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 Pension
Overhaul Called Hit to Schools
by Ray Long and Diane Rado, Chicago Tribune, February 23,
2005
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Local school
districts throughout Illinois would be charged an extra $149
million the next school year to pay for Gov. Rod Blagojevich's
proposal to overhaul the state's pension systems, one top
pension official warned Tuesday.
If that estimate is correct, it would mean the added expense
would more than consume the $140 million increase in education
funding Blagojevich included in his budget proposal for next
year, an amount criticized as inadequate by friends and foes of
the governor alike.
In his budget address last week, the Democratic governor urged
the legislature to approve a sweeping overhaul of state-run
pension systems of judges, legislators, university workers,
regular state employees and teachers outside of Chicago.
Teachers in the city have a separate retirement system.
Contending his plan would save the state billions of dollars
over the next several decades, Blagojevich urged changes ranging
from reducing retirement benefits for future state employees to
capping state pension contributions tied to lucrative
end-of-career raises frequently doled out by school districts.
But school officials say those big raises are written into union
contracts in many districts, so local property-tax payers would
be on the hook for any pension costs tied to those raises that
the state no longer picked up.
Jon Bauman, executive director of the Teachers Retirement
System, estimated the first year cost of such a change would be
$149 million.
Becky Carroll, a spokesman for Blagojevich's budget office,
disputed Bauman's figures.
"That is not a hard number in any way. It's an assumption,"
Carroll said. "If we're to assume that school districts are
going to change these salary-increase practices and live within
their means as outlined in these reforms, then that $149 million
actuarial assumption would drop dramatically."
Illinois lawmakers had long neglected the pension systems, but a
decade ago they committed to an ambitious schedule to pump
billions of dollars into the system over many decades to make
them more financially sound. Blagojevich contended his reforms
could enable the state to accomplish that goal and still save
$55 billion over the next 40 years.
Republicans, however, complained the governor's plan pumps too
much of the savings into the short term to help him out of a
fiscal crunch and robs the systems of cash that they would
invest to improve their viability in the long run.
House Republicans contended their estimates show Blagojevich's
revisions could actually add tens of billions of dollars to the
state's long-term pension costs because of his plans to reduce
payments to the systems over the next five years. That, critics
said, would rob the systems of investment income and compounded
interest.
Blagojevich's plan "makes no financial sense," said House
Minority Leader Tom Cross (R-Oswego). "The treatment is worse
than the disease."
Cross said Republicans in the House are willing to work with the
governor on reforms.
Carroll disputed the House Republican estimates as well.
Some of the most vocal criticisms of Blagojevich's budget have
come from teacher unions, which have complained about what they
contend is an inadequate amount of new spending set aside for
classrooms.
Questions about whether the pension reforms will aggravate the
financial condition of districts only compound the problem,
union leaders said.
"We didn't think the governor's proposal provided enough new
funding for schools in the first place," said Steve Preckwinkle,
a lobbyist for the Illinois Federation of Teachers. "The notion
that this could be almost a $150 million hit to the schools is
very disconcerting. Obviously, that would wipe out the ... full
effects of the $140 million increase right off the top."
The practice of giving out big pay raises to retiring teachers
dates back decades and prompted an outcry in the late 1970s,
when 40 and 50 percent raises were being dished out to retiring
educators.
In response, the state put a cap on the practice, saying pay
increases as high as 20 percent from one year to the next could
be included in pension calculations for most retirees, but
nothing over that.
A Tribune investigation in 2003 showed that more than 70 percent
of full-time teachers and staff who retired in the suburbs and
Downstate over the prior decade had gotten at least 10 percent
pay increases in one or more of their last three years. About 55
percent of the retirees got at least 15 percent raises, and
about a third got at least 20 percent increases.
Some districts give as many as three 20 percent raises in a row
to retiring educators, but it is more common to see two years of
20 percent raises, said Allen Albus, the assistant
superintendent over finances in Naperville District 203.
While Albus acknowledged that the large raises lead to enhanced
pensions ultimately paid by the state, he said districts would
be in for a struggle if they had to come up with funds to pay
the long-term cost of the end-of-career raises promised in
current contracts.
Under Blagojevich's plan, the state would pick up increased
pension costs calculated on the first 3 percent of an
end-of-career raise. Anything above that, the districts
themselves would have to pay.
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