Schools fear Quinn idea to shift pension costs

SPRINGFIELD — Making local school districts pick up the employers’ portion of teacher retirement benefits could save more than $1.3 billion a year for Illinois’ beleaguered state treasury. It also could mean financial ruin for some local school districts, school administrators say.

Gov. Pat Quinn, with at least tentative nods from Democratic leaders in the Illinois General Assembly, has expressed support for the state shifting its obligation to local school districts. It would free up money needed to pay down a huge backlog of bills and to catch up with a decades-long shortchanging of public pension systems.

Local schools employ teachers, the thinking goes, so why shouldn’t schools pay the employer’s portion of their instructors’ retirement benefits?

They shouldn’t for many reasons, local school authorities argue. For one, many school districts already are in dire financial condition. Teachers have been laid off, programs are getting cut and schools are already awaiting $752 million in funding the state is behind in paying — $88 million is more than three months late.

“That would kill school districts, at least most districts. For us, we’re living paycheck to paycheck,” said Tony Sanders, chief of staff for Elgin School District U-46, the state’s largest district outside Chicago. Sanders said the state owes it $12 million for this school year. “There is no magic pool of dollars waiting for us to swim in.”

Other options aren’t much brighter. For example, seeking property tax increases to cover the cost presents its own problems, both legal and political. School districts in 40 counties are restricted in the amount of taxes they can collect, so they would at least need voter approval to collect more revenue.

Philosophically, school officials are asking whether teachers should be considered local employees when the state determines their benefits. The Teachers Retirement System, which handles pensions for 370,000 active, inactive and retired teachers, has determined that changes in state law to enhance pension benefits have added $2 billion to the system’s unfunded liability since 1996.

Quinn, who said Friday there will be a “pension working group” to examine the issue, added that only 22 percent of the state’s pension contributions are for state employees.

“The remainder is for nonstate employees: people who work for school districts and universities,” Quinn said.

He pointed out that the city of Chicago pays the employers’ portion for its schools, but didn’t mention that city officials persuaded the legislature to let them slide on more than $1 billion owed the Chicago Teachers Pension Fund through 2013, when they said they couldn’t pay.

The Democratic governor doesn’t stand alone on the idea of a cost shift, although positions seem to be in flux.

House Speaker Michael Madigan, a Chicago Democrat, said in a speech last week that school districts should chip in, but did not say if there would be legislative action. Senate President John Cullerton, another Chicago Democrat, promised a year ago to propose legislation. His spokeswoman now says he believes the system should be reviewed for “fairness and feasibility.”

With five state-employee pension systems underfunded by about $83 billion, the state has had to pay billions of dollars in recent years — about $4 billion this year — to cover current obligations and try to catch up. But Quinn’s idea would be to shift all or part of about $1.3 billion of the current cost to local schools and colleges.

It costs about $850 million a year to maintain the Teachers Retirement System, which covers public school teachers outside Chicago, and about $468 million to run the State Universities Retirement System, according to Quinn’s budget office.

The Chicago Teachers Pension Fund would not be directly affected. The city provides the employers’ contribution for Chicago teachers, although the legislature is allowing the city to discount its payments to $575 million for 2011-13, about $1.2 billion less than it would otherwise owe during that period, pension fund executive director Kevin Huber said. Additionally, state payments promised to the Chicago fund in a 1995 pension reform law have fallen at least $1.9 billion short, he said.

Such a switch for non-Chicago school districts would require mammoth changes. School districts currently pay about $155 million toward their teachers’ pensions. The additional cost would hike that number more than 400 percent.

School districts could also raise property taxes, but schools already eat up the largest portion of local tax bills, and 40 counties, including Cook, limit to the rate of inflation the amount of tax increases that can be billed, unless they get voter approval. Those counties are home to 8 million taxpayers, or two-thirds of the state’s population outside of Chicago, according to an Associated Press analysis of data from the state departments of Revenue and Commerce and Economic Opportunity.

It’s never easy to ask voters to increase taxes, particularly in a recession. Plus, Illinois voters saw their income taxes rise by two-thirds in 2011.

“That,” Elgin school official Sanders said, “would be a tough sell.”