Shifting the “Normal” Cost of the Pension Systems to School Districts, Universities and Colleges = “Massive Property Tax Increases”

“House Resolution 1267, filed Wednesday by state Rep. David McSweeney, R-Barrington Hills, opposes the idea of moving pension costs of the retirement systems for public school and university teachers from the state to the districts and colleges themselves over a 10-year period. Thirty-seven suburban and downstate House lawmakers, mostly Republican but with several Democrats, had signed on as of Friday evening.

“McSweeney said he is concerned the idea could come back as soon as the fall veto session starting next month, as part of a Senate plan to rewrite the funding formula for public schools. He warned it could also arise as a potential ‘fix’ if the Illinois Supreme Court rules that a pension reform bill passed in late 2013 to help get a handle on the state's ballooning public pension liability is unconstitutional.

“‘My immediate concern is [a cost shift] could result in massive property tax increases,’ McSweeney said. ‘If you are shifting a large cost, an unfunded mandate, to local government, that would impede their ability to be financially healthy.’

“…House Speaker Michael Madigan and Senate President John Cullerton, both Democrats from Chicago, favor a cost shift. Madigan has said that suburban and downstate school districts and colleges have been enjoying a ‘free lunch,’ alleging that state taxpayers are paying the pensions of workers whom he said are not state employees… Madigan had considered pushing for cost-shift legislation in the pension reform bill, but backed off after it became apparent that he would lose critical votes.

“But McSweeney said it could come back after the Nov. 4 election, or in the January lame-duck session when the number of votes needed to enact immediate legislation drops back to simple majority instead of the three-fifths required in fall veto session. He said one possible avenue could be Senate Bill 16, which seeks to overhaul the school funding formula by making more than 90 percent of total state education funding distributed based on poverty levels. The bill passed the Senate in the last days of spring session and is now in the House. 

“More than 60 percent of Illinois school districts have budget deficits, according to Illinois State Board of Education data. Credit rating agency reports have indicated that a cost shift could increase budget pressures and adversely affect districts' ratings, which would increase districts' cost to borrow money. Lawmakers return to Springfield for the veto session November 19.” 

from Illinois Rep. David McSweeney warns about teacher pension cost shift attempts by Kevin P. Craver

Commentary: 

If Illinois policymakers pass a bill to shift its responsibility of paying the “normal costs” to local school districts, many school districts would not be able to afford to pay these costs, even if they are phased over the years. 

“A shift would create a new and large financial requirement for school districts, which would be difficult for many to meet. Moreover, Illinois ranks last in terms of state spending on K-12 education, and school districts are already relying heavily on local property taxes. Shifting the state’s normal cost obligation onto school districts would only mean that an even higher proportion of school districts’ revenue would come from property taxes.

“[Furthermore,] property tax bases would not be sufficient to absorb any shift in the employer normal cost for teacher pensions…  School districts are demographically and financially varied, and it would be difficult to impose a uniform normal cost shift on them… Illinois ranks last in terms of state spending on K-12 education, and school districts are already relying heavily on local property taxes… While shifting the state’s normal cost obligations onto school districts may provide some relief to the state’s budget, it will not mitigate these financial obligations and will instead push them onto school districts that, on average, already derive the majority of their revenue from local sources” (The Center for Tax and Budget Accountability, March 2012).
 
What would be other probable effects? In cash-strapped school districts, of which there are many, teachers would not receive increases in their salaries; many teachers would lose their jobs; student programs would be reduced or eliminated; class sizes would increase; it would be more difficult to recruit, as well as retain and attract, the best teaching candidates (which is already happening)… (Education Sector Policy Briefs).
 
The public school system in Illinois would be jeopardized; the public school teacher’s dignity and guaranteed retirement security would be imperiled, and their students’ right to be taught by the very best teachers available in Illinois would be at risk.
 
Approximately one-third of the total pension payment is the normal costs; the other two-thirds of the payment is the interest owed on the debt that the state created for not fully funding the pension system for several decades. To transfer the normal costs of the teachers’ retirement system to the school districts is to diminish the state’s role in providing income retirement security to its public employees, which has been the (Democratic-controlled) state’s intention all along (Pension Cost Shift).