Yes, Public School Districts Should Pay for Pensions

Those who create the costs should pay for the costs.

My, my, there is certainly a lot of wailing and gnashing of teeth over Gov. Quinn’s proposal to ask the local school district’s to pay part of the cost of the pensions. Everyone both Democrat and Republican are against it. The concern is the increase in property taxes that might ensue from implementation. The total cost passed on to the school districts (called Normal Cost) would be about $750 million/yr. about 25% of the total required contribution. In other words taxpayers at the state level would still be on the hook for the vast majority of the cost.

Here are a few of the more obvious ways to pay for the Normal Costs without raising taxes:

Option 1: Freeze teachers’ salaries for one year.

I am continually amazed at the reluctance of any public figure to discuss the possibility that teachers are overpaid. Huge increases continue to be handed out to teachers like candy on Halloween except the treat goes to the teachers and the tricks go to the taxpayer. There are 7,548 IL teachers with salaries over $100,000 compared to 17 in WI, Iowa, Missouri and Kentucky combined.

On average teacher salaries have increased by more than 7%/yr. since 2000. Since the amount of pension cost being discussed is also a little over 7% the one will offset the other and there should be no need for a local property tax increase.

Not paying 7% increases will save about $700 million/yr. which can then go towards the pensions.

Option 2: Limit teacher salary increases to 3.65% for three years.

Over the same ten years that teachers have been receiving 7% increases regular folks working in the Social Security system have been receiving 3.65%. So let’s make teachers live like the rest of us live for just three measly years and that would allow $1 billion to be contributed without any increase in local taxes. If we extend the 3.65% limit to 5 years we save $5 billion in salaries enough to pay for the schools’ legitimate pension contribution and hand out property tax reduction to local taxpayers to boot.

Option 3: Eliminate the two year sick-leave credit available to retiring teachers.

Current law allows teachers to accrue from 10 to 15 days per year and apply that two years worked when they retire. In other words they don’t actually work those two years but they do get 2 years credit towards their pension calculation at no cost to themselves. That costs the pension system about $300 million per year.

Option 4: Eliminate the automatic 25% salary increase over the last 4 years for retiring teachers.

This particular egregious hand-out to teachers could be eliminated without any undue hardship to teachers who certainly do nothing to earn it. This give-away salary freebeeincreases the total pension payout for a 55 year old teacher making $100,000/yr. by $500,000 for an employee contribution of $6,000. How’s that compare to your 401-K?

A taxpayer is a taxpayer is a taxpayer.

One of the tricks teacher unions use is to convince the public that the “state” taxpayer is somehow unrelated to the “local” taxpayer when of course they are exactly the same person. In simplest terms requiring the local taxpayer to fund local pensions makes sense and should be considered a “use” tax just like Tollway fees are “use” tax. If you use the Tollway you pay for it if you don’t use it you don’t pay for it. Likewise if you overpay your teachers you should have to pay for their outrageous pensions. Why should someone else pay for them?

The concept of pensions as a “use” tax is made obvious by the following table comparing the pensions of two different school districts, Stevenson District 125 in Lincolnshire and St. Libory District 30 in St. Libory. Looking at the Stevenson pensions on the left ask yourself why the taxpayers in St. Libory should pay for the unreasonable pensions at Stevenson when their own pensions are reasonable?

Transfer the entire pension cost to the school districts and cut the income tax by 30%.

Two years ago Gov. Quinn managed to get the state income tax rate increased from 3% to 5%. If we made the entire $3 billion/yr. teacher pension cost a local “use” tax, we could cut the income tax by 30% back to 3.5%. So it would be revenue neutral but transfer the true cost to where it belongs – with the taxpayers who created the problem by handing out huge salaries without considering the cost of the pensions. Once pension costs are being paid by the taxpayers who determine them, teacher salaries will almost certainly come down thus saving both salary and pension costs long term, a benefit to all taxpayers.

The pension costs should never have been at the state level to begin with.

What happens when you transfer the pension costs from the school district to the state? The schools have a lot more money to use for salaries which is exactly why the teacher unions pushed for the plan in the first place. With pensions costs off somewhere in la-la land (AKA Springfield) unions could negotiate much higher pay rates locally than they would be able to do otherwise. Who cares what effect large salary increase have on pension costs if you don’t have to pay for them? This kind of thinking is what led to the outrageous 25% salary increases over the last 4 years of employment. If the schools were responsible for the $500,000 in extra pensions cost for one teacher (as described above), do you think they would be handing out these ridiculous raises?

So let’s rationalize all pension costs, including university and the state, by making each entity pay for their own pensions out of their current budget. Once we accomplish this public salaries will revert to a level they should have been decades ago and taxpayers will save $100’s of billions over the next few decades.