The problem
State education funding is designed to ensure a base amount of money is available to every student in Illinois. To that end, the state strives to send more money to poor districts and less money to districts with a healthy property tax base. But a bird’s eye view of Illinois education spending reveals that the state’s intention of sending dollars to poorer districts is blunted by the state’s obligation to pay local teachers’ pensions.

The state’s largest education funding program is General State Aid, or GSA. While local property taxes are the main funding source of public schools, the GSA is designed to counter inequalities in local property wealth by sending dollars to poorer communities and at-risk students. Through this program, school districts can achieve a minimum amount of spending per pupil.

Contrast GSA with the state’s contributions to the Teachers’ Retirement System, or TRS, which is the state’s second largest education expenditure. How much the state spends on TRS contributions is based on how much local school districts pay their teachers. Since wealthier school districts tend to pay their teachers higher salaries, the state ends up paying higher TRS contributions for teachers from these districts.

While GSA dollars favor poorer districts, TRS contributions favor the state’s wealthier districts. In effect, the state’s education dollars are working at cross-purposes.

Our solution
State education dollars will continue to work at cross-purposes until the state stops paying the employer’s share of the normal cost of teachers’ pensions on behalf of school districts. In 2011, for example, the state paid approximately $800 million toward pension benefit accruals earned by teachers during the 2010-11 school year. School districts, on the other hand, paid just $50 million.

By paying the employer contribution of teachers’ pensions on behalf of school districts, the state essentially is paying for spending decisions over which it has no control. These individuals are not state employees, and the state should not pay these pension costs. The body of government that approved these costs – the school districts – should be held accountable and responsible for these spending decisions. While the state should continue to pay for the unfunded pension liabilities of years past, local school districts should pay for the normal pension costs of their employees moving forward. It is both fair and fiscally responsible for costs to be paid where they are incurred.

Why this works
Local pension accountability is not an unusual practice. School districts in New York pay the entire employer pension cost. In California, the school districts pay a majority of the employer cost. And, in Illinois, of course, Chicago Public Schools already pays the employer share of pension costs.

Restoring pension costs to school districts is a matter of fairness and fiscal responsibility. Taxpayers in southern Illinois should not be on the hook for spending decisions made by wealthy districts in Chicago’s north shore. Illinois sorely needs the increased accountability these reforms would produce. Taxpayers, teachers, administrators and students deserve a clear and understandable pension system, one in which incentives are aligned with cost savings.

To read the supplement, click here.