School districts across the state are bracing their budgets for possible legislation that would require them to pay for teacher pension costs as lawmakers grapple with ideas to close the state’s $83 billion pension debt.
If lawmakers ultimately decide to shift pension costs onto local school districts, the move will put districts in a tight spot. Schools would have to cut teachers or navigate past the state’s property tax caps and raise additional money to cover millions in new expenses, many McHenry County school officials said.
The Democratic leaders who support the shift have proposed a phase-in that would cost Illinois school districts $97 million in the first year and total $580 million in the fifth year. The shift, whether happening at once or over time, would be equally detrimental, said Mark Altmayer, chief financial officer for District 158 in Huntley.
“If the normal employee costs shift goes through at once, it would be catastrophic. If it is phased in, it would still be catastrophic,” Altmayer said, adding, “This will absolutely result in unemployment happening at every single school district.”
The catastrophe, Altmayer said, happens when school districts are forced to find millions to pay for teacher pensions while balancing budgets in an economic time when districts face state budget cuts and wait months for late state payments.
In defending the shift, Gov. Pat Quinn last month released numbers that detailed a phased-in pension shift at two paces. Under the more aggressive scenario, District 158 would pay $9.84 million total in the first five years, starting in 2014.
District 300 in Carpentersville would pay $23.43 million. Districts 47 and 155 in Crystal Lake would pay $10.74 million and $10.46 million, respectively. The smaller District 15 in McHenry would pay $5.7 million total.
Schools could pass the pension costs onto taxpayers, but districts in McHenry County by law can’t levy more than 5 percent each year in property taxes, the main revenue source for schools in Illinois.
Given the restriction, Altmayer projects the district to increase property taxes by $1.3 million a year over the next five years. Under Quinn’s more aggressive shift scenario, pension costs would consume the district’s annual property tax increase by 2016.
Since most districts already levy property taxes to the legal limit, administrators would have to generate additional revenue through a voter referendum.
The option hasn’t been discussed in District 47, but Superintendent Donn Mendoza said he is confident that taxpayers would not endorse a property tax increase. The shift, rather, would threaten District 47’s finances, which were balanced this year after the board cut $6 million during the past three years.
“Should the shift occur, we would have to start this whole budget process again and have discussion on potential cuts in spending,” Mendoza said.
Quinn and Democratic legislative leaders have been resolute in shifting teacher pension costs onto local school districts after Republican and Democratic lawmakers couldn’t agree on the top legislative priority this spring.
After months of bipartisan negotiations, House Minority Leader Tom Cross accused Speaker Michael Madigan of inserting a “poison pill” by including the school pension shift in comprehensive legislation that would have reformed the state’s five systems.
The bill would have saved the state $65 billion to $115 billion, according to the governor’s office. The “pill” effectively killed the legislation because Republicans don’t support a pension shift, arguing that a shift would lead to local tax increases.
But Madigan pushed back against Cross, arguing that schools negotiate teacher contracts and should consequently cover the retirement benefits. Quinn and Senate President John Cullerton support the notion.
In defending the position, Quinn last month argued that school districts have enough money stored in reserves to pay for phased-in pension costs. According to his numbers, District 158 has more than $23 million in reserves. District 47’s backup funds tally $37.2 million.
But both officials from the districts said that Quinn oversimplified the issue when evoking the reserve argument. Reserves are intended to help districts make up for budgetary shortcomings in a year and should not be used for reoccurring expenses, Mendoza said.
“It is an absolute oversimplification of the issue,” Mendoza said. “If you start using reserves to cover compounding expenditures, you will blow the money over in a short amount of time.”
With pension reform at a standstill, Quinn hinted to reporters in late July that he may call a special session in August to have lawmakers overhaul the state’s pension system.
Both parties have accused the other of stalling on the reform until after the November election, when lame-duck lawmakers traditionally play a pivotal role in passing controversial legislation.