Illinois Gov. Bruce Rauner wants public school districts to begin “cost sharing” their employees’ state pensions over the next few years. Districts would be responsible for 25 percent of their pension cost during the first year, then an additional 25 percent each of the following three years. He said this overhaul is a fiscal necessity.
“The simple truth is this: We have to change the way we manage pension costs and group health expenses. If we don’t, our finances will continue to deteriorate, our economy will remain sluggish and our tax burdens will stay high and keep rising,” he said.
Rauner said he would give schools and local governments new “tools” to offset these costs, such as boosting education funding, granting greater control over merging and dissolving local government districts, and more flexibility in contracting and bidding for services.
Reactions have been mixed from both school and local government officials. Dr. Ehren Jarrett, Superintendent of Rockford Public Schools, says the pension proposal needs to be taken in the context of overall school funding.
“We live in a state that varies from 42 percent funding adequacy all the way to well over 200 percent funding adequacy,” he said. “In Rockford, Illinois, we earn about 64 percent funding adequacy.”
In August, Rauner approved an “evidence-based” school-funding formula, which was designed to even out these levels of funding. Jarrett says the pension cost-sharing could hinder this.
“That will ultimately redirect the new dollars that are being used to redistribute and better balance that funding picture,” he said. “That weakens that overall objective.”
This, Jarrett says, could be offset by extra state money. He also says it isn’t prudent to add costs when all of this year’s money still hasn’t come in.
“So we’re building policy for ’19 without knowing what the impact of the $350 million without the cost shift is for ’18.”
The Rockford School District budgeted about $7.8 million dollars on staff retirement benefits last year, out of about $344 million in budgetary expenses.
At Sycamore Community School District 427, Superintendent Kathy Countryman says the proposed percentage of shared costs took her by surprise.
“We have been budgeting for that at about half a percent a year just in case that were to occur. When we heard the 25 percent, that’s a little bit more substantial than we thought it was going to be initially implemented.”
Like Jarrett, Countryman is concerned that the new funding formula could suffer if pension costs are taken out of new school appropriations. The Sycamore School District allocated $1.2 million for retirement and Social Security benefits in last year’s budget, out of about $59 million overall. But the district’s been under a budget reduction plan for the last three years. Thus, Countryman isn’t sure of the proposal’s full implications.
“What does additional money mean? What does the 25 percent look like? Is that what’s really going to be placed on the table for consideration?” she asked. “So when talking to other people, I think there’s more questions than answers at this point.”
School districts are the only entities that would be affected directly by this cost-sharing proposal, but Winnebago County Board Chairman Frank Haney says municipalities eventually could face similar demands.
“We’re seeing more of state problems shifted to local units of government. That is happening in a multitude of ways, and this is but one example of it.”
But Haney doesn’t single out the Rauner administration for this trend.
“We’ve been talking about pension shifting and the pension bomb and pension problems since I was a kid,” he said. “I’m 44 years old now. We’ve seen this coming, and we failed to prepare for it for quite some time now. Now our chickens are coming home to roost a little bit.”
Haney and others hope more complete solutions to pension funding don’t come at local expense.