Research & Commentary: Illinois School Funding Plan

Published April 11, 2016

Members of the Illinois Senate introduced an amendment to a school funding bill on April 6 that would change the formula to determine state aid to school districts. The bill would reduce the role property taxes play in funding local school districts, placing more of an emphasis on state funding. This would entail a shifting of funding from more affluent school districts to poorer school districts. If passed, the bill would cost the state $600 million in its first year and includes a $200 million infusion of state monies into Chicago Public Schools’ debt-laden teacher pension fund.

Illinois’ current school funding system, enacted in 1997, creates a baseline “foundation level” of $6,119 each district should spend per student. General State Aid (GSA) funds are then channeled to districts with lower property tax values that have trouble reaching that baseline, although the state has failed to fund these districts to the baseline for several years. In addition to GSA, districts also receive state block grant funding for transportation, special education, and bilingual education.

The bill ensures no district would lose any funding during the first year of the new formula, at a cost to the state of $400 million. Higher-income districts would begin losing funding in the second year, and the amount lost would gradually increase for four years. In the fourth year, the amount of funding leaving each district would be capped at $1,000 per student.

Proponents of the bill are correct when they say Illinois’ education funding system is broken and needs to be fixed, but the bill being considered does nothing to fix the problem. No new revenues or cuts are proposed. While the funding formula would be changed, this change will simply redistribute funding from some districts to others.

No significant reforms can be made to school funding without tackling Illinois’ teacher pension system, which faces $111 billion in unfunded liabilities. Nominal per-student funding has increased by 148 percent between fiscal years 1993 and 2012, but pension payments made to retired teachers now account for 50 percent of all state education spending. As the Illinois Policy Institute points out, “If you look at total education spending from 2009 to 2014, the state added $8.9 billion in new dollars over and above the base amount of $6.8 billion it spent in 2009. Of those new dollars spent, 89 percent went to pay for retirement costs. Just 11 percent made it to the classroom.”

This crowding out of classroom funds by pension payments has caused nearly 60 percent of Illinois school districts to engage in deficit spending to pay for operating costs. State school districts issued over $307 million in long-term debt in fiscal year 2015 alone, according to Robert Wolfe, chief financial officer at the Illinois State Board of Education.

Administrative bloat is also crowding out classroom funding. The National Center for Education Statistics notes while the number of K–12 students nationwide increased by 96 percent from fiscal years 1950 to 2009, the number of full-time administrators and nonteaching staff grew by 702 percent over that period. In Illinois, the Friedman Foundation for Educational Choice (FFEC) says student growth from fiscal years 1992 to 2009 was 14 percent while administrative growth was 36 percent. This led to Illinois employing over 18,000 “extra” administrative staff by FY 2009. If administrative staff had increased at the same rate as the student population over the 1992–2009 period, FFEC estimates an annual cost savings of over $750 million, or $8,884 per classroom of 25 students.

Reforming Illinois’ teacher pension system and ending administrative bloat are two of the more prominent ways to guarantee more educational funding makes its way to back into the classrooms, where it can be used where it is most needed: on the students themselves. Another way to improve education significantly is for Illinois to enact statewide education choice programs, such as vouchers, education scholarship tax credits, and education savings accounts. Education choice can offer Illinois families equal access to high-quality schools that meet their widely diverse needs and desires, while having the dual benefit of driving down state education costs.

The following documents provide more information on Illinois teacher pensions and school choice programs.

Ten Principles of School Choice
Since the U.S. Supreme Court ruled in 2002 school vouchers are constitutional, grassroots activists around the country have been organizing to support passage of school choice programs. Legislatures passed statewide programs in Colorado and Florida, and other states are expected to follow their lead. At least 35 cities have privately funded voucher programs. This booklet from The Heartland Institute provides policymakers and civic and business leaders a highly condensed and easy-to-read guide to the debate. It presents the 10 most important principles of the school choice movement, explaining each principle in plain and precise language. It also contains an extensive bibliography for further research, including many links to documents available on the Internet and a directory of the websites of national organizations that support school choice.

Pensions vs. Schools
Education funding for downstate and suburban pre-K–12 schools – all Illinois school districts outside of Chicago – is one of the state’s highest priorities. It’s also one of the only expenditures that will receive almost-guaranteed increased funding year after year, even in the midst of a fiscal crisis, which is precisely the current situation. The 2016 budget is currently $4 billion out-of-balance, the state’s credit rating has fallen to within four notches of “junk” status, and the state’s pension shortfall has reached an all-time high of $111 billion. Despite these issues, education spending for 2016 has already been appropriated and passed into law at levels that are higher than those in 2015. Writing for the Illinois Policy Institute, Ted Dabrowski and John Klingner say increasing the dollar amount spent on education does not guarantee more money will be spent on teaching children. State education spending is made up of much more than what is spent on a daily basis to run Illinois’ schools. State spending also pays for the annual contributions made to teachers’ retirement funds and to pay for retired teachers’ health care insurance. Unfortunately, these mounting, non-operating retirement costs are dramatically siphoning funds away from classrooms.

The ABCs of School Choice – 2016 Edition
The ABCs of School Choice, produced by the Friedman Foundation for Educational Choice, is a comprehensive, data-rich guide to every private school choice program in America. This annually updated publication may not reflect developments past January 25, 2016.

The Fiscal Effects of School Choice Programs on Public School Districts
This report by Benjamin Scafidi is the first-ever study of public school districts’ fixed costs in every state and the District of Columbia. Scafidi concludes approximately 36 percent of school district spending cannot be quickly reduced when students leave a school to enroll elsewhere. Scafidi finds the remaining 64 percent, or approximately $8,000 per student on average nationally, are variable costs that change directly with student enrollment. This means a school choice program attaching less than $8,000 to each child who leaves a public school for a private school leaves the district with more money to spend on each remaining child. Scafidi says in the long run, all local district spending is variable, meaning all funds could be attached to individual children over time without creating fiscal disasters for government schools.

Understanding Illinois’ Broken Education Funding System: A Primer on General State Aid
The focus of Illinois’ current education funding system is not what’s best for students; it’s who controls the flow and distribution of taxpayer money. Writing for the Illinois Policy Institute (IPI), Ted Dabrowski, Josh Dwyer, and John Klingner say nowhere is this claim more evident than in the state’s General State Aid (GSA) education budget – Illinois’ largest single K–12 education appropriation. “Originally intended to support the state’s neediest school districts, the $4.8 billion GSA has become, in a single decade, a twisted mess of formulas that provide large, special subsidies to a few select districts,” write the IPI authors. They say all special GSA subsidies need to be ended immediately, and that the solution cannot be about tweaking formulas and making fixes so that political power between different regions in the state can be temporarily equalized. To fix Illinois’ broken education system, the IPI authors say financial power needs to be taken away from politicians and special-interest groups.

How School Choice Programs Can Save Money 
This Heritage Foundation study of the fiscal impact of voucher programs notes Washington, DC vouchers cost only 60 percent of what the city spends per pupil in government schools. The study estimates if the states with the top eight education expenditures per pupil adopted voucher programs similar to the one in Washington, DC, they could save a combined $2.6 billion per year.

How School Choice Can Create Jobs
Examining five South Carolina counties, Sven R. Larson found school choice programs were associated with gains of up to 25 percent in youth self-employment. Larson writes, “School Choice raises academic achievement and reduces the problems and costs associated with high school dropouts. But it also has a decisively positive impact on youth entrepreneurship and could provide a critical boost for the economies of poor, rural counties.”

School Choice by the Numbers: The Fiscal Effect of School Choice Programs, 1990-2006 
Examining the fiscal effects of school choice programs, Milton and Rose D. Friedman Foundation Senior Fellow Susan Aud found $444 million in savings in the years 1990–2006, $422 million of which was from local school corporations. The direct passage of savings to school districts has a profoundly positive net benefit on districts, but not enough to enable them to compete with the high performance of private schools or charter schools.

The School Staffing Surge: Decades of Employment Growth in America’s Public Schools, Part II
In this report published by the Friedman Foundation for Educational Choice, author Benjamin Scafidi says the U.S. K–12 public education system has experienced tremendous growth in employment, according to the U.S. Department of Education’s National Center for Education Statistics. Between fiscal years 1950 and 2009, the number of K–12 public school students in the United States increased by 96 percent. Over the same period, public schools increased the number of staff members employed at a rate that is four times greater than the increase in students. Even more incredible, reports Scafidi, the number of teachers increased 252 percent and the number of administrators and other non-teaching staff grew by 702 percent.

Taking Credit for Education: How to Fund Education Savings Accounts Through Tax Credits
This paper from the Cato Institute explains how legislators can design an education savings account (ESA) program that is privately funded through tax-credit-eligible contributions from taxpayers, which is similar to models used in many tax-credit scholarship programs around the country. Tax-credit-funded ESAs would empower families with more educational options while enhancing accountability and refraining from coercing anyone into supporting ideas they oppose. Because they are funded through voluntary contributions rather than public funds, tax-credit scholarships have a perfect record of constitutionality at the U.S. Supreme Court and at every state supreme court that has considered the issue. In states that have adopted a Blaine amendment, tax-credit ESAs could be a lifeline to families in need.

The Legal Landscape of Parental-Choice Policy
The U.S. Supreme Court decision Zelman v. Simmons-Harris cleared away the most significant obstacle to the expansion of private school choice programs by ruling the First Amendment’s Establishment Clause does not preclude faith-based schools from participating in private school choice programs. Other important legal questions fall into four categories: the scope of students’ right to an education and parents’ right to choose their children’s schools; state-constitutional obstacles to private school choice; the effect of laws governing racial integration and the inclusion of disabled students; and the religious-liberty implications of faith-based schools participating in such programs. This report from the American Enterprise Institute notes the lack of clarity on these questions poses challenges, but the report says they also create opportunities for proponents of private school choice to scale existing programs and expand program options.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit School Reform News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database, at

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