By Ted Dabrowski, Illinois Policy Institute -
For decades, the state has subsidized the costs of pensions awarded to teachers who work at locally-run school districts. How? The state pays the “employer” share of pension benefits that teachers accrue each year, even though teachers are not state employees.
That arrangement has destroyed spending accountability across the state. Local school districts have been doling out end-of-career salary spikes, sick day accumulations and other pension sweeteners, only to have the state pick-up the skyrocketing pension costs. It’s a formula that’s been abused for years and has contributed to Illinois’ gaping pension shortfall.
This week, lawmakers are debating whether local school districts should be held responsible for the retirement benefits of their employees. Opponents of local pension accountability have warned of catastrophe if school districts are required to pay the “normal” costs of pensions. They claim that higher property taxes and cuts to the classroom would be inevitable. But that claim is not true.
Here are five reasons why the cost-shift makes sense and why the changes are financially manageable:
- School districts would be more prudent with the compensation packages they award if they were held responsible for the “normal” costs of teachers’ pensions. Illinois shouldn’t have one unit of government handing out benefits, and another one paying for them.
- State funded pension contributions overwhelmingly favor the wealthiest districts with the highest compensation packages. There’s nothing wrong with paying teachers well, but taxpayers downstate shouldn’t be on the hook for north shore pension costs.
- The normal pension costs for an Illinois school district represents, on average, 3.7 percent of the district’s total operating costs. While an additional burden in difficult economic times, that’s hardly catastrophic. There are a myriad of ways to find efficiencies for cost increases of 3 to 5 percent. School board should begin by examining employee benefits: what districts spend on health care, the accumulation of sick days and other generous retirement perks.
- For 482 school districts across the state, the cost of a pension shift could be totally eliminated if local school districts also end the practice of paying, as a benefit, the teachers’ required contribution to pensions. Today, almost two-thirds of all school districts pay all or some of their teachers’ required 9.4 percent contribution.
- School districts would be more reliable in funding the teachers’ pension system than the state has been. That’s because the funding mechanism at the local level works better than it does at the state level.
The net result of the Institute’s policy proposal is increased spending accountability for teacher pensions, with school districts and teachers paying their fair share. That’s how it should have been all along.