Skyrocketing pension costs are siphoning off the majority of tax dollars from classrooms

 Skyrocketing pension costs are siphoning off the majority of tax dollars from classrooms
Illinois Senate President John Cullerton wants to revamp the state’s complex education funding formula, which he described in a speech to the City Club of Chicago on Jan. 25 as “the defining crisis of our time,” insisting that fixing it is the “turnaround” Illinois needs.

But while the school funding formula does need major reforms, fixing it won’t solve the problem of education funding in Illinois: Only true pension reform can do that.

Skyrocketing pension costs are siphoning off the majority of tax dollars from classrooms. In fact, in the last five years, Illinois teacher pensions consumed 89 cents of every new dollar spent on education.

From 2009 to 2014, the state added $8.9 billion in new tax dollars to the education budget, over and above the base amount of $6.8 billion it spent in 2009. Of those new dollars spent, 89% went to retirement costs, and just 11% made it to classrooms.

While state spending on K-12 education for downstate and suburban education has grown by nearly $4 billion since 2006, funding for the classroom – the money that makes it to children in the form of new programs, language arts, band, extra support in the classroom, etc., – has stayed virtually flat. Billions of additional dollars are being pumped into education spending, but it’s all going to ballooning retirement costs.

What Cullerton and other state politicians must understand is that until the state begins a major overhaul of the five state-run pension funds, changing the education formula won’t help.

If Cullerton really wants to help education, he’ll start working on amending the Illinois Constitution’s pension-protection clause, which prevents reforms to the plans of current state workers. This is the only way to get education funding back into the classroom.

In the meantime, here’s what Cullerton should focus on to immediately address the state’s growing pension shortfall:

  1. Reform politician pensions: With no unions to oppose reforms, Illinois politicians should lead by example and transition their own pensions into self-managed plans such as 401(k)s.
  1. Offer 401(k)s for new workers: The Illinois Supreme Court’s 2015 ruling striking down the pension reforms in Senate Bill 1 doesn’t affect the retirement plans offered to new government workers. Illinois lawmakers should follow the lead of states across the country – from Michigan to Oklahoma to Alaska – and adopt self-managed plans for all new state and municipal workers.
  1. Offer optional 401(k)s to current employees: Government workers shouldn’t be trapped in insolvent, politician-run retirement plans over which they have no ownership.
  1. Require all teachers to make contributions toward their own pensions: In Illinois, most public-school teachers don’t pay the required 9.4% employee contributions toward their own pensions. Instead, many school districts pay, as a benefit, some or all of the teachers’ required payments.
  1. Get the state out of the business of managing local school-district pensions: School districts should be responsible for the true costs of their employees and pay for their annual pension costs. Going forward, the annual benefits accrued each year by teachers should be paid for by local school districts and not the state.
  1. Limit the growth of pensionable salaries: Government-worker pension benefits are growing at a pace that far exceeds the growth of taxpayers’ ability to fund them. With no way to structurally reform pension benefits for current government workers, the General Assembly’s only lever is to limit salary growth and other items that drive up pensionable salaries.
  1. Allow municipal bankruptcy: Without the ability to reform pensions for existing workers, local governments should have more control over how they operate. That means having the option to file for bankruptcy. Bankruptcy should be the option of last resort, but it can help struggling municipalities restructure their debt, renegotiate contracts and reform pensions.

Ted Dabrowski 

Vice President of Policy

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