Thursday, February 15, 2018

Pension cost shift
nothing more than a fallacy

Deputy Executive Director
Ben Schwarm
IASB Deputy Executive Director Ben Schwarm highlights the misconceptions behind the governor's effort to shift pension costs to local schools.

Pension Cost Shift Fallacy
When the governor, on Wednesday, proposed that all normal pension costs for active teachers should be shifted from the state and onto local school districts, the immediate – and accurate – response was “where will this money come from?” Promising $450 to $550 million of new funding for schools while demanding nearly $500 million in new pension payments is a dangerous shell game that only moves Illinois further away from adequately funding our schools. Hundreds of school districts, and perhaps the majority of school districts, would be net losers in such a scheme. For districts to cover this new unfunded mandate, educational programs would have to be cut and/or local property taxes would have to be increased.

But the real fallacy in the logic of the cost shift is found when one reads deeper into the news reports. Inevitably, someone will reference “by paying the employer contribution of teachers’ pensions on behalf of school districts, the state is essentially paying for spending decisions over which it has little control.” Or as the governor stated in his Budget Address, “if you separate the payment from accountability ... there is no accountability.”

Here is where those comments are wrong. Proponents of pension cost shift proposals claim that local school boards establish rich pension benefits for teachers because they know that they are not liable for the pension liability that goes with them. In fact, local school boards have no say at all regarding the pension benefits that teachers receive. All benefits are set by the state legislature through the approval and enactment of legislation that enhances pension benefits in the Teachers’ Retirement System! Legislators did so with no regard to the increased unfunded pension liability that those enhancements would incur. Now those costs are revealing themselves in the form of unsustainably higher annual pension payments.

The solution cannot be as easy as simply washing one's hands of the mess they created and sending the bills on to some other entity.

Each time a bill was introduced to enhance pension benefits without covering the costs of the new pension liability, the Illinois Association of School Boards opposed it. In 1993, when legislation was approved containing the 5 + 5 Early Retirement Option, IASB opposed it. In 1997, when legislation was approved containing provisions to allow TRS members to purchase pension credit for time off to care for an adopted infant, IASB opposed it. In 1998, when legislation was approved containing provisions for the 2.2 Enhanced Pension Benefit (that resulted in earlier retirements), IASB opposed it. In 1999, when legislation was approved containing the new Early Retirement Option (ERO), IASB opposed it. In 2003, when legislation was approved containing provisions to allow for TRS members to purchase pension credit for up to two years of teaching in private schools and to use two years of unused sick time for pension credit, IASB opposed it.

In most cases, IASB was the only organization that opposed the legislation. And, yet, the fingers are pointing at school board members for ballooning the pension liability.