In midst of pension crisis, many schools still spiking contracts

Illinois has a public pension crisis.

That's not really news, though. State officials have known about it for decades, before former Gov. Jim Edgar exacerbated the situation in the 1990s by leading an effort to push the problem onto future generations through what's now notoriously known as the "Edgar Ramp."

The "ramp" was a 50-year pension repayment plan. It allowed Edgar and the lawmakers of that era to wriggle off the hook, forcing the governors and legislators who would follow to make the difficult spending decisions in the future.

The problem with the future is that it is always ahead in the distance.

Of course, future governors and legislators didn't make those tough spending decisions. Instead, they raised taxes to a point where Illinoisans pay the highest combined state and local taxes in the country. Yet those who have led Illinois have continued to ignore the growing pension debt.

In 1994, when the Edgar ramp was introduced, Illinois had a $15 billion pension deficit. The state now says it has a $130 billion pension deficit, although Moody's Investors Service estimates it's more like a $200 billion deficit.

What was a big problem in 1994 today is a full-blown crisis.

Not only are lawmakers refusing to deal with the crisis, local school districts continue to make it worse.

An Illinois News Network investigation revealed this week that, despite the worst-funded public pensions in the country, many Illinois school districts continue to engage in a practice that's known as "pension spiking."

Pension spiking occurs when a governing body, such as a local school board, agrees to give soon-to-be-retiring employees excessive raises to increase the annual pension payouts these employees will receive during retirement.

In 2005, the Illinois General Assembly passed a law that was meant to discourage pension spiking. That law placed a monetary penalty on governing bodies that continued to hand out end-of-career salary increases of more than 6 percent.

Rather than end the practice, many school districts continued to spike salaries and stuck their own local taxpayers with the bill.

INN's investigation found that Illinois school districts have paid more than $50 million in taxpayer-funded penalties to the Teachers' Retirement System, including $23.8 million since fiscal 2014. Districts have used exemptions to avoid paying tens of millions of dollars more in penalties.

Republican Gov. Bruce Rauner was first elected in 2014. The state budget standoff between Rauner and the Democratic-controlled Legislature began shortly after that. School districts complained that late and lower state payments during the standoff were compromising their ability to do their jobs effectively. Yet many still managed to dole out excessive end-of-career pay raises and stick their taxpayers with the financial penalties.

That's inexcusable.

Not all school districts are guilty of pension spiking. But this is by no means a rare practice. A little more than a third of the state's 852 school districts paid a TRS penalty in fiscal 2018, INN's investigation revealed.

Some districts, such as Huntley School District 158, recognized the problem and put into place safeguards to prevent pension spiking from occurring. The district built a clause into recent teacher contracts stipulating that no raises should be given above 6 percent in the final years before retirement and that any earnings above that limit would be forfeited.

Going forward, pension spiking penalties will kick in after 3 percent because of a new state law passed in the spring. While that was a good step, don't expect it to stop the problem.

"My guess is that if it was set to zero, we'd still have problems," state Rep. Mark Batinick, R-Plainfield, told INN.

If young teachers or other state workers in Illinois expect to actually have enough money to retire, they'd better start setting it aside on their own.

The way local and state officials have been managing pensions in Illinois for more than two decades, the systems eventually are going to go broke.

Dan McCaleb, dmccaleb@ilnews.org, is editor of Illinois News Network and the digital hub ILNews.org.