Illinois Budget Shortchanges Teacher Pensions

Published July 1, 2005

The FY 2006 Illinois budget, which passed in May, includes a $314 million increase in funding for K-12 education, bringing the guaranteed per-pupil expenditure to $5,164.

To fund the education increase and other aspects of the state’s $54 billion budget, lawmakers agreed to shortchange the state’s public pension funds by more than $2 billion over a two-year period. Gov. Rod Blagojevich (D) also proposed pension reforms, including limits on inflated pension payouts to teachers.

State Faces Pension Crisis

The pension issue is a potent one. As David Hoff reported in the May 18 edition of Education Week, Illinois has “promised $51 billion in pensions to 225,000 current and retired teachers, but it has only $31 billion in its accounts to pay for these pensions.”

According to Steve Stanek, author of a May report on Illinois’ public pension fund crisis, at the end of FY 2004 the state’s total unfunded pension liability stood at $35.1 billion, a greater amount than any other state.

Notes Stanek, “Large end-of-career pay raises for teachers and school administrators have resulted in substantial increases in retirement benefits for some individuals.”

“Under the current system,” explained a May 29 news release from Blagojevich’s office, “school districts can increase salaries by up to 20 percent every year to boost pension benefits, with the state having to cover those costs. Under the new plan, the state’s share will be capped at 6 percent.”

“Taxpayers across Illinois shouldn’t have to pay billions of dollars more in increased pension costs,” Blagojevich had said in his state budget speech last February, “just to cover those end-of-career raises.”

But Illinois Education Association spokesman Charles McBarron told Education Week the raises are justified.

“Local unions negotiate the pay raises as ‘deferred compensation’ for years of working for low salaries,” he said. “This is simply a way to compensate teachers at the end of their career.”

Tax Swap Proposed

Blagojevich’s pension reform was not the only education funding alternative on the table before the Illinois legislature adjourned at the end of May.

House Bill 750–a proposed “tax swap”–would have increased personal income, corporate, and sales taxes in order to fund education more substantially through state government than through local property taxes. Proponents claimed the measure would have reduced property taxes by as much as 25 percent.

Opponents of the bill warned the promised property tax relief would not materialize, meaning Illinois taxpayers would be worse off than ever. “Proponents will put $2 billion into education, promise $2 billion in property tax relief (neither permanent nor substantial), and hand over more than $2 billion to state politicians in general revenue funds to spend however we like,” State Sen. Chris Lauzen (R-Aurora) wrote in a December 2004 article for “The Rant,” an e-zine.

H.B. 750 was referred to the Rules Committee in mid-March and did not re-surface before the close of the legislative session.

The tax swap measure, which has been proposed and rejected in Illinois several times over the past few years, would violate Blagojevich’s campaign promise not to raise state income or sales taxes–“one of the few good promises the governor has made and kept,” according to Stanek.

Nancy Salvato ([email protected]) is director of education and research at Americans for Limited Government in Glenview, Illinois.