If Not SB 1, Then What?

As I said in my previous post, my problem with SB 1 is the fact that it provides for funding of the Chicago Public Schools’ (CPS) normal pension cost within the framework of a bill that’s supposed to focus on money for the classroom.

The Republican alternative to SB 1, SB 1124/HB 4069 contains all of the elements of the “evidence based model”, which means that as far as the meat of the bills are concerned, there’s no difference between the two. Our alternative makes other changes that would provide additional funds to districts throughout the state and provide other cost-saving elements.

As it relates to CPS, our bill makes the following changes:

  • The Chicago Block Grant is eliminated, though $50 million of what was in the Block Grant is incorporated into CPS’ Base Funding Minimum. The other $202 million would be run through the new formula.
  • In exchange for the elimination of 80% of the Block Grant, SB 1124 keeps the funding of CPS’ normal pension cost. (I’m not crazy about this.)
  • CPS’ normal pension costs are no longer included in its “base funding minimum” and its legacy costs are no longer reduce its “local capacity”. That combination allows CPS to remain in Tier 1, giving it an estimated $30 million in extra funding as previously noted.

Thus, I’m estimating that CPS gets $301 million over and above what it’d get if it was thrown in with the rest of the great unwashed ($50 million block grant + $221 million pension cost + $30 million for being in Tier 1 instead of Tier 2).

There are other things in SB 1124 that provide relief to school districts that aren’t included in SB 1: Continue reading

Posted in Education, Illinois Budget, Public Pensions | Tagged , , | Leave a comment

Does SB 1 Bail Out the CPS Pension System? You Decide.

Everybody’s trying to explain how SB 1 bails out the Chicago Public Schools (CPS) pension system, and why the numbers are all over the board. Greg Hinz of Crain’s, who’s been really good at trying to make sense of this mess, wrote an article last week, and another one here, trying to decipher the fuzzy math. I thought I’d add my 2 cents worth.

First, a few things need to be pointed out:

  • The Chicago block grant ($250 million) has nothing to do with pensions. This is money that the state has been giving to Chicago for years for things such as transportation, ESL programs and Special Ed. Other districts have to apply for reimbursement on these items, but Chicago has been given this grant without having to itemize its costs. I’m not saying it’s right, but we can’t blame the CPS block grant for the pension mess. This is “old money”, and is in SB 1.
  • There’s a “hold harmless” provision in the bill that provides that no district (including Chicago) will receive less under the “evidence-based model” than it received in the 2016-2017 school year.
  • However, SB 1 also includes CPS’ $221 million in “normal” pension costs in its “hold harmless” even though the state doesn’t currently pay for its normal cost.
  • Each district is assigned a “local capacity target”, which is the amount the district is expected to contribute toward its schools through its property taxes. Its level of state funding is determined to a great extent by how much it can provide in local resources (remember this, because it’s important for our current discussion).
  • The “evidence based model” establishes a 4-tier system for funding schools. I’m going to only deal with Tiers 1 and 2 because Chicago floats between the two, depending on how you deal with local capacity. Here’s where the explanation gets a little hinky):
    • Tier 1 districts are the least well-funded districts. Tier 1 districts will receive 50% of their “funding gap” (the amount they’re currently receiving as a percentage of their “Adequacy Target”), and will receive 50% of all new state dollars.
    • Tier 2 districts are all Tier 1 districts plus all districts with a Final Percent of Adequacy less than 90%.
    • In aggregate, districts in Tier 1 will receive 50% of new State dollars (this is also important). Districts in Tier 2 (including Tier 1) will receive 59% of new State dollars.
    • Tier 1 districts get the first tranche of money from the evidence-based funding model.

OK, for purposes of the pension discussion, I’ve given you all you need to know and saved you the trouble of reading the 511 pages which constitute the bill.

Here’s where I take issue with SB 1: Continue reading

Posted in Education, Public Pensions, Public Sector Unions | Tagged , , , | 3 Comments

Chicago Messes Its Bed, Then Asks Us To Clean It Up

The big issue in Springfield this week is the school funding bill, SB 1, which contains the new funding formula for schools. The governor claims, and he’s right, that the bill contains a provision that, in effect, diverts money from education to bail out the Chicago Public School pension system. Therefore, even though he’s willing to sign a bill containing the new funding formula, he’s not willing to sign bill containing this poison pill provision.

It’s being said that even though we’ve passed a budget, unless SB1 is signed by the governor, schools cannot open in the fall. I don’t agree with that, and I’ll tell you why shortly. However, before we get into the meat of the bill, I thought it’d be a good idea to give you a little bit of history about how the CPS pension system ended up in the condition that it’s in.

In 1995, a deal was struck between CPS and the State of Illinois, a deal which gave control of CPS to Mayor Richard M. Daley. Part of the arrangement called for the Chicago Board of Education to have the flexibility to mingle education funds with funds formerly earmarked only for pensions. As part of the deal, the General Assembly agreed to let CPS quit paying anything into the pension fund for 10 years and, instead, use the money for other things, like teacher salaries, with the hope that the state would boost its contributions in that period. (Yeah, right.)

In an article written by Greg Hinz in November of 2012 and published in Crain’s Chicago Business, the story continues. It’s a great article, and you should read the whole thing. Here’s a big part of it:

“For awhile, according to Mr. (Kevin) Huber (executive director of the Chicago Teachers’ Pension Fund), things worked out all right. With the stock market taking off in the late 1990s, CTPF’s “funded ratio” of assets to anticipated liabilities actually topped 100 percent for a couple of years…

But when the market dropped, so did the funded ratio. By 2005, it was down to 79 percent — due not only to the market decline but to the absence of a cumulative 2 billion dollar pension-payment holiday (emphasis mine).

In 2006, the board resumed making payments. Then came another crisis and a predictable response: Ron Huberman, CPS chief at the time, went to Springfield and got another, partial pension-payment holiday. This one lasted from 2011-13 and allowed the board to put in only $200 million a year — not the $600 million it was supposed to contribute.

Though then Chicago Teachers Union Vice President Jesse Sharkey says he recalls the union objected in Springfield, other sources say any objection was perfunctory. The key votes were 48-6-3 in the Senate and 92-17-7 in the House, which ought to tell you something.

Why wasn’t there a bigger fight? After all, the funded ratio, predictably, has kept dropping and was down to a miserable 59.76 percent in 2011.

Perhaps the reason is that, financial crisis or not and plummeting funded ratio or not, CPS kept delivering nice, sweet, across-the-board raises to CTU members like clockwork.

Between 1995 and 2011, the board agreed to annual pay increases of between 3 percent and 4 percent every year. And, I stress, those were across-the-board raises, above and beyond the “step” hikes for experience, obtaining a higher college degree, etc.

Put a different way: Between 1995 and 2011, any teacher on the payroll throughout that period was entitled to an 82 percent raise — before step hikes. (Again, emphasis mine)

When Mayor Rahm Emanuel came into office, his new board cancelled the last negotiated 4 percent hike, for 2011. But the horse was way, way, way out of the barn by then.

In 2014, the latest pension holiday will expire. That means CPS and taxpayers are on the hook for at least another $400 million or more in pension payments a year. That’s why you hear officials talking about a $1 billion CPS deficit next year.

The union’s Mr. Sharkey says the CTU clearly understands that no one in the union wants “an insolvent pension fund.” All sides need to sit down as a group and negotiate something, he says. CTPF’s Mr. Huber is holding out hope for a pending bill that would reduce the unfunded liability to zero by 2059 — if, that is, nearly bankrupt Illinois will pony up another $200 million or so a year, and if CPS increases its contributions 7 percent a year, every year.”

If Mr. Sharkey wanted to be honest about not wanting an insolvent pension fund, he’d have said that nobody wants an insolvent pension fund until his people can get every dime they can out of it before it completely collapsed.

So there you have the background. Chicago messed its own bed and now is holding a new funding formula hostage in order to force the rest of us agree to clean it up. You’ve heard them say that it’s not fair that they pay into their own pensions and also pay for downstate pensions with their income tax money. There are more than 2 billion reasons why that’s not true. Cry me a river.

Posted in Education, Public Pensions, Public Sector Unions | Tagged , , , , | 2 Comments

Frustrated? Call (217) 782-5350. Ask for Mike.

We have 19 days until the end of the legislative session, and how have we spent the month of May so far? We didn’t meet at all during the first week, and this past week was spent passing resolutions and making “points of personal privilege”. We didn’t vote on one bill, and didn’t go anywhere near talking about getting a budget. We were supposed to be in Springfield all week, but Friday session was cancelled.

I’m going to lay this directly at the feet of the Speaker. He controls what goes on in the House, and I think he decided to show everyone, including his own caucus, that he can jam up the works any time he wants. Here’s my latest episode of “Riding Shotgun with Steve”, where I expand upon that thought:

Riding Shotgun Ep. 2

Watch this video on YouTube.
Posted in Illinois Budget | Tagged , , , | 3 Comments

Why I’m Not Taking a Pension

Last week I told you that I have elected to opt out of the General Assembly Retirement System (GARS), and thus will not be eligible for the legislative pension. There are a number of reasons why, and I’d like to let you know what they are.

  • I don’t believe that anyone in elective office, from dog catcher to President of the United States, should be eligible for a public pension. If we want to get serious about making sure that elective public service doesn’t become a career, we can start by making it less comfortable for politicians to stay in office.
  • As a legislator, I’m going to have to make some tough choices regarding the state’s pension system. By not taking a pension for myself, I’ll be able to make choices that aren’t colored by my own interests. I can look state workers in the eye and tell them that I’m not asking them to make any greater sacrifice than I am.
  • At 16% funding, GARS is the worst-funded of the state’s five retirement systems. The fact that almost half of the General Assembly has opted out means that fewer and fewer members will be contributing to and subsidizing the pensions of those we replace. As of February of 2015, 37 state legislators (29 House, 8 Senate) had opted out of GARS. As I write this, 12 members of the incoming Republican class have already opted out, and I’m confident that more will follow. What this means is that while all of the pension systems are in dire straits, GARS is on the fast-track to insolvency.

There is one other thing I just found out. GARS is the only system among the 5 state public pension systems that allows members to opt-out. (The State University Retirement System (SURS) has a limited op-out provision, allowing them to put their money into a defined contribution style plan.) Those who opt out of GARS must then choose to either participate in Social Security or the state employees’ deferred compensation plan. Under the deferred comp plan, I can, as someone over 55, contribute up to $24,000 per year into the plan. I won’t pay taxes on the money until I take it out.

The bottom line is that instead of contributing 11½% of my legislative salary into a pension plan that’s on the road to insolvency, or 7.65% to Social Security (matched with money the state doesn’t have), I can put over a third of my pay into my own account which I control. Even though there’s no state matching contribution, that’s a no-brainer.

The question I have: if this is such a great deal for the General Assembly, why isn’t it offered to the rest of the state workforce as well? Obviously, if employees were allowed to opt-out, fewer participants would mean lower contributions needed to prop up the system. Therefore, new employees are chained like galley slaves to a sinking ship they can’t escape.

Without true pension reform, and a plan to get the underfunding off the budget, Illinois will soon run out of options.

Posted in Public Pensions | Tagged , | 1 Comment