Cost Shifting is Buck Passing By Another Name

Pass the BuckGovernor Rauner certainly got everyone’s attention last week when he proposed that the employer’s share of pension costs be shifted from the State to local school districts.

The pension shift has been a topic of conversation for some time. House Speaker Michael Madigan said as long ago as 2013 that there would be a shift, and the Budget Implementation Act (BIMP) passed in July contained a shift.

Last Wednesday, the Governor signed onto the deal, laying out a plan to pass the buck transfer the State’s responsibility for pension contributions to local school districts over a period of four years.

But there’s one line from the address that can’t be disputed:

“If you separate the payment from accountability … there is no accountability. People don’t question the expense, they just pay it… In our system, the state gets pension bills and just pays the tab. Our budget proposal shifts costs closer to home, so people can question expenses and deal with them more directly. Now, they have no incentive to manage costs because the state picks them up no matter what they are. When they are responsible for paying the bill, there will be plenty of incentive to lower costs.”

There are two distinct issues here. While school districts do not set either the benefit levels for pensions or the amount that employees must contribute to their own retirements (that’s the State’s responsibility), they are in charge of negotiating employment contracts. This has led to the common practice of spiking, where districts grant increased salaries in the last 4 years of employment, increasing 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. I haven’t heard anyone criticizing the cost shift for that reason.

The big issue is the impact that the shift will have on property taxes. Obviously, if districts are forced to pick up both components of pensions, somebody has to pay the bill. The Governor made vague promises to “give schools and local governments the tools they need to more than offset the costs.” The tools include increased education funding, the power to dissolve or consolidate units of local government, and more flexibility in contracting, bidding and sharing services.

Pardon my skepticism. We just passed a new funding formula that is supposed to put $350 million of new money into our public schools; I don’t remember any of it being appropriated to pay for pensions (except, of course, for the amount used to move the Chicago Public Schools closer to the head of the line when getting that new money). Consolidation is on everyone’s radar these days, but even if consolidation saves money, it won’t come close to offsetting the increase in pension cost. Contracting and bidding flexibility? C’mon, remember who’s still controlling the House.

Standing alone, the cost shift is a lousy idea, and I won’t sign onto the Governor’s plan to balance the State’s books on the backs of local property taxpayers. But, what if the cost shift could be used as a catalyst for true reform of our completely dysfunctional tax system?

Stay tuned.

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