Pension liability a concern to GOP state rep
By Hank Beckman For The Sun July 11, 2012 2:50PM
Darlene Senger, candidate for state rep. 96th district Submitted 10/2008
Updated: August 14, 2012 6:13AM
Naperville school districts may face long-term budget adjustments and even cutbacks in services if the proposal to shift pension costs from the state to local districts becomes reality.
Currently the state picks up the employer’s share of pension contributions for community colleges, state universities and school districts outside Cook County.
With the state’s unfunded pension liability standing at $83 billion and counting, the feeling among some legislators is that it’s time to shift the cost back to local districts.
State Rep. Darlene Senger (R-Naperville) isn’t happy with the proposal.
“I think they (legislators) have the assumption that school districts were flush with cash,” Senger told the Naperville Area Chamber of Commerce this week.
Senger went on to say that many might be misled by the fact that school districts typically received their property tax payments in June, making it appear that they were in better shape financially than they really are.
Senger said there was no consensus on whether any cost shift would occur all at once, or in a gradual, phased-in approach, and as of June 10, the last meeting that she had attended as part of a committee working to remedy pension liabilities, no definite timeline had been established.
“We’re not sure when,” she said.
Senger also pointed out that $83 billion might only be a portion of what the actual unfunded pension liabilities are for the state.
A recent directive by the Federal Government Accounting Standards Board changes the way most public employee pensions are accounted for. First, pension administrators will have to recognize the pension obligations as a liability for the first time. Also, they will have to “more comprehensively and comparably measure the annual costs of pension benefits,” according to the language in the directive.
Pension managers will also be required to more accurately report the actual returns on their investments, rather than what some call unrealistic projections.
A recent Wall Street Journal article quoted Dick Ingram, executive director of the Illinois Teacher’s Retirement System, to the effect that the 8.5 percent expected rate of return for TRS’s fund portfolio might have to be lowered.
The article presents figures from the National Association of State Retirement Administrators that show TRS returns falling below the projected 8.5 percent several years in the last decade.
Senger said that when the state’s pension funds begin to report actual investment experience instead of unrealistic expectations, the real unfunded liability could be closer to $124 billion.
Senger noted that her latest figures for the two Naperville school districts showed that the cost shift would add $8.5 million annually to the District 203 budget and hit District 204 for $11 million over the next three years.
Supporters of shifting the cost to local districts say that in addition to putting the burden on the taxpayers that actually employ the teachers, it would force local school boards to be more responsible in negotiating employee benefits.
But Senger noted that the problem for local school districts went beyond just the unwillingness to ask for increases in the property taxes that largely fund schools. There is also the matter of the Illinois property tax cap, which limits the increases taxing bodies can levy to 5 percent, or the equivalent of the Consumer Price Index, whichever is lower.
If local districts have to pick up even a portion of the costs, it will obviously have a negative effect on their budgets. But with limited ability to raise taxes without a referendum, school districts might see reducing services or increasing class size as their only alternative to debt.
Steve Brown, press secretary for Illinois House Speaker Michael Madigan, acknowledged that the Speaker supported shifting the pension costs back to local school districts, but said Madigan sees the issue much differently.
“What he has proposed is that we end the free lunch,” Brown said in a telephone interview.
Brown stressed that TRS pension payments represent about 74 percent of all pension payments made by the state and said the best solution would be to shift the obligation to those who actually make the decisions in contract negotiations.
Brown also downplayed the negative affect on local school district budgets, saying that the Speaker supported a plan to phase in the shift over seven seven to 10 years, stressing that the impact would be minimal “if they just spent a portion of the interest from their reserve funds.”