SENATE GOP REEXAMINES “FREE LUNCH”
For months now it has been suggested that the state’s contribution toward teacher retirement benefits constitutes a “free lunch” for downstate and suburban schools. This week, Senate Republicans, including State Senator Bill Brady (R-Bloomington) refuted that claim after further research showed that Illinois’ system of education funding does not unfairly benefit downstate and suburban schools, as has been insinuated.
This claim has been made based on the rationale that Chicago schools pay much more toward their pension system than do downstate school districts. “Free Lunch,” was a term coined by House Speaker Michael Madigan, and perpetuated to rationalize support for a plan that would reduce state pension costs by shifting the responsibility for pension payments onto cash-strapped local school districts.
Following a thorough investigation into data provided by the Illinois State Board of Education,
Republican Senators found that though the Chicago Public School (CPS) system may bear a slightly higher financial burden for the cost of their teacher pension payments, those obligations are offset many times over by other components of school funding.
Research found that the pension payments provided by the state to downstate school districts tell only a small part of the story. In fact, when reviewing overall school funding in Illinois, the inescapable conclusion is that CPS receives far more state support through special considerations and grant lines.
Senator Brady and his Senate Republican colleagues have stressed that they are not trying to ignite a regional war, or strip Chicago schools of their funding. Their original intent was to put a rest to distracting and misleading information that threatens to derail the already precarious negotiations to find a solution to the state’s massive underfunding in the teacher’s retirement system.
However, the Senate Republican’s investigation uncovered a number of disturbing trends that all Illinois taxpayers should be aware of. The data showed that even through Chicago Public Schools (CPS) account for only around 18 percent of Illinois’ public school children, CPS receives $722 million more than it would under a fair distribution of state funding. Downstate and suburban schools, in stark contrast, education 82 percent of students and receive a substantially lower subsidy at $104 million.
Senator emphasized that there has never been any public debate over this shift in priorities. It has occurred without public oversight, and without input or approval by policy makers. Instead, bureaucratic decision makers who do not answer to the legislature or the public have quietly made changes in how state funding is allocated.
The net result is a significant budget disparity that treats Illinois’ schoolchildren different simply based on where they happen to live.
The Senate Republican Caucus sought to provide a balanced picture of where funding equity stands today. The Caucus report can be found online: “School Funding in Illinois: An Examination.”
BRADY COSPONSORS PENSIONS REFORM MEASURE
State Senator Bill Brady (R-Bloomington) has signed on as a co-sponsor of Senate Bill 2404 which would implement pension funding changes proposed by the “We Are One” pension labor coalition.
“In his budget address last week Governor Quinn repeatedly stressed the importance of pension reform. Unfortunately, while the Governor may recognized the overwhelming need to reform our indebted pension system, he has failed to lead on the issue and propose reforms,” said Brady. “In January I attended a pension summit hosted by the ‘We Are One’ coalition where various reforms were discussed. Senate Bill 2404 contains many of those reforms. While I applaud our public employee unions taking this step in the right direction, I also believe we must have a discussion about prospective COLA’s as well as future earned increases, while maintaining the constitutional mandate against reducing the benefits already earned by employees.”
While the measure would not make changes to employee benefits, it does offer several funding changes. Senate Bill 2404 would:
- Require “tier 1” employees, those hired or elected before Jan. 1, 2011, to pay an extra 2 percent of their salary in contributions to the systems. This higher contribution would be phased in over two years starting with an extra 1 percent in the 2014 fiscal year and the second 1 percent phased in a year later. This reform would apply to members of all state retirement systems, except the Judges retirement system
- Change the pension funding formula to increase state payments to the four systems beginning in the 2015 fiscal year by requiring the state to fund 100% over 30 years.
- Create a tough funding guarantee under the Illinois Constitution’s pension protection clause, allowing the systems and individuals to sue to enforce state payments.
- Require the state to make additional payments beginning in the 2016 fiscal year using funds freed up by paying off pension bonds.
“Illinois leaders have sat back too long waiting for the pension crisis to fix itself,” said Brady. “Unfortunately, irresponsible management over many years has brought Illinois’ pension system to the brink of collapse. It’s time to address these problems, make sure that our pension system is fiscally solvent, and ensure that the people who have paid into it all their working lives get the benefits they have earned.”
PENSION REFORM MEASURES ADVANCE TO FULL SENATE
As the spring session marches on, this week two pension reform measures were advanced by the Senate Executive Committee.
Senate Bill 1 sponsored by Senate President John Cullerton incorporates two choices for pension reform. The first option (Part "A") is similar to Senate Bill 35 and a bipartisan measure co-sponsored in the Illinois House by House Republican Leader Tom Cross and Democrat Rep. Elaine Nekritz.
The second component of the bill is an alternative that would go into effect if the first option is declared unconstitutional.
Part “A” includes unilateral benefit cuts, including a freeze on cost of living adjustments (COLA) on retirees’ benefits and higher employee contributions. It also strengthens the state funding formula for the pension systems, but does not include a cost shift to pass pension responsibilities onto local school districts.
Part “B” of Senate Bill 1 only goes into effect if part “A’ is ruled unconstitutional. This default plan offers employees and retirees a choice between reduced COLAs and keeping retiree health insurance, or keeping a full COLA and losing health insurance This component would also strengthen the state funding formula for the pension systems, but does not include a cost shift.
The second bill to advance out of committee this week, Senate Bill 35, is identical to legislation currently moving through the House of Representatives and would create new “Tier 3” pension recipients, establishing a hybrid of a defined benefit and defined contribution plan for new teachers and college staff. Tier 3 does include a cost shift, and would apply to employees hired after January 1, 2014. Those now in “Tier 2” (hired after January 1, 2011) may switch to Tier 3 benefits.
The defined benefit plan will require contributions of 4% of salary from Tier 3 employees, and those employees will earn benefits each year based on 1.1% of final salary. The age of retirement would be increased to 67. Tier 3 also includes a defined contribution plan that requires employees to contribute 5% of salary, with schools and colleges contributing at least 3% and as much as 10%.
Senate Bill 35 also makes changes to “Tier 1” benefits for all Illinois retirement systems, except the judges' retirement system. It reduces and would delay COLAs. Cost of living adjustments would be paid only on the first $25,000 of benefits for those without Social Security, or the first $20,000 for those with Social Security. Retirees would receive no COLA at all until age 67 or 5 years after retirement, whichever comes first. The retirement age would also be increased to 5 years longer than current law, and phased in over time. The proposal also phases in a 2% of salary increased contribution from all Tier 1 employees over 2 years, caps pensionable salary at the Social Security base (now $113,700), and strengthens the state’s funding formula.