With the recent passage of SB 1947, Illinois, so often an example of what not to do in school finance, is now poised to be something of a model for the rest of the country.
SB 1947 rewrites the state’s school finance laws, which were the most inequitable in the country. Under this new system, Illinois will now fund districts based on the actual cost of educating the student body and each district’s funding capacity. In other words, more money should go to those who need it the most. It’s an encouraging proposal. But, the proof will be in the pudding.
The law directs the state to pay the normal cost of Chicago’s teacher pensions. While this change will only fix some of the state’s pension problems, it is still great news. For decades Illinois paid next to nothing to help Chicago meet its pension obligation, while it covered nearly all the costs in every other suburban and rural district in the state. This imbalance squeezed Chicago’s budget and contributed to its burgeoning unfunded pension liability.
But more importantly, Illinois really had no choice but to include pension reform as a part of its push for fairer school funding because the structure of teacher pensions plays a significant role in Illinois’ long history of systematically underfunding the education of low-income and nonwhite students. Every individual teacher’s pension is woven into the fabric of school funding today, as a regular part of how the system functions. In other words, pension spending matters in real time and not only at the moment of any given teacher’s retirement.
Accounting for pension spending reveals that the inequities the Illinois legislature attempted to close are in fact much greater than they likely thought.
To see just how much greater, I analyzed 10 years of Illinois’ teacher salary data. I found that adding pension spending to salary expenditures more than doubles the per pupil funding gap between high-and low-poverty schools. In 2012, low-poverty schools spent on average $582 more per student on teacher salaries than high-poverty schools. Factor in pensions, and that figure jumps to over $1,200 per student. In a school with 500 students, that amounts to more than a $600,000 difference.
The disparity is even greater when the racial makeup of the student body is factored into the equation. Differential spending on teacher pensions multiplies race-based funding gaps an astonishing 2.5 times.
In Illinois, it’s Chicago’s students who bear the brunt of this inequity. Nearly 60 percent of the state’s highest-poverty schools and the schools that enroll the highest percentages of black and Hispanic students are in Chicago. But treating pension and school funding as related problems will help to reduce the overall unfairness of Illinois’ education system. That said, this plan is only a first step and will only somewhat reduce the gaps (since Chicago would still be responsible for its own existing pension debts). Nevertheless it will be an important step forward.
More serious pension reform is still required. The state and Chicago must find a way to stop pension debt growth and start pension debt reduction. One option to achieve this goal would be to give new teachers the option of a defined contribution retirement plan, such as a 401k or 403b. For most teachers, this approach would in fact provide a more substantial retirement than the current system does.
Other states should pay attention. There is a national pension crisis and Illinois has shown, albeit imperfectly, how to address their inequities in funding school as well as pension spending. As shown by my analysis, states cannot successfully work to fix the fundamental unfairness of the state’s school finance formula while overlooking the role teacher pensions play in producing those funding inequities.
The numbers just simply don’t add up.