HR 1267 (Pension Cost Shift from the State of Illinois to Local School Districts, Community Colleges, and Universities)

House Sponsors:
Rep. David McSweeney - Dwight Kay - Jay Hoffman - Wayne Rosenthal - Jerry F. Costello, II, Jack D. Franks, Ed Sullivan, Jr., Brandon W. Phelps, Kay Hatcher, Rich Brauer, Donald L. Moffitt, Charles E. Meier, Raymond Poe, Michael W. Tryon, John M. Cabello, C.D. Davidsmeyer, Chad Hays, Bill Mitchell, David Reis, Brad E. Halbrook, Joe Sosnowski, Jil Tracy, Mike Bost, Norine Hammond, Adam Brown, Josh Harms, Dennis M. Reboletti, Ron Sandack, Barbara Wheeler, Patrick J. Verschoore, Tom Demmer, Michael P. McAuliffe, Robert W. Pritchard, John D. Cavaletto, Michael Unes, Darlene J. Senger, Dan Brady, Sandra M. Pihos, Mike Fortner, John D. Anthony, Patricia R. Bellock, Sheri L Jesiel, Timothy L. Schmitz, Emanuel Chris Welch, Thomas Morrison, Brian W. Stewart, Mike Smiddy, Linda Chapa LaVia, Deborah Conroy, Jeanne M Ives, Keith P. Sommer and Sam Yingling

Last Action:

Date	Chamber	Action
11/19/2014	House	Referred to Rules Committee

Synopsis As Introduced:
States the opinion of the Illinois House of Representatives that the proposed educational pension cost shift from the State of Illinois to local school districts, community colleges, and institutions of higher education is financially wrong.

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1		HOUSE RESOLUTION
2		WHEREAS, A proposed educational pension cost shift, which
3		would shift the cost burden from the State of Illinois to local
4		school districts, community colleges, and institutions of
5		higher education, is under discussion; this proposal would
6		require all employers of members in the Teachers' Retirement
7		System and the State Universities Retirement System to pay the
8		normal cost of pension benefits earned; and
9		WHEREAS, If this proposal were to become policy, for the
10		Teachers' Retirement System and the State Universities
11		Retirement System, it would potentially move $10.187 billion in
12		estimated normal costs of pension benefits earned from the
13		State to local school districts, community colleges, and
14		institutions of higher learning over a 10-year period;
15		actuarial changes recently made by these 2 systems will further
16		increase these numbers; and
17		WHEREAS, This plan would move these spending commitments
18		from one taxing body, the State, to a group of taxing bodies,
19		the school districts and community colleges, while additional
20		pension costs would be shifted to State universities; and
21		WHEREAS, A pension cost shift would lead to a massive
22		increase in local funding requirements on school districts; the

HR1267 - 2 - LRB098 22670 GRL 61643 r
1		cost shift would exacerbate the problem of adequately funding
2		our local schools by taking even more when districts, teachers,
3		and local voters are fighting to simply keep educational
4		opportunities open to our students; in addition, a pension cost
5		shift would likely lead to massive property tax hikes or to
6		classroom cuts that will harm our students; and
7		WHEREAS, According to the Illinois State Board of
8		Education, 67% of school districts in the State are operating
9		in the red; and
10		WHEREAS, School districts already bear a large share of the
11		Teachers' Retirement System pension burden by paying a
12		statutory share of the System's total contribution costs,
13		constituting 0.58% of pensionable teacher payroll; districts
14		also contribute towards any locally-negotiated early
15		retirement options and for the pension costs of certain
16		increases in compensation, totaling $92.5 million in Fiscal
17		Year 2012; and
18		WHEREAS, Representatives from Northern Illinois University
19		publicly stated that if the cost shift were to be covered by
20		increasing tuition on parents and students, each percentage of
21		payroll cost shifted to the university would translate into a
22		2% tuition increase; this proposed cost shift would also
23		increase the liability of State-funded universities and all

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1		community colleges, thus making higher education even more
2		unaffordable for students and their parents; and
3		WHEREAS, This plan would harm the interests of all
4		taxpayers, especially in downstate and suburban areas and would
5		sharply increase inequities created by the current school aid
6		formula between Chicago and the rest of the State; because of
7		the impact on institutions of higher education, Chicago
8		taxpayers, parents, and students would also be affected;
9		therefore, be it
10		RESOLVED, BY THE HOUSE OF REPRESENTATIVES OF THE
11		NINETY-EIGHTH GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, that
12		we state our belief that an educational pension cost shift is
13		financially wrong and would only serve to shift pension burdens
14		from the State to the status of an unfunded mandate.

Pension Cost Shift Commentary:

Furthermore, 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 in for a few 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… (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 almost six 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.