DECATUR – Most federal funds provided to public schools are meant to support low-income and underserved students.
Yet when a school district uses federal funds to hire teachers, to reduce class sizes or add extra support in reading, for example, the state of Illinois takes up to 45 percent of those federal funds to pay off pension debt.
When a school district hires a teacher using locally raised funds such as property tax, it pays only 0.58 percent toward pensions. For a teacher making $40,000, the district would pay $232 to the Teachers Retirement System.
If that teacher is paid with federal funds, the district's contribution to the Teachers Retirement System balloons to $15,416. Illinois is the only state that does this, and the current rate of 38.5 percent is due to increase to 44.61 percent in 2018.
“Schools will choose to spend their federal funds on stuff rather than hiring teachers, because that way they get to keep the money,” said Jessica Handy, government affairs director for STAND for Children Leadership Center.
Senate Bill 0195 amends the Downstate Teacher Article of the Illinois Pension Code so that school districts will pay the same percentage to the pension fund whether the teacher's salary comes from state or federal funds, beginning July 1.
State Sen. Andy Manar calls the bill “of incredible importance.”
“Within the system, where we have the most regressive system in the country, we have the TRS system, which is equally regressive in terms of its devotion of resources and who those resources are intended to support, more or less, depending on where a district is in the state and local circumstances,” Manar said.
Wealthier districts, with high property wealth, few low-income students and a low property tax rate, raise much of their revenue locally and don't depend as much on federal dollars. In a high poverty district, where property taxes are high, property value is low, and local revenue is limited, the schools depend much more on state and federal funds. Losing a chunk of those funds to pay pension debt hurts more.
If the bill passes, said Todd Covault, chief operational officer for Decatur schools, it would help the district immensely.
“We'd be thrilled,” Covault said. “It would have huge benefits for us.”
There was a bill last year that included some provisions deemed unconstitutional, and it never came up for a vote. This version could potentially come up for a vote during this session but did not come up for a vote Tuesday.
"The Senate bill will be called in committee on March 8," Handy said. "I’ve been continuously refreshing the (General Assembly) page all day watching to see when the Senate Bill 1 amendment gets filed for the big school funding bill that’s part of the 'grand bargain,' but so far no luck. As of yesterday, Sen. Manar thought the TRS fix would be included there, too, among lots of other changes."
Meanwhile, district personnel who handle federal grants and Title funds are left trying to figure out how to best use the money.
“The impact on school districts is that all the Title (fund) directors have been looking for ways, and asking themselves, 'How do I do this, what do I pay instead, if it's going to cost me that much to pay for a teacher, and I have to send 38 percent to TRS, then are we better served paying for teaching assistants, or buying text books?'” said Rhonda Thornton, grants administrator for the Decatur School District.
Handy said that funds meant to support academic achievement of low-income students should directly benefit them, and more teachers are often the best use of that money. Yet if the district is losing almost half of every dollar, it's no wonder federal funds won't be spent on hiring teachers.
Illinois spends the most on students of any state, about $13,077 per student, yet almost half of that funds pension debt instead of making a direct impact on students.
All certified teachers in Illinois, except those in Chicago Public Schools, participate in the TRS pension plan, which is funded by three sources: employee contributions, school district contributions and state appropriations.
There are two “buckets” of pension costs. One is “normal cost” and the other is “unfunded liability.”
Normal costs are the amount it would take today, as interest accrues, to fully fund pensions for members when they retire. In 2014, that was 17.29 percent of payroll, with teachers paying 9.4 percent, school districts paying 0.58 percent and the state paying the rest.
Unfunded liability is the problem, due to five state retirement systems having been underfunded for years, the most of any state.
State statute requires TRS and the other state systems to certify every year how much extra the state must contribute to bring the system to a 90 percent funding ratio by 2045, in order to cover a shortfall.
Illinois teachers do not participate in Social Security. Nationwide, about 40 percent of teachers are not covered by Social Security in 15 states.