Schools' pay hikes trigger state penalties
SPRINGFIELD -- At a time when suburban school districts are pushing back hard against taking over the state's share of teacher retirement costs, many are paying thousands of dollars -- sometimes hundreds of thousands -- in penalties for giving big raises to administrators and teachers and driving up pensions.
School districts have had to pay because of a 2005 law intended to help ease the state's skyrocketing pension costs. The 2005 law says a school district has to cover the future pension costs triggered by most raises of more than 6 percent a year.
Some suburban school districts far exceeded that. Schaumburg Township Elementary District 54 gave 22 percent raises in each of three years to one administrator, securing him a $236,904 pension and contributing to $645,320 in penalties the state says District 54 owes for the last two school years. The school district is disputing those charges.
Top Democrats who want to shift the state's share of future pension costs to local schools cite retirement expenses from high suburban salaries as one reason. That shift could be among options presented by Gov. Pat Quinn next week.
Along with District 54, these suburban districts were among those charged the most for exceeding the 6 percent cap in the 2009-2010 and 2010-2011 school years, according to records from the Teachers' Retirement System obtained by the Daily Herald:
• West Aurora School District 129: $362,524.
• Barrington Unit District 220: $243,829.
• Hawthorn Elementary District 73: $231,466.
• Elgin Area School District U-46: $162,232.
• Naperville Unit District 203: $146,649.
Across the suburbs, school districts paid at least $3.8 million in penalties over the two school years, according to the TRS numbers. Suburban districts also paid millions from 2006 to 2009, when the Daily Herald last examined the penalties. Some school leaders dispute the latest TRS numbers, and others say raises as high as 20 percent were given to encourage teachers to retire and save taxpayers money in the long run. For some school districts, the penalties put an additional pinch on their already tight budgets.
"Those local school boards are ultimately accountable to their constituents, who are undoubtedly feeling the same pinch as people in neighboring communities," said state Sen. Jeffrey Schoenberg, an Evanston Democrat who first sponsored the 2005 law.
The law was approved to target boards' common practice of giving large raises at the end of teachers' or administrators' careers. An educator's lifetime pension is based in part on what he or she made in the highest salary years before retirement. The logic behind the law is that the state has to pay most of the rising retirement costs when a teacher gets a raise, so school boards shouldn't be allowed to run up the tab unchecked.
"They felt that someone else, namely the state, would foot the bill," Schoenberg said.
Schoenberg says some districts have curbed that practice, but exceptions remain.
District 54 Assistant Superintendent Ric King said provisions in a contract that expired in 2009 allowed some administrators to get end-of-career raises higher than 20 percent through 2011. King argues the old contract shouldn't generate penalties because it was in place before the 2005 law was approved. He said the school district might go to court over the charges.
TRS spokesman Dave Urbanek said District 54 has formally appealed $122,386 of the charges resulting from raises given to a single administrator -- former Assistant Superintendent of Business Services Mohsin Dada, whose 2010 salary was $341,747. Dada received three 22 percent raises in consecutive years. He left the district in 2011.
Dada now works for North Shore Elementary District 112 in Highland Park as a financial officer, making $160,000 annually. He is also collecting a pension of $236,904 a year, Urbanek said. That makes his pension the seventh-highest in the state among TRS retirees.
Dada said District 54 tried to be certain in advance that his raises wouldn't result in a penalty. "My contract was an existing contract," he said. "Nothing would have been done without getting a legal opinion."
No matter how any challenges from school districts turn out, the fact that local school boards control pension costs by the salaries they set is one of the key arguments top Democrats are using when they talk about shifting the state's share of paying for pensions onto local schools.
The state currently pays about $800 million a year to cover suburban teacher pensions, not including money to pay down the state's $83 billion in pension interest and debt. Chicago schools handle the employer share of pension costs on their own.
"What we have here is a situation where the state sends billions of dollars to suburban and downstate school districts, and they turn around and send the state the bill for their employees' pension costs," Senate President John Cullerton, a Chicago Democrat, said last month.
Sending those costs to local schools, officials worry, would cut in to district budgets that have already been hampered as the state scales back its education spending on, for example, school bus costs.
"It concerns us greatly," said U-46 board President Donna Smith. She said U-46's $162,232 in penalties over two years largely comes from teachers who coach and get stipends that push their raises above 6 percent. The district has the most TRS-eligible employees in Illinois.
"We are trying to find ways to address that because we do need the coaches," Smith said.
Some school leaders say they sometimes have good reasons for raises of more than 6 percent. District 129 spokesman Mike Chapin said the schools gave one-year 20 percent raises as an incentive to get teachers to retire early. He said the district saved $200,000 despite the payment penalties to the state.
"The savings came from replacing our highest-paid teachers with teachers at the lower end of the salary scale," he said.
Now, Chapin said, the district's policy is for a 2 percent raise in each of the four years after a teacher or administrator announces an intent to retire.
Barrington District 220 Superintendent Tom Leonard disputes the TRS numbers and says about $140,000 of the school district's $243,829 payment to TRS over the last two years is from teachers who, under a common contract provision, go over 6 percent by earning an advanced degree.
"How do you stop that?" Leonard said.
Hawthorn District 73, based in Vernon Hills, avoided penalty charges in the 2009-2010 school year but incurred $231,466 the next year, according to TRS. Board President Tim Shanahan said the charges were the result of a handful of administrators getting one-time raises, then retiring. Shanahan said TRS was being too aggressive.
"They're trying to find any money they can get," he said.
State officials, however, say the escalating costs must stop. They face pension expenses that are set to rise by hundreds of millions of dollars per year for the foreseeable future, plus a deficit of about $83 million in the state pension funds that include teachers and school administrators.
Though big pensions grab the attention of taxpayers scraping to pay for their own retirements, relatively few school officials get them.
The state has about 101,000 school retirees, Urbanek said, and about 54 percent of them collect pensions worth less than $50,000 a year. Only 4 percent, often retired administrators, collect pensions of more than $100,000, he said.
Illinois Education Association spokesman Charlie McBarron said he hasn't heard of many teachers getting raises that force districts to pay TRS penalties. But the state's escalating pension costs are widely acknowledged by lawmakers of both parties as a critical problem, especially as TRS Executive Director Dick Ingram has raised the possibility of teachers' retirement funds becoming insolvent decades from now.
A big question is how, or if, educators' retirement benefits should change. That issue is the more hotly contested -- and legally questionable -- debate around pensions.
State Rep. Darlene Senger, a Naperville Republican, argues that who should pay for teacher pension costs -- the state or local school districts -- should be considered separately.
"That could distract from what we're really trying to engage in here," said Senger, a member of Quinn's committee on pension reform.
Suburban school districts could face even stiffer penalties going forward.
That's because the original 2005 law contained some exemptions that have expired. A teacher who is promoted to principal and gets a raise as a result would not have been subject to the 6 percent penalty, for example.
Unless lawmakers renew those exemptions, school districts could get big penalty bills from this school year.
Schoenberg said renewing those exemptions is worth talking about, but he said schools have had a chance to prepare. Renewing the exemptions -- or conversely lowering the 6 percent penalty threshold to further save money -- could be part of negotiations in overall pension reforms this year.
"I don't think that decision gets made in a vacuum," Schoenberg said.
• Daily Herald staff writer Ryan Voyles contributed to this report.
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