Why Sen. Brady is wrong about local pension accountability

Recently, Sen. Bill Brady suggested that local pension accountability would lead to property tax increases (Pension imbalance, May 13, 2012). Not true. The state already increased everyone’s income taxes to pay for pensions. Cutting state expenses will allow for lower taxes. If the state doesn’t reduce pension costs, then other education spending will face cuts....

Recently, Sen. Bill Brady suggested that local pension accountability would lead to property tax increases (Pension imbalance, May 13, 2012). Not true. The state already increased everyone’s income taxes to pay for pensions. Cutting state expenses will allow for lower taxes. If the state doesn’t reduce pension costs, then other education spending will face cuts.

The state is $153 billion underwater on its pension plans, retiree insurance funds and pension-bond debts. This year, the state will spend $7.6 billion of its $33 billion budget on retirement costs, an unsustainable situation.

The most red ink comes from the Teachers’ Retirement System, whose costs threaten to upend Illinois’ education finance system.

With teacher pensions, the state can save money in three ways.

1. Going forward, teacher pension benefits must be more affordable for taxpayers. Today, a career teacher who retired in 2011 collects an average starting pension of $65,109.
2. The current 3 percent compounded “cost-of-living” adjustment must be reduced. Pensioners currently receive raises every year, regardless of changes in everyday expenses. These COLAs can turn a $65,000 pension into a $100,000 pension in 15 years.
3. Local school districts must be held accountable for the pensions they award. By paying for teachers’ pensions, the state has provided a huge subsidy to every non-Chicago school district for years. This has had a massive – and now dire – impact on state education finances.

Some say the third recommendation is controversial. It shouldn’t be. A recent Illinois Policy Institute report found that the state’s TRS subsidy overwhelmingly favors wealthy and big-spending districts that spend much more on teacher salaries. At a time when the state is cutting aid and grants to poorer districts and at risk students – the ones who are supposed to be the focus of state-funded education programs – this is a serious problem.

Restructuring benefits can reduce the cost of government employee pensions. Local pension accountability should be part of immediate, larger pension reform.

In fact, lawmakers should have done this long ago, as the Illinois Policy Institute and others have said all along.