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 One saving grace of last year’s state budget in Illinois would
be null and void if Gov. J.B. Pritzker approves the one state lawmakers have
proposed for the coming fiscal year.
Included in the record $40 billion budget passed by the Illinois General
Assembly is the elimination of a taxpayer protection against “pension spiking”
by school district officials.
Pension spiking is the practice of boosting an employee’s salary during his or
her final years of work before retirement. The Teachers Retirement System, or
TRS, pension formula calculates retiree benefit levels by averaging an
employee’s highest four consecutive years of salary within the final 10 years of
his or her career.
State lawmakers capped end-of-career salary spikes to 6% per year in 2005.
School districts were still free to hike salaries by whatever amount they chose,
but increases above 6% annually meant local taxpayers would have to make extra
contributions into TRS, rather than the state.
Unfortunately, school districts began treating that limit as a given, and began
automatically hiking salaries by 6% each year for the four years prior to
retirement. These raises massively boost a worker’s retirement benefit. Hiking a
teacher’s salary by almost 26.2% means a career worker with an average salary of
$73,000 will earn approximately $380,035 more during the course of her
retirement when compared with 2% annual raises.
That’s why lawmakers in the fiscal year 2019 budget cut the cap in half to 3%.
But with Pritzker’s signature, lawmakers’ current budget proposal will spring
that cap back to 6%.
Pension spiking punishes future teachers and taxpayers
While local school districts decide employee salaries, state taxpayers are
ultimately on the hook for pension payments to TRS. That excludes the pension
costs incurred by school districts spiking salaries above the cap, which the
state requires school districts – or local property taxpayers – to pay. This is
not uncommon: According to the Chicago Tribune, school districts across the
state made a total of $38 million in penalty payments for pension spiking
between 2004 and 2014.
Because wealthier school districts are more likely to have the resources to
boost salaries, pension spiking forces state taxpayers in poorer school
districts to subsidize those wealthier districts’ pension costs.
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Some claim pension spiking is an important tool to
attract teachers to Illinois. The Illinois Education Association, or
IEA, went as far as stating in a press release that returning the
pension spiking cap to 6% would “save the teaching profession.”
IEA’s claim is untrue. While pension spiking certainly benefits some
pensioners who collect inflated retirement earnings, demanding more
from a deficient TRS puts the retirement security of the vast
majority of current and future teachers in jeopardy. TRS is only 40
percent funded, and holds the most debt of all five state-run
pension funds, at $75 billion.
Pension spiking only adds further stress to TRS, a defined-benefit
pension system that is already unsustainable.
Many school district employees would be surprised to learn that the
state increased, rather than decreased, funding to local school
districts over the years. That’s because required TRS contributions
capture an increasing share of state education funds. Between 1996
and 2016, for example, the state increased its education funding by
more than $5.4 billion, or 87%. But $3.6 billion – or 66% – of that
increase went to former teachers’ pension payments, instead of
current teachers’ classrooms.
Far from “saving” the teaching profession, pension spiking funnels
scarce education funds to a fortunate few retirees, at the expense
of teachers currently serving and future teachers still in training.
Local taxpayers also suffer. True, local property taxpayers aren’t
directly on the hook for TRS benefits. But they do pay the price in
a painful but overlooked way: As pensions consume state education
funds, school districts must resort to hiking already-high property
taxes to find needed revenue. School districts currently consume
nearly two-thirds of total property tax dollars collected in
Illinois.
While lawmakers would better serve teachers and taxpayers alike by
working to align pension costs with school district salary
decisions, there’s little doubt Pritzker will sign the budget state
lawmakers worked overtime to put before him.
Illinoisans are in desperate need of property tax relief. That
cannot be achieved with another task force, but only by reforming
the increasingly unstable pension system in which public employees
are trapped. The same state leaders who carried Pritzker’s
progressive tax to the ballot with the mantra of “letting voters
decide” should live up to that principle when they return to
Springfield, and muster the political courage to pursue a
constitutional amendment to reform Illinois’ broken pension system.
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