School pay raises trigger Illinois penalties
SPRINGFIELD — Seven years after Illinois lawmakers passed a law intended to curtail big pension-boosting pay hikes for retiring educators, some local school districts still are paying hundreds of thousands of dollars a year in penalties for giving such raises.
Schaumburg Township Elementary District 54 paid nearly half a million dollars in penalties to the state in the 2011-2012 school year. And at least five other suburban districts paid more than $100,000 each last year, according to records from the state's Teachers' Retirement System.
The state makes school districts pay for the extra pension costs that arise from teachers' and administrators' end-of-career raises above 6 percent a year. The bigger an employee's salary is in the last years of his or her career, the bigger the pension will be.
Many suburban school districts paid just a few thousand dollars each in penalties for the 2011-2012 school year, but others got hit hard, according to TRS records. Among them were:
Schaumburg Township District 54: $489,841
Elgin Area Unit District U-46: $154,360
Community Unit District 200: $140,044
Aurora West Unit District 129: $135,746
Community Unit District 300: $128,418
St. Charles Unit District 303: $115,239
The new numbers come as Illinois leaders have debated for more than a year what role suburban schools should have in solving the state's pension crisis. The state faces a debt in its pension funds of at least $100 billion — arguably its biggest financial challenge in a laundry list of money troubles. Some lawmakers say school districts have too little stake in what pensions cost and should have to pay more toward retirement benefits.
School administrators say they're taking steps to avoid the state charges in the future. Many also say avoiding the penalties is often out of their hands because they don't always know when a teacher is going to retire and therefore can't keep raises under 6 percent in advance. That means they'll likely have to pay at least some penalty year after year.
The added charges from the state come at a time when local school districts are also feeling the budget pinch from flagging state funding and a slow-growing economy.
The state's 6 percent cap took effect in June 2005 because big end-of-career pay raises were a common way for local school districts to give their teachers a retirement benefit that was relatively inexpensive for local property taxpayers.
School districts aren't required to pay much toward teachers' retirements while the state picks up almost all of the employers' share.
Under the 2005 law, District 54 has had to pay big in the past, having just lost a bid at the Illinois Supreme Court last month contesting previous payments of $586,000.
The school district has argued that its deal with administrators to give end-of-career pay raises predates the law about 6 percent raises, so they shouldn't have to pay the penalties.
“TRS is penalizing District 54 for honoring contracts with employees,” said District 54 spokeswoman Terri McHugh.
The courts disagreed, however, saying that while existing contracts were grandfathered in without incurring penalty payments, District 54's deal didn't apply to a handful of administrators who got large raises. When the Illinois Supreme Court declined to take the case last month, the charges stuck.
Over the last three years, District 54 has had to pay more than $1 million in penalties, according to TRS numbers.
McHugh said because of a new 2009 policy that omits big end-of-career pay bumps, 2011-2012 should be the last school year the district has to pay large penalties to TRS.
As districts have come to know the 6 percent rule over the years, many have adopted contracts and plans to keep away from the penalties. But sometimes, they get charged anyway.
In District 129, Chief Financial Officer Christi Tyler said the district had limits in place to keep end-of-career raises under 6 percent.
But if teachers don't give enough notice they're retiring, the district doesn't know when their careers will end. So if a teacher gets an 8 percent pay raise, for example, by taking on extra duties like coaching a sport then decides to retire spontaneously the next year, the district would be on the hook for the penalty.
“We have no way of containing that at all,” Tyler said.
It's the same story in District 303, where spokesman Jim Blaney said officials can't foresee early retirements and just have to find a way to cope with the resulting costs.
“Obviously, you have to adjust as necessary, but we run a balanced budget,” Blaney said.
District 200 has been in the same situation with teachers, said Superintendent Brian Harris.
Most of District 200's penalties from the last school year, though, came from two administrators who had decided to retire and take raises under a deal struck before the 2005 law.
But when they stayed on two years longer, TRS decided the original contract had been altered and was no longer grandfathered in, and the district had to pay.
Harris said the district won't fight the decision, especially in light of District 54's court loss.
“There is no sense in challenging this,” Harris said. “We work very hard to stay within the law.”
The Teachers' Retirement System says it's doing the same thing.
“We understand that it's an uncomfortable situation,” said TRS spokesman Dave Urbanek.
“We follow the law,” he added. “And the law says 6 percent.”
The debate over public employees' pensions remains on the forefront of lawmakers' agenda in Springfield.
The state's yearly payments into its pension systems continue to rise faster than its gains in tax money, meaning lawmakers have to cut funding for schools, care for the disabled, prisons, universities and other programs so it can cover public employee retirement costs.
That leaves lawmakers to weigh the state's financial burdens against potentially unfair cuts to workers' retirement benefits.
Some lawmakers argue that because suburban and downstate school districts set teachers' salaries — and therefore their pension levels — they should pay for teachers' retirements, not the state.
Controversial plans to shift those costs from the state to local school districts have taken various forms over the last year, and state Rep. Elaine Nekritz, a Northbrook Democrat, says the issue remains unresolved.
But the fact that suburban schools tend to have higher salaries and cost the state's pension systems more money remains one factor in that debate.
After all, downstate taxpayers pay the same income tax rates, but their teachers aren't getting pensions as big as suburban ones, Nekritz said.
A popular proposal backed by Nekritz would have school districts start paying at least 3 percent of any new teacher's salary toward a 401k-style retirement plan in order to help take some of the pension pressure off the state.
But House Speaker Michael Madigan could favor a more aggressive proposal that could simply make school districts begin taking over the state's pension costs.
It's yet another complication in a debate that has raged for years without resolution. Finding a compromise plan that satisfies the financial, legal, regional and even political differences lawmakers have over the emotional issue has remained elusive.
Neither of the top two pension plans would change the 6 percent cap, but one provision could prevent “some of those major abuses from happening,” said state Rep. Darlene Senger, a Naperville Republican.
The plan she and Nekritz back would cap the salary that counts toward an educator's pension at $113,700.
In District 54's case, $122,387 of its penalties came from raises given to former Assistant Superintendent for Business Services Mohsin Dada, who received three consecutive 22 percent raises leading up to his retirement in 2010, when he earned $341,747.
Under the Nekritz plan, he wouldn't have been able to collect a pension based on his full salary.
“For the most part, (school officials are) watching this much more closely than they had,” Senger said.