madigan” Rauner steals Mike Madigan’s idea?
Media?
Tribune?

Comment by Winnin’ Friday, Feb 16, 18 @ 2:12 pm
Ron-

The STATE created the TRS benefit system not the local schools…get your facts straight- the state is now trying to shift the cost of this benefit to local districts after creating the cost. Ordered an expensive meal and want to walk out on the check.

Comment by Elliott Ness Friday, Feb 16, 18 @ 3:25 pm
Elliott, thanks for that. Illinois needs to stop doing things that make no sense.

Comment by Ron Friday, Feb 16, 18 @ 3:45 pm
== The state should not be paying for benefits created at the local level. ==

Exactly what pension benefits in the state controlled and ran TRS pension system were created at the local level? Please be specific when answering …

Comment by RNUG Friday, Feb 16, 18 @ 4:05 pm
Teachrs in Naperville are not state employees.

Comment by Anonymous Friday, Feb 16, 18 @ 4:13 pm
RNUG,

We all know the defined benefit pension systems are established by law at the state level. The issue of the cost shift and why some people call it pension reform is it supposedly will contain costs. The idea being that if school districts had to pay for the pensions of their employees they might be more inclined to keep salary costs lower. I yes I realize you are this blogs pension expert so this explanation was for others not you.

Comment by Baggs McCoy Friday, Feb 16, 18 @ 5:10 pm