“We cannot solve our problems with the same thinking we used when we created them.” – Albert Einstein

Posted on by Steve Reick | 1 Comment

Sometimes You Have To Hold Your Nose And Vote “Yes”

On Monday, the House finally passed an education funding bill. The last time the legislature passed a funding bill was in 1997, and in those 20 years, the formula has been changed to the point where the original was barely recognizable. I’ve written extensively (here, here, here, here and here) about how and why the formula became so unworkable.

My feeling was that if we had gone back to what the formula was before it was changed in 2004, we’d have a funding mechanism that would be reasonably progressive and would meet the needs of most school districts. However, the changes that were made to the formula took money from the General State Aid formula and moved it into the Poverty Grant and the PTELL Grant, which had the effect of concentrating funding into districts which had higher concentrations of poverty, primarily the Chicago Public Schools. That left the rest of us to rely to a greater and greater extent upon property taxes to pay for education.

I could spend hours discussing what went on to get us where we ended up, but I think it’s more important to tell you why I ended up voting for a bill that contains many of the things I originally voted against.

As I mentioned above, I thought we could make funding more equitable by rolling back the changes that were made to the 1997 funding bill rather than impose a 27-step model that even Rube Goldberg would have envied. That’s why I voted “no” in committee on H.B. 2808 (the original “evidence-based model” bill). When the bill came back to the House as S.B. 1, which included a laundry list of sweeteners for the Chicago Public Schools, I was a “hell no”.

The Governor’s amendatory veto of the bill took out many of the Chicago sweeteners, and I came out in support of the veto, but hoped that further negotiations on the bill would progress to give us something better. However, the Democrats in the House did what Democrats often do, which was to engage in political theater by taking the language of the amendatory veto, plug it into a shell bill (S.B. 1947) and rush it onto the floor for a vote.

So on August 16th, the Speaker called us all to Springfield to vote on this sham of a bill. They had no intention of voting for it, and fully expected us to vote to uphold the veto. However, our caucus stood firm and to the surprise of everyone, we all voted “Present”. This had the effect of forcing the Speaker to back down and agree to further negotiations which led to the bill which the Governor is signing today.

While the bill still contains many of the things which I found objectionable in S.B. 1, it provides for things which would never have been enacted if we hadn’t forced the Democrats to the table. Among them:

  • The normal pension costs for the Chicago Public Schools was taken out of the education bill and put into the Pension Code, where it belongs;
  • The bill takes $50 million of newly appropriated money and provides property tax relief to districts in low-EAV/high levy districts. It’s the first step to what I hope will be a movement to cap property taxes statewide;
  • It provides mandate relief for school districts for P.E., driver’s education and gives a streamlined process by which school districts can seek relief from other unfunded mandates;
  • It authorizes the City of Chicago to raise its property tax levy to pay for teacher pensions. Given that the city is responsible for that train wreck, it’s only fair that they be made to fix it;
  • It creates a commission to examine our system of Tax Increment Financing (TIF) which will hopefully lead to a way for schools to share in the increased property wealth that comes from economic development;
  • The bill provides for a tax credit program whereby up to $100 million can be donated to provide scholarships to low-income children to go to private and parochial schools. People who donate can receive a credit equal to 75% of their donation off their state income taxes. I’m not crazy about this. Though I fully favor school choice, it should come from money appropriated by the General Assembly. There are better ways to provide parents with the means to send their kids to the schools of their choice, not by blowing a $75 million hole in the budget.

I spoke about my concerns for the bill on the House floor. You can see my comments here:

Rep. Reick: A Reluctant Yes on a Less Than Perfect Bill

Watch this video on YouTube.
Posted in Education, Illinois Budget, Property Taxes | Tagged , , | Leave a comment

Cook County “Pop Tax” Creates Entrepreneurial Opportunity

The latest story to hit the airwaves is the threat by the Federal government to cut off food stamp (SNAP) benefits to Cook County as a result of its 1 cent per ounce “pop tax”, which could result in an estimated cut of $87 million to the county. I find this to be hilarious on several fronts.

This all stems from the fact that items purchased using a SNAP card are exempt from sales tax. The Feds are saying that unless Cook County finds an acceptable workaround to allow for the purchase of SNAP-eligible items exempt from the new sales tax, Federal funds are at risk.

First, the County was apparently informed of this back in June, but it went ahead and imposed it anyway. It would appear that gluttony isn’t a vice reserved to individuals.

Next, when the Illinois Retail Merchants’ Association’s (IRMA) suit to have the tax repealed on Constitutional grounds was dismissed by a Federal judge, the County sued IRMA for $17 million, simply for asserting a right in court. The suit has been withdrawn, but not before an ordinance was proposed by a member of the Cook County Board to require board approval prior to filing any similar suit, and legislation has been filed in the House seeking a similar result. Once again, here’s an instance of government’s habit of “ready, fire, aim”.

Finally, and most hilarious of all, one of the stated goals of the SNAP program, straight from the IDHS website is to: “help low-income people and families buy the food they need for good health.” Nothing screams “good health” like a 2-liter bottle of Mountain Dew. (Parenthetically: The tax is calculated on a “per ounce” basis, who’s doing the math on the metric conversions?)

However, there’s a silver lining around this particular dark cloud. Since drinks purchased using SNAP benefits are tax-exempt, I will lay a dollar to a donut that some bright entrepreneurial SNAP recipient is already buying up every 12 pack of pop in sight with an eye to creating a business selling “loosies”.

Ah, capitalism, it works everywhere it’s tried.

Posted in Cost of Government, Taxes | Tagged , , | Leave a comment

The Pension Shift Buried in the Illinois Budget

As Nancy Pelosi famously said during the Obamacare debate: “(W)e have to pass the bill so you can find out what is in it…” That quote must also be applied to the Budget Implementation Bill (BIMP) passed by the Illinois General Assembly on July 3rd. This bill (SB 42) was the triggering mechanism needed to implement the provisions of SB 9 (revenue bill) and SB 6 (spending bill), which the Governor vetoed and which were overridden by the General Assembly.

It is no exaggeration to say that we had less than one hour to review this 742 page behemoth; even a graduate of the Evelyn Wood speed reading course would have been hard pressed to get through it with any sense of comprehension. What has resulted is things coming to our attention that we didn’t originally see, much like rocks rising to the surface of a farm field in the spring.

Lurking on page 348 of the BIMP was the following:

Beginning in fiscal year 2018, each employer under this Article shall pay to the System a required contribution determined as a percentage of projected payroll and sufficient to produce an annual amount equal to:

i. for each of fiscal years 2018, 2019, and 2020, the defined benefit normal cost of the defined benefit plan, less the employee contribution…

What this means is that when a school district hires a new teacher, that teacher’s normal pension contribution will be paid for by the school district instead of being the responsibility of the state as has traditionally been the case. This is known as the “pension shift”, something for which Speaker Madigan had been advocating for years.

The rationale for the shift is that by making districts responsible for their employees’ pension cost, school boards are forced to confront the true cost of employment. For instance, the practice of “spiking” salaries in the last 4 years of employment, which is common, increases the pension cost to the state with no repercussions to the district. Putting districts on the hook for pension payments puts them on notice as to the true cost of employing someone.

The problem with making a sudden shift in pension costs from state to school districts is that the impact on local property taxes would be catastrophic, especially to districts which are at the lower end of the pay scale and are constantly losing teachers for better paying jobs elsewhere. If a shift were to occur, some means would have to be provided for there to be a smooth transition of that cost over a period of years to allow for a less disruptive effect to the local taxpayers.

Senate Bill 1 (SB 1) does this through adjusting its “Adequacy Target” (the cost of providing essential educational elements) to provide for an additional amount to pay for benefits, including the employer cost of pensions. On Page 349 of SB 1 is the following:

Each Organizational Unit shall receive 30% of the total of all salary-calculated elements of the Adequacy Target, excluding substitute teachers and student activities investments, to cover benefit costs. For central office and maintenance and operations investments, the benefit calculation shall be based upon the salary proportion of each investment.

If at any time the responsibility for funding the employer normal cost of teacher pensions is assigned to school districts, then that amount certified by the Teachers’ Retirement System of the State of Illinois to be paid by the organizational Unit for the preceding school year shall be added to the benefit investment. For any fiscal year in which a school district organized under Article 34 of this Code is responsible for paying the employer normal cost of teacher pensions, then that amount of its employer normal cost plus the amount for retiree health insurance as certified by the Public School Teachers’ Pension and Retirement Fund of Chicago to be paid by the school district for the preceding school year that is statutorily required to cover employer normal costs and the amount for retiree health insurance shall be added to the 30% specified in this subparagraph (U).

Set aside for a moment the fact that even before the cost shift is included, the adequacy target is being increased by 30% to cover benefits (how many of you in the private sector have a benefit package amounting to 30% of your pay?). Suffice it to say that SB 1 provided for a smoother landing for the shift than would otherwise be the case. If you think that districts should be responsible for the entire cost of their employees, then this is an accommodation to that.

When the Governor amendatorially vetoed SB 1, he removed the highlighted language, thus removing the additional amount meant to ease the blow to local taxpayers.

This is a prime example of how bad legislation gets passed. We wait until the last moment to vote on something none of us has seen, and then we spend months figuring out what we did and how to fix it. There has to be a better way of doing this.

Posted in Education, Property Taxes, Public Pensions | Tagged , | 1 Comment

Let’s Turn the Boil Down to a Simmer

There’s some misinformation flying around about the Governor’s amendatory veto of the school funding bill (SB 1) which needs to be addressed.

The thing that’s got my attention is the discussion surrounding the calculation of the “hold harmless” provision. The Civic Federation, whose work I generally respect, said this:

“(T)he veto sunsets the hold-harmless provisions of the bill after the first two years, and replaces them with an alternate hold-harmless formula based on a three-year rolling average of student enrollment. Districts that lose student population between the 2016-2017 school year and the 2019-2020 school year could lose funding under the new formula. This provision could affect a large number of districts; 527 of them lost population between 2015 and 2016.”

What the Civic Federation says about the adjustment from a “per district” to a “per pupil” isn’t wrong, but inasmuch as there’s so much heat being generated by the veto, it should not have implied that the shift sprang from the mind of the Illinois Policy Institute, because it didn’t.

The shift was provided for in the February 1, 2017 report issued by the Illinois School Funding Reform Commission and contained in HB 2808, which was the original piece of legislation in which the evidence-based model was proposed. From the report:

“To protect the per pupil current funding level for each district in any formula transition, the hold harmless will be calculated on a per pupil basis using a three-year average of student count. The use of enrollment versus average daily attendance (ADA) should be revisited by the Commission for the Oversight and Implementation of the School Funding Formula as accurate and reliable data become available and upon analysis of the impact of the new formula.” (emphasis mine)

If schools are losing enrollment, their funding should be adjusted to reflect the decline. When HB 2808 was changed to add the sweeteners for Chicago, the per pupil allocation was removed in exchange for a per district allocation. The Governor’s veto put it back. Ironically, there’s a story in today’s Tribune informing us that CPS is making staffing adjustments for the very same reason: Continue reading

Posted in Education | Tagged , , , , | Leave a comment

OK, Mr. Speaker, the Ball’s in Your Court.

The Governor has issued an amendatory veto to Senate Bill 1, and the gnashing of teeth and rending of garments has begun. Chicago Mayor Emmanuel, who’s staring into an abyss not completely of his own making but which is now nonetheless his to confront, said the following:

“The only thing the governor’s action advances is his own personal brand of cynical politics”

That might be the case if Bruce Rauner was the governor of Chicago, but he’s the governor of Illinois, with other constituencies to consider.

And this in today’s Tribune from my good friend Ralph Martire of the Center for Tax and Budget Accountability:

“CPS would have to tax itself locally and raise this revenue that it currently does not have access to. If CPS actually wants to have adequate resources to educate its kids, the governor’s approach would force it to pass a significant increase to its property tax, well over and above what it currently is.”

Gee, whiz, Ralph, enough with the hand-wringing already. Making Chicago pay its own way just like the rest of us is something I’ve been screaming about for months. CPS has plenty of access; it just doesn’t have the spine to go after it. How well would CPS be funded if Mike Madigan had to pay property taxes at the same level as they have to do in Harvey? (Click on photo to the left)

As it is, here’s the straight skinny on the major items in SB 1 changed by the governor’s veto:

  • The Block Grant that SB 1 placed in CPS’ Base Funding Minimum is removed, thus allowing this $202 million to go through the new “Evidence-Based” funding formula to be distributed to school districts across the state.
  • Removes $221.3 million for CPS pension normal cost and retiree healthcare from its Base Funding Minimum (hold harmless), and instead amends the Pension Code to provide a continuing appropriation for CPS normal and retiree healthcare costs. Therefore, CPS would still receive funding for its normal pension costs, but through the Pension Code and not a school funding formula, just like every other district in the state.
  • Removes CPS’ ability to reduce its local revenue target by its self-imposed unfunded pension liability (“legacy cost”) which would result in even more state aid to CPS. Under SB 1, CPS’ available local revenue is artificially reduced by its legacy cost liability of $505 million, providing $40 million more in state aid to CPS. Due to the annual growth of CPS’ unfunded pension liability, this number would have grown substantially in future years.
  • Under SB 1, no part of the current EAV of real property located in a TIF district which is attributable to an increase above the initial EAV of such property would be calculated in the district’s EAV for calculating the Local Capacity Target, which would allow school districts to under-report current property wealth. This provision is removed under the governor’s amendatory veto. (This is a biggie)

There were a number of other changes made to SB 1 to return school funding reform to the original spirit of the report issued by the Illinois School Funding Reform Commission and its commitment to promote equity and adequacy statewide. For instance: Continue reading

Posted in Education, Illinois Budget, Property Taxes, Public Pensions | Tagged , , , | 1 Comment