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Article of Interest - Illinois Education

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Bridges4Kids LogoPension Overhaul Called Hit to Schools
by Ray Long and Diane Rado, Chicago Tribune, February 23, 2005
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Local school districts throughout Illinois would be charged an extra $149 million the next school year to pay for Gov. Rod Blagojevich's proposal to overhaul the state's pension systems, one top pension official warned Tuesday.

If that estimate is correct, it would mean the added expense would more than consume the $140 million increase in education funding Blagojevich included in his budget proposal for next year, an amount criticized as inadequate by friends and foes of the governor alike.

In his budget address last week, the Democratic governor urged the legislature to approve a sweeping overhaul of state-run pension systems of judges, legislators, university workers, regular state employees and teachers outside of Chicago. Teachers in the city have a separate retirement system.

Contending his plan would save the state billions of dollars over the next several decades, Blagojevich urged changes ranging from reducing retirement benefits for future state employees to capping state pension contributions tied to lucrative end-of-career raises frequently doled out by school districts.

But school officials say those big raises are written into union contracts in many districts, so local property-tax payers would be on the hook for any pension costs tied to those raises that the state no longer picked up.

Jon Bauman, executive director of the Teachers Retirement System, estimated the first year cost of such a change would be $149 million.

Becky Carroll, a spokesman for Blagojevich's budget office, disputed Bauman's figures.

"That is not a hard number in any way. It's an assumption," Carroll said. "If we're to assume that school districts are going to change these salary-increase practices and live within their means as outlined in these reforms, then that $149 million actuarial assumption would drop dramatically."

Illinois lawmakers had long neglected the pension systems, but a decade ago they committed to an ambitious schedule to pump billions of dollars into the system over many decades to make them more financially sound. Blagojevich contended his reforms could enable the state to accomplish that goal and still save $55 billion over the next 40 years.

Republicans, however, complained the governor's plan pumps too much of the savings into the short term to help him out of a fiscal crunch and robs the systems of cash that they would invest to improve their viability in the long run.

House Republicans contended their estimates show Blagojevich's revisions could actually add tens of billions of dollars to the state's long-term pension costs because of his plans to reduce payments to the systems over the next five years. That, critics said, would rob the systems of investment income and compounded interest.

Blagojevich's plan "makes no financial sense," said House Minority Leader Tom Cross (R-Oswego). "The treatment is worse than the disease."

Cross said Republicans in the House are willing to work with the governor on reforms.

Carroll disputed the House Republican estimates as well.

Some of the most vocal criticisms of Blagojevich's budget have come from teacher unions, which have complained about what they contend is an inadequate amount of new spending set aside for classrooms.

Questions about whether the pension reforms will aggravate the financial condition of districts only compound the problem, union leaders said.

"We didn't think the governor's proposal provided enough new funding for schools in the first place," said Steve Preckwinkle, a lobbyist for the Illinois Federation of Teachers. "The notion that this could be almost a $150 million hit to the schools is very disconcerting. Obviously, that would wipe out the ... full effects of the $140 million increase right off the top."

The practice of giving out big pay raises to retiring teachers dates back decades and prompted an outcry in the late 1970s, when 40 and 50 percent raises were being dished out to retiring educators.

In response, the state put a cap on the practice, saying pay increases as high as 20 percent from one year to the next could be included in pension calculations for most retirees, but nothing over that.

A Tribune investigation in 2003 showed that more than 70 percent of full-time teachers and staff who retired in the suburbs and Downstate over the prior decade had gotten at least 10 percent pay increases in one or more of their last three years. About 55 percent of the retirees got at least 15 percent raises, and about a third got at least 20 percent increases.

Some districts give as many as three 20 percent raises in a row to retiring educators, but it is more common to see two years of 20 percent raises, said Allen Albus, the assistant superintendent over finances in Naperville District 203.

While Albus acknowledged that the large raises lead to enhanced pensions ultimately paid by the state, he said districts would be in for a struggle if they had to come up with funds to pay the long-term cost of the end-of-career raises promised in current contracts.

Under Blagojevich's plan, the state would pick up increased pension costs calculated on the first 3 percent of an end-of-career raise. Anything above that, the districts themselves would have to pay.

    

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