TRS Surcharge Continues Taking Federal Funds from Districts to Cover Pension Debt 

Today, Stand for Children Illinois released an update to its 2015 report that details how Illinois siphons federal funds earmarked for needy students away from school districts to pay pension debt. The practice of tapping federal funds through this TRS federal funds surcharge to cover pension costs hurts the poorest schools the most.

After the October 2015 report was released, SB 436 (Stadelman/Gordon-Booth) passed the Illinois Senate with overwhelming support. The House never assigned the bill to a substantive committee, so it died earlier this month when the new General Assembly was seated. Sen. Stadelman has filed SB 195, which advocates hope to advance this year.

Meanwhile, the problem has gotten even worse. The TRS surcharge is the special rate school districts outside of Chicago must pay when using federal funds to pay teachers. Those federal funds are meant to support underserved students, but when a district spends those funds to hire certified teachers, the State takes 39% of those funds to pay off the pension debt of the Teachers Retirement System (TRS). Next fiscal year, that percentage will climb to an eye-popping 45%.

Illinois, which already has the most regressive school funding system of any state, is the only state in the country to have adopted this practice. Federal funds are a lifeline for needier students and schools that are under-resourced. But the state has instead chosen to treat them like a piggy bank to raid to cover its massive pension debt.

Federal funds are supposed to be targeted to serve poor and special needs students, but Illinois law rips off our neediest students. When school districts in Illinois hire teachers using state or local funds, they pay only 0.58% of salaries to TRS. But when districts pay teachers using federal funds, they pay over 65 times that amount to TRS. As a result of this policy, the high TRS payment for federally funded positions hits the state’s poorest school districts hardest. School districts face two terrible choices: relinquish to the pension fund 39 cents of every dollar (soon to be 45 cents) of every federal dollar they receive, or spend federal funds on materials, which may not make the most impact on student learning. This is a travesty.

Read our report, An Education Funding No-Brainer: Stop the Teacher Pension “Surcharge” that Hits the Poorest Schools Hardest.

There are about 860 school districts in Illinois and just one of them is responsible for paying the employer costs of their teachers’ pensions: Chicago Public Schools. The State covers the cost for the rest. Neither the State nor CPS has been a model financial steward for this responsibility—both the State and CPS now have to pay every year to cover the current costs (which we call “normal cost”) and debt from past years of skipping payments.

The “normal cost” for Chicago teachers’ pensions is $215 million this year. This has become especially relevant at this moment because the General Assembly passed (on a bipartisan vote) an appropriation bill to cover that full amount this year, which the Governor agreed to sign only if there was significant pension reform enacted first. Keep in mind the $215 million doesn’t even touch the pension debt that has also amassed; CPS will need to kick in a total of $721 million. The Governor vetoed that bill last week and the Senate overrode the veto. The House has 15 days from then to also override the veto if it is to become law, but assembling the super-majority vote needed to override would be exceedingly difficult and the House is not scheduled to be back in session until January 9.

But let’s compare: this year, the State of Illinois will spend about $4 billion for teacher pensions outside of Chicago. By far, most of that is debt. It’s about $250 million more than the State of Illinois paid for teacher pensions last year. It is subject to a “continuing appropriation,” which means that it gets paid no matter what. No budget? That $4 billion contribution to TRS still gets paid. Here’s how state payments to teacher pension systems have gone over the years:

That FY17 $215 million is about 5% of the amount the state will contribute this year to teacher pensions outside of Chicago. It is also the bill that has been termed a “Chicago bailout.” But when you consider the normal cost payment in context, it seems pretty clear that this is just one step closer to pension funding parity.

It’s a truth universally acknowledged that a dramatic school funding formula overhaul must be accompanied by a “Hold Harmless.” (OK, maybe not universally, but school funding changes almost always include a provision that protects districts from getting less money than they used to. That’s a “Hold Harmless.”)

As Springfield continues working on school funding reform, the concept of a Hold Harmless deserves some attention. It is a term often bandied about but not always fully understood. The failure to think thoughtfully about the concept has implications.

When Illinois changed its school funding formula in 1997, it included a Hold Harmless that simply said no district would get less General State Aid than it received the year before. Sounds easy enough, right? In theory, the state would increase education funding over the years and districts would grow out of the Hold Harmless and live happily ever after under the new formula.

But in reality, that’s not what happened. Instead, some districts had declining enrollment or increasing local wealth and, years later, became eligible for Hold Harmless grants. It wasn’t there just as a short-term cushion to transition to a new formula; it became a barrier to the new formula actually working the way it was supposed to. In 2011 when the legislature finally stopped funding the Hold Harmless, over 60% of districts that qualified were ones that benefitted from the revised formula in 1997 and experienced a change in enrollment, poverty rates, or property wealth sometime after that.

The parameters for the hold harmless, and the length of the hold harmless are important considerations. A smart hold harmless can set the stage for smooth implementation and public embrace of a new policy. A weaker one can undermine an otherwise strong policy decision.

Springfield is on record for committing to reform the inequitable way that Illinois funds its schools across the state. There are examples of good and not-so-good hold harmless approaches here in Illinois and around the country. Our next funding formula will undoubtedly have a hold harmless provision. Click here for a deeper dive on the history of hold harmlesses in Illinois and other states.

Let’s learn from the past, then proceed with all deliberate speed to getting a better funding system in the coming months.

Updated: May 31, 9:50am

There is a whirlwind of education funding reforms and budget bill spending in the General Assembly right now. If you’re having trouble keeping up, this blog is for you.

SB 231 (MANAR/C. MITCHELL): BETTER FUNDING FOR BETTER SCHOOLS BILL

SB 231 moves Illinois’s most-regressive-in-the-nation state school funding method from a complex web of formulas to a single, integrated formula that uses weights based on each school district’s poverty concentration, number of students learning English, special education needs, and other characteristics. Nearly every education dollar would be spent to close funding gaps between high-poverty districts and those that are better off.

The bill also includes an “Adequacy Grant” so that no district that is underfunded would lose state resources as long as its local property tax rate is near or above the statewide average rate. A “Hold Harmless” provision is also included so that every district gets at least the same amount from the state as it did last year. The Hold Harmless provision would phase out over four years. The bill would also cover “normal cost” of Chicago’s teacher pensions – currently the only school district that pays for its own current costs of teachers’ pensions is Chicago Public Schools; under SB 231 the State would pick up those costs as it does for every other school district in the state.

After three years of hard work setting the stage for a long-term funding fix, SB 231 passed the Senate on May 10, 2016. SB 231 is posted for House Executive Committee on May 31, which is the last day of regular session.

HB 3190 (LIGHTFORD/W. DAVIS): BETTER FUNDING FOR BETTER SCHOOLS PLUS AN EVIDENCE-BASED MODEL

The “evidence-based” approach to school funding considers what practices lead to improved student learning and how much it costs to fund those practices. That includes class sizes of 15 in grades K-3, class sizes of 25 in grades 4-12, 1:1 technology, and appropriate ratios of students to counselors, interventionists, art and music teachers, and other school personnel. Schools would not be required to spend their funds on those programs but, according to the evidence-based model, when they are fully funded, they would have the adequate resources that research shows would provide a high-quality education.

HB 3190 would incorporate the weights from SB 231 in FY17 to provide immediate relief for the neediest districts, while holding harmless other districts. The formula would transition to evidence-based weights in FY18 and thereafter.

As for distributing state resources, HB 3190 would divide districts into multiple “tiers” that reflect how close they are to being adequately funded. Districts that are furthest from adequacy are in Tier One and would be prioritized first. Almost all funding would go to Tiers One and Two, but even the richest districts would get 1% of the total appropriation so every district would see some small increase over the years.

HB 3190 passed the Senate on May 27, 2016. The House would need to concur with the Senate’s changes for it to be sent to the Governor, though no motion to concur has been filed as of this writing.

SB 2048 (CURRIE/J. CULLERTON): EQUITY GRANT IN FY17 BUDGET BILL

The House created an Education Funding Reform Task Force that has been meeting for almost two years. The Task Force Chair sponsored SB 2048, saying that the committee found inequities in the current formula and that this one-year infusion of funding through the poverty grant would raise the floor for poorer districts while the committee continues its work. SB 2048 also includes appropriations for other areas of the budget.

The bill appropriates $700 million through the poverty grant formula, with every district receiving some increased appropriation. Districts would receive the same amount of General State Aid (GSA) they received in FY16, and those that would have seen an increase if GSA were fully funded in FY17 would also receive that additional amount.

An additional $100 million is appropriated for the Chicago Teachers’ Pension Fund.

SB 2048 passed the House last week. The Senate would need to concur with the House’s amendment in order for it to be sent to the Governor, though no motion to concur has been filed as of this writing.

HB 813 (J. CULLERTON/GABEL): MODIFIED EQUITY GRANT

Mirroring the SB 2048 framework, HB 813 incorporates the GSA Hold Harmless and retains all of the categorical programs formulas. However, instead of using the existing poverty grant formula, it creates an Equity Grant formula that would drive new dollars to the districts that most need them. Though it does not make structural changes to the way current dollars in the system are spent, new funds would be allocated in a significantly more equitable way. The Equity Grant is similar to the existing poverty grant with two differences: (1) It adds a measure of local wealth to the calculation to “equalize” the grant; and (2) it raises the amount of the grant for middle-poverty districts (those with about 50% low-income students), who are shortchanged in the current poverty grant.

The bill also creates a continuing appropriation for the Chicago Teachers’ Pension Fund (CTPF) “normal cost” going forward. It requires the Chicago City Council to approve a dedicated tax levy of 0.26% to fund CTPF. (Before 1995, CPS had a dedicated pension levy of 0.26% to pay teacher pension costs.)

HB 813 passed the House on May 27, 2016. The House would need to concur with the Senate’s changes for the bill to be sent to the Governor, though no motion to concur has been filed as of this writing.

P.S.: I only wrote about the four education funding bills that moved in the last couple of weeks, but requests are coming in for a fuller list:

GOVERNOR’S INTRO BUDGET

The Governor introduced budget proposed full funding of the current Foundation Level, which would increase the General State Aid appropriation by $51 million. (It also included an additional $75 million for early childhood among the many other programs that make up ISBE’s $7+ billion General Funds budget.)

SB 3434 (Barickman): SENATE REPUBLICAN BUDGET BILL

The newly-filed Senate Republican budget bill would fully fund General State Aid and create a Hold Harmless provision so that no district loses more than it received last year, which adds $105 million to the education budget.

HB 828 (W. Davis): THE EVIDENCE-BASED MODEL

HB 828 represents a fundamental change in the way IL funds schools. The bill defines adequate spending for each district depending on its student characteristics, holds districts harmless so no one “loses,” and changes the distribution of state resources to better direct dollars to needier districts. It is similar to HB 3190 (Lightford/W. Davis), except that it does not incorporate SB 231 weights for the first year.

HB 829 (Currie)

House Amendment 1 includes the language from SB 231. It was filed because the bill is in position to be called for a floor vote in the House.

Stand for Children Illinois Executive Director Mimi Rodman issued the following statement, today, immediately after Gov. Bruce Rauner’s State of the State address, which highlighted his 10 goals to improve education in Illinois.

Gov. Rauner repeatedly talked about working across the aisle to make Illinois schools the best in the nation. We’ve yet to see such compromises in Springfield, so we’ll remain vigilant and vocal about fighting for a better public education system. 

We urge the leaders of this state to work toward a bipartisan agreement that provides fair funding to all Illinois schools and ensures every child–whether they live in an urban, rural, poor, or wealthy community–receives a high-quality education. Every day that goes by when our leaders are not truly leading is another day that an Illinois child slips through the cracks of a broken education system.

Governor Bruce Rauner and the leaders of the Illinois House and Senate have enacted HB3763, the new state education budget. While the state is still falling short of fully funding our schools, this budget is still an improvement, funding general state aid to school districts at 92 percent as compared with the 87 percent this past year. It also sets aside $85 million to recoup the losses of our neediest districts.

We commend Governor Rauner and the General Assembly for adhering to their commitment to prioritize public education in the latest budget. In the midst of our state’s fiscal crisis and competing spending priorities, this budget demonstrates that progress remains possible when both sides work together. While we have not yet achieved the goal of full and equitable public school funding, the governor and General Assembly have eased some of the burden on our local school districts, particularly in our most underserved communities. We hope this healthy collaboration will continue as all Illinoisans work together to ensure every child has access to a great public education that prepares them for the future.