It would still be hard not to be. After a press conference two weeks ago and major confusion in the air (to say nothing of last week’s amendatory veto issued by Governor Rauner, which highlighted pensions), there are two big misconceptions that we’ve been hearing quite a bit and we’ll address them both here. But first…

A Crash Course on Pensions in Illinois

First, who pays? For our discussion, there are two key pensions systems: the Teachers’ Retirement System (TRS), which is paid for by the state and serves all teachers in Illinois, except for Chicago Public School (CPS) teachers, and the Chicago Teachers Pension Fund (CTPF), which is paid for by CPS.

Next, what’s a pension payment? Pension payments are best thought of as having two parts: the first is the normal cost payment, which is the cost of keeping up with pensions for the year, and the second is the unfunded liability payment which is essentially a debt payment to the fund to make up for years of smaller payments.

MYTH #1: Chicago asked to pay its own pensions in 1995 as a condition of getting block grants.

THE TRUTH: Chicago has paid its employer costs of its pension fund since the fund began. The State pays the employer cost for teacher pensions outside of Chicago for all other school districts. The State used to include some funding for CPS to use to make its pension payment. In fact, in 1997, a goal was added to state law declaring its intention to provide the Chicago Teachers’ Pension Fund “between 20% and 30%” of the amount it provides to the Teachers’ Retirement System (which covers all teachers’ pensions except Chicago’s). But last year, while TRS got $4 billion in state funds, CTPF got $0.

A 1995 law made major changes to how CPS operated, but it didn’t change who paid teacher pensions. The Chicago Block Grant was enacted as a way to maximize flexibility for CPS. Rather than reporting claims and getting reimbursed like other districts, the block grants were designed to reduce the paperwork. Now, most of us realize they are outdated and we should phase them out going forward, as SB1 does. But there was never any connection or deal between getting a block grant and paying for pensions.

MYTH #2: CPS’s ballooning pension unfunded liability will eat up everyone else’s school formula funds in the future.

THE TRUTH: The portion of CTPF unfunded liability payments that would be incorporated into the Base Funding Minimum is less than 1% of total. It’s also less than 1% of the total TRS payment the state will make this year. CTPF payments from now until 2059 will grow proportional to the cost of education overall; there is no upcoming cliff that would cause payments to jump disproportionally to the cost of payroll.

For more on how SB1 handles teacher pensions, Mike Jacoby from the Illinois Association of School Business Officials discusses it here.

With school starting in just a few weeks, Governor Rauner shut the door on progress by issuing an amendatory veto (AV) of Senate Bill 1 (SB1), the education funding reform bill that provides more money to local schools without any school district losing a penny of state or local funding.

The most concerning components of the AV are as follows:

  • The AV removes the Minimum Funding Level, an important factor for encouraging the legislature to continue making investments in school funding so that all districts are adequately funded. SB1 sets a goal of a 1% increase of the total state adequacy level each year. If the goal isn’t met, SB1 shields the most underfunded districts. The AV erases this incentive to provide reasonable school funding increases in the future.
  • In removing adjustments for property tax caps and TIF districts, the AV is ignoring the realities that districts face. Property tax laws limit the amount of funding school districts can take in each year. TIFs also divert property tax funds from school districts. Even though districts do not have access to these funds, the AV changes state law to pretend that they do. There is widespread agreement that the way Illinois approaches PTELL and TIF needs modernization, but this approach fails to address that core issue; instead it takes the problem out on school districts and children, who would now be twice denied that funding.
  • The AV punishes districts statewide by capping regional costs, which will impact each of the 313 school districts in Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry, and Will Counties. It also ignores inflation.
  • One component of this year’s budget package shifted pension costs for new teachers from the state to school districts. Districts must pay those costs in order to be adequately funded, but the Governor’s AV eliminates them from the adequacy calculation.
  • Regarding Chicago, the AV turns its back on the fact that Chicago is the only school district in Illinois that pays its own pension costs. While the statement issued from the Governor’s office talks about the state finally beginning to treat Chicago like all other districts, it approaches this in a manner many experts believe is unconstitutional. The AV also removes the cost of Chicago’s block grant from the district’s base funding minimum, an unnecessary shot at the largest school district in the state and the 85% of its students who live in poverty because the block grant will go away in the future under SB1.
  • To avoid a system of winning and losing schools, SB1 has a “hold harmless” that gives each district at least the same amount of state funds as last year. The AV evaporates the hold harmless in only three short years, at which time, as populations continue to move from rural to urban areas, our rural schools will feel the impact of lost resources. Last year, 222 districts lost enrollment.

We urge the legislature to override the veto.

It all goes hand in hand: you can’t spend money you don’t have through a formula that doesn’t exist. That’s why in order to fix our worst-in-the-nation funding formula, ensure schools open this fall, and put our education system on a path of renewed stability, we need to enact three bills:

1. Senate Bill 1, to fix our broken school funding system.

2. Senate Bill 6, to appropriate the money to pay for schools (among other things).

3. Senate Bill 9, to support the revenue needed to pay for the budget.

About SB1: The Funding Formula

SB1 is the school funding formula overhaul that passed the House and Senate on May 31. You can read the details here, but the upshot is that school leaders and advocates from across the state support the Evidence-Based Funding Model created in the bill as a once-in-a-generation chance to fix Illinois’s outdated and inequitable school funding system. The Governor has said he will veto the bill, even though all schools win and the framework aligns with recommendations of his own commission.

SB1 is the only funding formula that has passed the state legislature in 20 years. Multitudes of others have been filed but failed, including a recent one that would require at least six committee and floor super-majority votes to get as far as SB1. As a practical matter and as a lead publication has said, that last-minute attempt “appears DOA.”

About SB6: The Budget

SB6, which was enacted into law with the General Assembly’s override of the Governor’s veto, authorizes state spending for the fiscal year that just started. It includes increases in the education budget, but overall, the budget spends about $2.5 billion less than current spending levels. The education budget is consistent with the school funding structure in SB1. Almost all of the state’s appropriation to schools would flow through the new, integrated Evidence-Based Funding Model. That’s $6.7 billion. Without an Evidence-Based Funding Model in place to fund the budget, schools would be out that $6.7 billion.

The reality is that last year, the legislature essentially froze the General State Aid formula in place and sent new school funds through a temporary “equity grant.” Our main funding formula has been put on hold for over a year now. Last year’s budget took a small step toward improving school funding equity, but also created the situation we’re in this year where there is no active, functioning school funding formula. Both the Republican-drafted budget in SB2214 and the Democrat-drafted budget in SB6 appropriated school funding through a new evidence-based model. It is critical that SB1 be enacted so that schools get the funding they need to open their doors this fall.

SB9: The Revenue Bill

SB9 restores most of the income tax increase that lapsed two and a half years ago. This bill is the hardest part of the package, but one that 72 courageous and compassionate representatives voted to pass this week (71 representatives voted to override the Governor’s veto and enact it into law). No one likes tax increases, but the prevalent kick-the-can-down-the-road attitude in Illinois has led to years of spending without having money in the bank to pay for it. Many who voted for SB9 are fiscal conservatives who understand that the interest on the debt that’s growing every day will necessitate bigger tax hikes the longer we wait.

With $15 billion in unpaid bills and almost three years without a full budget, this is the critical piece of the package that will finally provide the stability that our schools need for long-term planning. Categorical payments are months delayed. General State Aid payments had been made on time, but a recent court ruling put in serious jeopardy the state’s ability to even continue making those payments in a timely fashion. And only 144 of over 850 school districts have 90-days cash on hand.

Without the revenue bill, there is no doubt in my mind that some schools would be unable to keep their doors open this year. The schools most impacted by this delayed payment cycle are the neediest districts.

The Conclusion

The budget only works if we have the evidence-based model in place. The evidence-based model only works if we have a budget to fund it. Schools can’t count on state payments for the evidence-based model or anything else unless we have revenue in place to pay for it. These three bills are all interconnected.

If your state senator or representative voted for SB9, say thanks! They stepped up and put kids ahead of politics. But while you’re at it, remind them that the job isn’t done until SB1 also becomes law. You can visit our action center to help get SB1 over the finish line here.

Good news from the Capitol! Four long years into the conversation about fixing the worst school funding system in the nation, both the Illinois House and the Senate passed a strong school funding reform bill last night. It’s the closest we’ve seen to getting a solution!

The full name of the bill is the Evidence-Based Model for Student Success Act (otherwise known as SB1). Simply put, this bill pulls together relevant research and evidence on how schools should be funded to ensure students’ academic success.

What does this mean for my child’s school?

Two key concepts help answer this important question.

First, remember that school funding is calculated on a per-pupil basis. Second, “adequate funding” or “adequacy” refers to what it costs for a school district to provide the evidence-based practices that drive student achievement.

Under SB1, no district loses money. In fact, every district gets an increase in funding from the state. The districts that are furthest from “adequate funding” get the biggest increases, because of the particular needs in their district (such as high poverty). The range of additional funding goes from $900 per pupil for Waukegan, to $193 per pupil for Chicago, to $1 per pupil for Lake Forest.

Of Illinois’ 860 school districts, about 100 of them would receive more than $400 per pupil. Two-thirds of those are located downstate and one-third are suburban. Another 140 districts, which are already funded at over 100% of adequacy, would see just $1 per pupil.

Check out the Illinois State Board of Education’s estimate of how much each district would receive. (Follow the link and click “House Amendment 1 to Senate Bill 1 (Manar/Davis).” Click the link in the dropdown menu to open the spreadsheet.)

How does this bill work?

Think of it in four major components:

1. First, each district get its “Base Funding Minimum,” which means whatever each district gets from the state this year, it will continue to receive in perpetuity. No district loses funding.

2. Then, an “Adequacy Target” is calculated for each district based on what it costs for a district to provide the evidence-based practices that drive student achievement.

For example, research shows that an average-sized school building needs a principal, librarian, and nurse and that low-income kindergarteners benefit from a full day of instruction with a 1:15 class size ratio. Teachers need high-quality professional development and instructional coaches. Students with special needs need extra support, as do English learners and low-income students.

3. Next, a “Local Capacity Target” is calculated for each district based on how much property wealth each district has available to contribute. When we add the “Base Funding Minimum” to this number, we see how much the district has available to spend, and from there, we can identify how close a district is to being adequately funded.

4. Finally, new dollars flow through the new model, funding districts that are furthest from adequacy. Districts are divided into four tiers, from the least adequately funded in Tier 1, to those funded over adequacy in Tier 4. The first half of new funds will be invested in the Tier 1 districts, followed by the next 49 percent invested in the Tier 1 and 2 districts.

The bill also creates a property tax relief pool available to districts with low property wealth but high property tax rates. This incentivizes these type of districts to reduce their rates on property tax payers.

What about the budget?

We also need a K-12 education budget so that dollars can be distributed as set forth in SB1. The only budget that passed in the last two years was the K-12 budget; that needs to happen again for the fiscal year that begins July 1. The legislature will continue meeting throughout June to work toward an agreed budget compromise.

What will Chicago Public Schools get?

Chicago is caught in the middle: on the one hand, it’s the economic hub of the state and home to nearly 400,000 of two million Illinois schoolchildren. On the other, it’s the big city that some of the rest of Illinois loves to hate. Chicago Public Schools, which is 269th on the list for SB1, would receive $193 per pupil in new funding.

So why are some calling this bill a Chicago bailout?

We urge you to look at the facts. Don’t get played. Earlier attempts at funding reform could have created winners and losers and pitted Chicago against the rest of the state…but not this time and not this bill.

Remember these facts:

  • No district loses money. Every district gets at least what it received from the state last year.
  • Money is directed to the districts that need it the most because they are the farthest away from adequacy.
  • Chicago is by far the largest school district in the state and has 86 percent of its kids living in poverty. On a per pupil basis, there are 268 districts that get more than they do. If $350 million is invested, an amount a lot of legislators have been talking about, Chicago would receive $70 million of it.

Then, there’s the teacher pension funding issue…

The state pays almost all of the employer costs for teacher pensions outside of Chicago, and almost none for Chicago teacher pensions. The amount the state pays for pensions outside of Chicago was more than the whole allocation to the school funding formula last year. In fact, while the state gave the non-Chicago Teachers Retirement System $4 billion last year, Chicago’s Teacher Pension Fund got nothing. That $4 billion increases next year to $4.6 billion.

SB1 would provide Chicago with $215 million for its pension. That covers the “normal cost” of Chicago teacher pensions only – not any of the legacy costs for pension debt. The remaining $500 million in pension debt costs would be recognized when the formula considers how much local capacity CPS has to fund its schools, but the benefits for that adjustment are already accounted for in the $70 million figure expressed above. The district cannot spend the same dollar twice, so subtracting this from local capacity is entirely reasonable.

What happens next?

We’re as close as we’ve ever been to fixing our broken system, but we’re not at the finish line. When the Senate sends the bill to the Governor’s desk (that could happen any day now), he has 60 days to sign it into law or veto it.

So we need to turn up the pressure and let Governor Rauner know that school funding reform matters across Illinois. (Contact the Governor here.)

If Gov. Rauner vetoes the bill, the legislature will have the chance to override the veto with a three-fifths majority vote in both the House and Senate. That means the bill needs more yes votes than when it passed last night by simple majority. Because this bill has tremendous benefits for districts up and down the state (even for some who voted no for it last night), we need show our support for SB1.

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.