Thursday, February 24, 2005

school boards & pension reform

Something useful in a Chicago Trib editorial:
Blagojevich wants to end the longtime practice of school districts providing whopping, end-of-career salary increases to teachers, principals and staff members, which then allows them to qualify for much higher pensions.

In many cases, schools have handed out annual raises of up to 20 percent for the years immediately before a teacher retires. Those higher salaries greatly influence the teacher's pension calculation and leave the state on the hook to pay the higher retiree benefits for years, even decades.

Blagojevich wants--and he's right on this--to restrict the end-of-career raises to 3 percent a year. Anything above that, and the school district, not the state, would have to pay for the resulting pension boost. Some schools are crying that this will cost them dearly because they've already promised those huge raises--some have even written them into multiyear contracts.
This is an important issue for Illinois public policy wonks to understand. Local school boards write contracts with teachers and administrators that obligate the state to pay pensions that are way out-of-line with what the teachers and administrators made during most of their careers.

It's completely "messed-up" for these teachers and administrators to be making exhorbitant pensions paid for by taxes on younger, less affluent Illinoisans and cuts in basic services.

So Rod and the Trib are right to want to reform the practice, but there's a reality from the perspective of the school districts too.

Since the school districts have already written these contracts they're obligated to pay for them. They've budgeted for the salaries, but they haven't budgeted for the pension sweeteners.

So, by kicking the problem back to the school districts G-Rod is creating a situation where the local boards have two choices. They can either cut services to pay for pensions or raise property taxes. And remember they have to do this in the context of having their health care costs rise significantly more than the rate of inflation.

Rod's "fix" is really just shifting the tax burden to the property tax and creating a grunch of crises at the local level.

14 Comments:

Anonymous Anonymous said...

And your solution is ... ?

I think the state should shoulder more of the costs of education (and thus make more of the decisions), but as long as the local districts can make these "sweet" contracts, then they should pay for them.

10:17 AM  
Blogger Carl Nyberg said...

Part of the solution needs to be a system that prevents state government from shifting costs of governing already provided to future taxpayers.

10:57 AM  
Blogger paul said...

I sympathize with this fairness agurment, but it's also a matter of who receives the services. I've written a little response to your post here.

11:38 AM  
Blogger thatcoloredfella said...

Carl,

Knowing there are many more complexities to this issue I'm unaware of (similar to the burdens absorbed by local school districts), I can only offer a visceral take on the controversy, at this time.

There are many more patronage state employees currently getting a similar 'sweet deal', that taxpayers (and the Trib) should be more outraged about. As I understand it, the average starting salary for a school teacher is between $35-40 thousand, which is not much of an incentive in attracting the best and the brightest.

The Illinois Toll Authority was supposed to be abolished some time ago, yet it continues to be a patronage dumping ground for those in power - and far more a drain on state tax revenues.

Until such waste is given equal scrutiny, giving veteran Illinois teachers a 'golden parachute' looks like a better use of my tax dollars.

1:31 PM  
Blogger Roy said...

Just because there are other problems doesn't mean that this one should not be taken care of. It seems that the logical solution would be for the state to honor existing contracts and pass the law. You wont see the results for a few years, but it would fix the problem in the long term.

2:36 PM  
Anonymous Anonymous said...

Carl,

So, based upon your response in locussolus, you think the state (us) should go ahead and shoulder the burden for existing agreements, but they should be prohibited in the future. Hmm, you and Blago agree. Maybe these policies are not blunders after all.

By the way, TCF, Blago's plan is for ALL state pension plans, not just public school teachers.

4:32 PM  
Blogger thatcoloredfella said...

If the plan is to honor existing contracts, then elimination of the practice, I'm on board! Gives me a chance to show off the fiscal Conservative aspect of my political ideology.

Now, about that Illinois Toll Authority...

6:11 PM  
Blogger Carl Nyberg said...

The school districts don't have excess revenue to go after.

The state should do something to retroactively trim pensions that were bloated with sweeteners. Dan Johnson-Weinberger had a discussion of this concept.

TCF might balk at trimming teacher pensions retroactively, but that's where the money is. There's no money to squeeze out of the local school boards. And the teachers and the unions knew what they were doing was unsustainable when they did it. It's not like retroactively removing these sweeteners is gonna put retirees in poverty.

7:58 AM  
Blogger Carl Nyberg said...

Blago's policies in these area remain blunders for a number of reasons. The overarching reason his policies remain blunders is that he's pursuing a short-term fix, not something that's sustainable.

8:00 AM  
Blogger Carl Nyberg said...

Capitol Fax quotes James Hacking, director of the State University Retirement System, calling the Blagojevich plan "very risky".

8:02 AM  
Anonymous Anonymous said...

Carl,

(a) Reducing the state's obligation for pensions for the future and (b) spending all of that money now are two different issues.

You, I, and Blago all agree with (a). (b) may be risky and, thus, a blunder.

Let's make sure we address them separately.

8:24 AM  
Anonymous Anonymous said...

Hmmm.... Blagojevich wants to cut pensions (but not his own), salaries (but not his own), jobs (but not his own), and refuses to raise taxes to pay for his policies. He's a Republican, and a slimy one at that.

8:49 PM  
Blogger Carl Nyberg said...

(a) Reducing the state's obligation for pensions for the future and (b) spending all of that money now are two different issues.

You, I, and Blago all agree with (a). (b) may be risky and, thus, a blunder.

Let's make sure we address them separately.
I'm skeptical of RB.

I think his main reason for reforming the pension system is to access revenue to avoid raising taxes or drastic cuts in services.

If Blagojevich couldn't get his hands on any of the money to spend in this year's budget, would he do the political heavy lifting of reforming the pension system?

3:39 PM  
Anonymous Anonymous said...

The real issue here is that this is done to compensate for 25-34 years of bad pay. Illinois is close to last in pension funding as it is.
Teachers are professionals with at least a bachelors, most have a masters degree. Yet a teacher after 30 some years of service to one school may only make $60-80,000 in their last year. What business person with a masters gets that little after 30 years of service? None. Who is more important to society, teachers, or business execs? Take away the end of career bonus and you must raise salaries for every teacher every year. To attract the best, you need to at least pay a decent wage.
Instead of paying the lady who holds the stop sign during road construciton on the highway $30 an hour, maybe we should fund education. No wonder our country is so low on educational testing vs other nations.

7:21 PM  

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