Teacher Pensions Blog

In February Illinois Governor Bruce Rauner announced his latest budget proposal. One of his money-saving ideas is to cut $2 billion in state spending by shifting teacher pension costs to school districts. While this plan has some merits, there nevertheless is a lot to dislike about this approach.

In every state, pension benefits and pension contributions are made as a percentage of educator salaries. And since school districts set salaries, it makes some sense that they should carry the responsibility of financing the resulting pension costs. The issue, as Governor Rauner points out, is that districts can establish generous back-end salaries to attract educators, knowing that the increase in pension costs from those higher salaries will be picked up by the state. This disconnect can become an expensive cycle in which districts raise wages to compete for educators, leading to a tragegy of the commons. 

There are a few problems with this argument.

For one, there is a case to be made that districts, particularly those serving a lot of students living in concentrated poverty, need additional funds to encourage effective teachers to work in more challenging schools. And while the new state school funding formula will send additional money to high-poverty districts, it is unclear if it will be enough to offset the new pension costs.

Also, it is disingenuous to suggest that lavish salaries and pension spiking are the main or even a primary reason Illinois’ teacher pension system is in dire financial straits. To be sure, higher salaries means higher pension payments. However, there are greater drivers of burgeoning state pension debts, such as the state legislature’s long history of underinvesting in the pension fund as well as increasing benefits during bull markets without ensuring long-term solvency.

To avoid pushing out other education expenses to cover pension costs, communities could elect to raise property taxes. But of course, levying new taxes is politically and economically challenging. And even if a district were to raise new revenues, that would likely exacerbate existing inequities in school funding. Low-wealth districts will likely struggle to raise revenue to avoid pushing out other educational expenditures, while wealthier districts have the capacity to increase revenue more easily and avoid that trade-off.

There is no denying that something must be done to address the more than $70 billion in teacher pension debt Illinois is carrying. But shifting the cost to districts and hoping that they can make up the difference is wholly insufficient and could cause greater damage to local districts and schools.

The unfortunate truth is that the state of Illinois only has itself to blame for this problem. Getting out of it will take state-level solutions that, at the very least, provide new educators the option of opting into a different retirement savings plan that is actually more productive than the pension system for the typical teacher. Forcing districts and schools to raise local taxes or forgo other spending while cutting state pension funding may sound like a neat trick, but if anyone should be tightening their belt, it’s the state.