Parents, teachers and students throughout Illinois could have a turbulent start to the school year if Democrats who control the Legislature and Republican Gov. Bruce Rauner don’t reach an agreement on education funding before the summer’s end.
How to dole out money to schools is the last unresolved piece of a new state budget. So far, Democrats have tried to paint Rauner into a corner, but the governor is preparing to use his veto powers to force them back to the negotiating table.
When they passed a budget last week, Democrats inserted a provision aimed at pressuring Rauner to sign into law a rewritten school funding formula that he opposes. The upshot: If the governor vetoes that rewrite and a new formula isn’t approved, state education money can’t be spent.
Neither side previously has shown an appetite to anger parents by shutting down schools, so expect the search for a resolution to the funding formula dispute to resume — and the rhetoric each party has used for years to resurface.
Rauner and Republican lawmakers say the school funding rewrite is a bailout of Chicago Public Schools because it continues a pattern of giving too much money to the city at the expense of other districts. They say CPS already gets a greater share of state education grant money than other districts, courtesy of a 1995 law. And they note that CPS skipped or skimped on payments into its teacher pension fund for 13 years, greatly contributing to the district’s current financial crisis.
Mayor Rahm Emanuel and district leaders cite a different aspect of the 1995 law, saying the state hasn’t kept its pledge to provide to CPS at least 20 percent of what it spends each year on teacher pensions for the suburbs and downstate. City officials say that amounts to double taxation on Chicagoans: Not only are they paying for CPS pensions through their local property taxes, but they also help pay pension costs for all other districts through the taxes they send to Springfield.
A look at the history of state school funding, that pivotal 1995 law and CPS’ financial decisions show that both sides are right, as far as their individual arguments go.
It’s true that the state didn’t meet its CPS pension funding pledge, which is costing the district hundreds of millions of dollars it desperately needs. But it’s also true that the district is in such dire straits in part because it skipped payments into its teacher retirement system for so long. In addition, it’s true that CPS gets $250 million a year more in state grant money than it would if it were treated like every other district.
To make their points, however, each side is cherry-picking facts, ignoring certain historical aspects and glossing over the fine print in school funding laws. Republicans set aside the state’s failure to live up to its CPS pension funding pledge, while CPS officials downplay the role the decision to skip pension payments played in creating its financial problems.
Amid the dueling arguments, the first general state aid payment to school districts is due Aug. 10. That means something’s got to give soon in the long-running tug of war over how the state doles out about $11.3 billion in school funding, grants and pension contributions to more than 850 school districts.
Both sides agree the state’s entire system of funding schools is broken, resulting in high property tax burdens while shortchanging poor, mostly minority districts.
The division, however, is over how to fix it. The Democratic plan would provide more money to all school districts, with CPS getting at least $286 million more for pensions and general state aid. The competing Republican plan would take away grant money going to CPS and spread it to suburban and downstate districts, with city schools seeing either a $38 million funding cut or $177 million in additional money, depending on whether pension help materializes.
Adding to the complicated dynamics: Rauner’s recent decision to replace his senior staff with people from a conservative think tank that opposes the underlying concept of both school funding formula bills. That means the governor’s office could end up being an incubator for a third competing plan, albeit one that would have the greatest difficulty winning buy-in from lawmakers at the Capitol.
Whether those differences are resolved could go a long way toward determining whether schools stay open this fall.
“It’s a crisis that’s 20 to 30 years in the making. You can’t solve the teachers pension issues without solving education funding issues, and you can’t solve education funding issues without solving state financial issues,” said Charles Burbridge, executive director of the Chicago Teachers’ Pension Fund. “It’s going to take a lot of people working together and sometimes giving up some ground.”
The plan
To understand the present-day arguments coming from CPS and Rauner, it helps to know what the state did in 1995 to change how the city’s schools are run and paid for.
Then, as now, CPS was grappling with a cash shortage that placed it at the edge of insolvency. Banks increasingly were reluctant to provide loans and charged sky-high interest rates when they did.
The district was put under the control of a state-run School Finance Authority in 1980 after banks had refused to let CPS borrow any more money. Fifteen years later, financial problems remained, and the state refused to provide more money to a district that a Tribune story at the time described as “teetering on the brink of financial ruin.”
Republicans controlled the Legislature and were eager to make CPS’ problems the responsibility of then-Mayor Richard M. Daley, so they gave him control of the school district.
Three provisions in that deal proved key to today’s debate.
The first one was buried in the legislation and did not attract much attention at the time: a pledge — but not a requirement — of how much money the state would provide for Chicago teacher pensions. The city fund would get 20 percent to 30 percent of what the state contributed to the Teachers’ Retirement System, which covers suburban and downstate teachers. This put on paper what had been an informal practice since at least 1960, according to city teacher pension fund and CPS data.
A second provision, which proved fateful, allowed Daley and the CPS officials he appointed great leeway in spending the district’s money, including the ability to skip pension payments. The theory was that CPS could better grapple with its day-to-day funding woes at a time when its pension system was fully funded.
The third provision guaranteed CPS a set percentage of grant funding for items like bilingual and special education, transportation and free meals. Those grants are separate from general state aid for classroom education. The idea was to provide budgeting flexibility and cut administrative costs by getting rid of paperwork. And the move made CPS the only district in the state that doesn’t have to submit a case for receiving the money.
The results
What happened the next two decades are lessons in good intentions unfulfilled and unintended consequences.
The state did not live up to its pension funding pledge. In only one year — 1995 — did the state give Chicago teacher pensions more than 20 percent of what it gave to suburban and downstate teacher pensions. That year, it contributed $62.1 million to Chicago, about 23 percent of what it gave to the state system.
More recently, that funding has fallen sharply, both as a percentage and dollar amount. That’s driven in part by state government’s own money problems and much larger state payments to close a massive funding gap in the suburban and downstate teacher pension fund. The Teachers’ Retirement System is $71.4 billion short of what is needed to cover future retiree benefits, leaving it 40 percent funded.
Starting in 2010, the percentage given to CPS fell below 2 percent. This past school year, the state contributed $12.2 million, or less than a third of 1 percent, to Chicago teacher pensions. The rest of the nearly $4 billion spent on teacher pensions went to the suburban and downstate system.
Meanwhile, CPS used its financial flexibility to reduce its pension contributions to address pressing financial woes.
The district eliminated a property tax that raised money solely for the teachers pension system and diverted that cash to operating costs. From 1996 to 2005, CPS paid nothing into its pension fund, which nevertheless remained 100 percent funded through 2001.
From 2011 to 2013, lawmakers once again allowed the district to skip major portions of its pension payments. By 2013, the city teacher pension fund had less than 50 percent of the money needed to cover future retiree benefits.
The retirement fund is now $9.6 billion short, and teacher pension officials estimate that 52 percent of that is the result of failures by CPS to pay enough into the fund. The rest is the result of faulty assumptions, primarily how long people would live after retirement and how much the fund would earn on investments over time. During that time, there were two significant economic downturns.
Absent that shortfall, CPS would have to pay around $202 million a year toward pensions, according to the pension fund’s annual financial reports. But much as a credit card debt grows when only minimum payments are made, the burden with the debt and interest tacked on has swelled to $745 million this year.
Under both Daley and Emanuel, CPS also borrowed money for school construction and day-to-day operations, increasing its debt. The pension shortfall and heavy debt load are the primary causes of CPS’ current precarious financial condition.
Those practices, coupled with a lack of adequate spending cuts and the state’s failure to live up to what it pledged for CPS pensions, “put the district in great peril,” said Laurence Msall, president of the Civic Federation government budget watchdog group.
DuPage County Board Chairman Dan Cronin, who was a state senator in 1995, sponsored the legislation that gave Daley control of CPS.
“It’s funny how things change,” Cronin told the Tribune last year. “This was the way to give the mayor more control over the management of their schools, to give him the latitude to make decisions he wanted to make and really put in a policy of accountability.
“Who would have thunk that by giving them this authority and latitude, they would make decisions that would ultimately put them in the worst financial position that they are in today?”
The rhetoric
While the state didn’t make good on its pension pledge to CPS, the law set in stone the percentage of the education grant pie the district would receive.
That proved to be something of a boon for CPS. Under the old system, the district would have gotten less grant money as its enrollment declined. The change meant Chicago’s portion of the money was no longer tied to its share of the statewide student population.
This year, CPS received about $250 million more in grant money than it would have if it were treated the same way as all other school districts in Illinois.
That extra money fuels one of the primary arguments from Rauner, who says that it more than makes up for any falloff in Chicago teacher pension funding.
“What upsets many people, including me, is Chicago for the last few years has been saying ‘It’s unfair. We pay our own teacher pension, and that’s got to change,'” Rauner said during a Tribune interview in June. “It is different, I agree. And I’m happy to change it. But you can’t complain about it but then also say, ‘We want to keep this special $250 million block grant … that no other district gets, just because.'”
Republicans and CPS officials strongly disagree on how to calculate CPS’ share of the overall state education funding pie. That’s because they define what goes into that pie differently.
Republicans count only general state aid and grant funding, which includes the extra $250 million for CPS. Viewed through that lens, CPS gets 23.6 percent of all the money the state provides for K-12 education, even though the district’s nearly 382,000 students represent just 18.8 percent of Illinois public school students.
But city school officials say that calculation is misleading because it fails to include what the state spends on teacher pensions. That’s $4 billion, about a third of the total education pie. Include that money, and CPS gets just 15.3 percent of state education dollars.
CPS CEO Forrest Claypool said he’d gladly give up Chicago’s extra grant money if the state covered his district’s pension costs the same way it does for other school districts.
“Pension subsidies are no different than general state aid or any other form of educational assistance,” Claypool said during a recent interview. “They all go to the same thing, primarily paying for the salaries and retirement benefits of teachers.”
That Claypool would make that trade is not so surprising. The math shows that CPS would have received about $500 million more from the state during the last school year.
Emanuel cites the paucity of state teacher pension money to CPS in his argument that Chicagoans are being doubly taxed, since the taxes they pay to the state help cover pension costs for teachers in the rest of Illinois. In contrast, the bulk of CPS pension costs are covered only by city taxpayers, through property taxes. And Emanuel has noted that last year, the city and CPS raised property taxes by $250 million a year for teacher pensions.
Republicans, however, maintain that the rest of the state shouldn’t have to bail out Chicago from its pension shortfall, more than half of which resulted from the skipped and skimped contributions of the past.
“When people tell these stories about how the General Assembly didn’t keep their (pension) promise — which I agree is a bad thing … they’re also not looking at the local responsibility,” said Beth Purvis, Rauner’s point person on education.
“While other districts around the state were taxing their population to pay for schools, Chicago Public Schools was choosing not to do that and not to pay the $250 million” in extra state grant money into its pension system, Purvis said.
Rauner, who got his entree in politics as an activist fighting the Chicago Teachers Union and advocating for charter schools, views CPS as stuck in the clutches of its unionized workforce.
As governor, he’s often bashed CPS, referring to some of its schools as “crumbling prisons,” calling for a state takeover and abruptly vetoing $215 million in promised pension help late last year.
Rauner’s words have been met with equal fierceness by CTU President Karen Lewis, who last year labeled him “the new ISIS recruit.” Claypool has accused Rauner of maintaining “unequal school funding systems — one for the predominantly white part of Illinois and one for the predominantly African-American and Hispanic district in Chicago.”
Claypool argues the mistakes of past CPS administrations shouldn’t harm schoolchildren today.
“What happened 20 years ago because of something politicians did does not change the reality for a child today in our system, that their educations are being funded at a fraction of the level of children in the remainder of the state,” said Claypool, whose second tenure as Daley’s chief of staff came at a time CPS was skipping pension payments. “It’s simply a hollow argument to say we’ll punish a child today because of the sins of politicians in the past.”
The road ahead
Now caught between the warring sides is an attempt to overhaul the school funding formula to replace an older one both sides agree needs updating. The question of how CPS will make out in the rewrite effort has held up the bill.
The House and Senate approved their version of a rewrite on May 31. Rauner threatened to veto it. In response, Democratic Senate President John Cullerton is holding onto the bill, saying he wants to give Rauner time to reconsider his veto threat.
On Tuesday, Purvis told the Tribune that Rauner hasn’t changed his mind about vetoing the bill, but might use his amendatory veto powers to rewrite it in a way that makes it more like a competing Republican version.
That would put the ball back in the Democrats’ court: They’d have the option of accepting Rauner’s changes or attempting to override him. Doing nothing would mean the bill dies and the school funding attached to it stays stuck in limbo, starting the clock on a new standoff between Rauner and lawmakers, one that could spill into the new school year.
Rauner also could try to avoid the embarrassment of another override following last week’s overturning of his budget and tax hike vetoes and hold onto the bill to force Democrats to reopen talks. The governor will have 60 days to act on the bill once he’s received it. That path also leads to an uncertain future for schools, with the first school funding payment due Aug. 10 and the state having no authority to send out the money.
The Democratic bill, sponsored by Sen. Andy Manar of Downstate Bunker Hill, and the Republican bill, offered by Republican Sen. Jason Barickman of Bloomington, are each based on an “evidence-based” formula.
The evidence-based system uses 27 metrics to determine a dollar figure that each school district would need to spend per student to provide an adequate education. Under both the Democratic and Republican proposals, districts would be entitled to the same level of general state aid as they received last year, and the formula would be used to distribute “new” dollars spent above that amount.
Schools that can’t afford to reach their target would be first in line for the extra state money and entitled to the largest share. CPS would be in that category. The state’s wealthiest districts, meanwhile, would be entitled to about 1 percent of the new dollars.
The concept came out of a task force Rauner created to study the school funding issue last year. Legislation for a new formula was drafted in the Senate as part of bipartisan talks aimed at breaking the budget stalemate. When those talks fell apart in May, so did the spirit of compromise on the funding formula.
Democrats pushed through their version, including provisions that baked into Chicago’s minimum funding level the special grant money the district has been receiving and some of the pension money it’s been asking for, meaning the district would be entitled to those dollars before additional money started routing through the new formula.
Under the Democratic bill, CPS would get $215 million in new pension money without having to trade any of the special grant dollars. Plus, the budget provides for $350 million in new state aid dollars that would be funneled through the new formula. CPS would get about $71 million of that money.
Rauner says Democrats “hijacked” the bill to “bail out” Chicago. All along, Rauner has insisted that Chicago should swap its special grant money in exchange for pension help from the state.
The governor favors Barickman’s version, which would make that trade. CPS would lose $203 million in special grant money but gain $165 million in general state aid, for a net loss of $38 million. If companion legislation providing $215 million in pension help became law, CPS would see a net increase of around $177 million in state funding.
The Republican bill is generous compared with the policies promoted by Rauner’s newly installed inner circle, which includes several people from the Illinois Policy Institute.
The conservative think tank wants school districts to start paying for teacher pensions instead of the state. It also objects to the evidence-based formula contained in both funding formula bills, saying in a recent article that it “has proved ineffective in other states and is not a good deal for Illinoisans.”
Rauner has long expressed support for the evidence-based formula model, and so far has been consistent in objecting to the extra money for CPS contained in the Democrats’ bill, not the structure of the new formula itself.
“They’re trying to lay the financial problem off on the state, and that’s false,” Rauner said last month of CPS. “They have been their own financial mismanagement.”
Chicago Tribune’s Monique Garcia contributed from Springfield.
