Belleville News Democrat
Guest view: If schools pay pensions, we all benefit
Monday, May 14, 2012
School districts in Illinois are grappling with a new reality: They soon may be asked to pay their own pension costs.
For decades, Illinois state government has covered most of the "employer share" of teacher and administrator pensions -- something not every state does. This subsidy has had massive, and now dire, consequences on state finances.
Despite a record tax increase in January 2011, state aid and other grant programs for education are facing cuts to pay for the increasing costs of pensions.
There are clear losers when the state cuts grant programs: districts that are the focus of General State Aid and the other anti-poverty programs that make up a majority of the state's education budget. Belleville 118, for example, counts on state grants for almost 40 percent of its budget.
A recent Illinois Policy Institute study shows who wins when the state pays districts' pension costs: the big-spending, wealthy districts that can afford to hire more teachers and pay them higher salaries. Most of these districts are in the Chicago suburbs. Most of these districts that receive the least pension assistance are far downstate.
Take Smithton District 130, for example. It receives a subsidy worth $295 per pupil when the state pays its pension costs. Belleville 118 also is below the average, getting $431 in state help. Compare that to Sunset Ridge District 29 in suburban Cook County, one of the wealthiest districts in the state. There, the state spends $984 per student on pension subsidies.
These facts beg the question: Should taxpayers in Belleville be paying higher state taxes to finance a program that sends money to school districts perfectly capable of supporting themselves?
No. Districts must become responsible for their own pension costs. Not only is it fair, it's fiscally responsible.
Opponents of local pension accountability have threatened layoffs, program cuts and even property tax increases if districts are asked to absorb this cost. Do any of these things need to happen? The short answer also is no.
First, the average cost to school districts across Illinois would be just 3.7 percent of total expenditures. That's not catastrophic.
Moreover, school districts in Illinois will need to tighten their belts even if the state does not enact local pension accountability. If the state doesn't trim its pension costs, it will have to cut aid to districts. The state is scheduled to pay $3.1 billion in teacher pension costs this year, but could trim $800 million by asking districts to cover the new pension benefits earned this year.
There's simply no other place in Illinois's budget to finance pension costs.
During the last five years, growth in retirement costs consumed 70 cents of every new dollar the state has spent on suburban and downstate K-12 education. Just look at higher education to see where public school money might be heading. Retirement costs will soon make up a majority of all state spending on colleges and universities.
There are many ways school districts can trim costs without a property tax increase. One way is related to pensions.
All across the state, school boards have agreed to pay some or all of teachers' personal contributions to TRS. In nearly half of districts, teachers effectively pay nothing toward their retirements. Eliminating this pick up would wash out new pension costs that most districts would take from the state. In fact, the Institute's study found that 482 out of 866 districts would see savings.
But most importantly, local accountability for pension costs would make districts more prudent when adding more employees and awarding higher salaries. It's not a coincidence that municipalities, which pay for their own pensions, have more modest salaries and pensions than school district employees.
Ultimately, the debate about the state subsidy for teachers' pensions gets to a fundamental debate about school financing in Illinois. TRS isn't the only state education program in need of reform; the General State Aid formula needs a rewrite as well.
The state has limited resources to spend on education. Illinois needs a transparent system where money follows children and rewards results. Today we have an incomprehensible system where money follows past political arrangements, with unacceptable results -- especially when it comes to poor and disadvantaged kids.
Collin Hitt is senior director of government affairs at the Illinois Policy Institute. The full study is online at: illinoispolicy.org.