Monday, August 27, 2012

Local School Labor Negotiations and Pensions

As I write this article, one local school district in the Illinois 10th Congressional District has notified the Illinois Labor Relations Board that negotiations are at an impasse. That school district is Lake Forest High School District 115, which serves the communities of Lake Forest, Lake Bluff and Knollwood. You can access the final proposals from both sides at: (Hat Tip to Steve Sadin, Editor of the Lake Forest/Lake Bluff Patch).

Seemingly missing or understated in the final proposals is the topic of "pension reform" in Springfield, which has been mired in negotiations for a very long time. How strongly does this issue affect current negotiations? One proposal which seems to be slowly gaining momentum in Springfield is to gradually shift the cost of teacher pensions back to local school boards. The history of teacher pension programs is pretty complex, but as I understand it, contributions to those pensions come out of teacher paychecks and the State of Illinois Treasury. Various procedures wherein certain administrators or teachers receive "bumps" in their salaries the last year or so they are employed at schools, resulting in higher pensions, for the most part increases the liability of the State of Illinois to those special retirees. The average teacher and school employee miss out on this bonus salary and pension "bump" play.

To be fair, those special persons receiving late "bumps" in pay and benefits pay their contributions for the higher salaries towards their pensions for that brief period of time. They do collect far more than the higher payments from their higher paychecks received for that short period of time. School Boards and administrators who participate in bumps pay nothing additional, it all comes out the appropriate state pension fund. Proposals to have teachers and administrators pay more towards their pensions out of their paychecks, or reduce COLA benefits, do not have the targeted payees exactly jumping with joy.

Eventually, some reform will be passed which will gradually or dramatically shift the cost of teacher pensions back onto local school boards. Some proposals in Springfield currently call for the shift to be  gradual in incremental steps, over a period of 10 to 30 years, but the bottom line is that shifting costs in such a fashion will end up appearing on our local property tax bills. This may make local school boards  nervous and more accountable to their voters. It also gives the opportunity to the State to lower its unfunded obligations for all of its pension plans, which is reported at times as being in excess of $80 billion dollars to over $100 billion dollars. Add municipalities and other local governments to the gradual shift mechanism, and the bite on our property tax dollars may be larger than realized.

We've watched Springfield politicians duck or fail to reform their various public pension programs, usually because an election is coming up, or one side or another pulls out of a prior agreement or wants to add on to prior agreements. In the meantime, various bonding companies are threatening to downgrade Illinois' already poor credit rating, making it even more expensive for the State to borrow funds, since they pay higher interest rates. And there are certain Illinois Constitutional provisions protecting pension benefits to public employees that complicate discussions on this topic.

The current assurance is that the issue of public pensions will be addressed during the lame duck legislative session, which should frighten everyone. The last lame duck session in Springfield produced some massive personal income tax increases from 3% to 5%, or $1,000 annually for a family earning $50,000.00 a year. Will the next lame duck session increase our property taxes in such a fashion that they will go up for as long as 30 years to pay pensions to local public employees?

How much is the pension uncertainty affecting negotiations at Lake Forest High School and other schools around the county and state? It certainly can't help.

And it should be something that all of us locals better be watching very carefully.

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