Indiana governor wants to dip into reserves for teacher pension payment

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Indiana Gov. Eric Holcomb plans to dip into the state’s cash reserves to fund an early payment into the teachers’ retirement fund, a move that creates additional cash flow to hike teacher pay.

Holcomb said in his State of the State address on Tuesday evening that he plans to use $250 million from the state’s nearly $2.3 billion rainy day fund to make the early payment which in turn would free up roughly $50 million in annual state funding.

He wants to enact the move in the next budget session which occurs in 2021 for a budget taking effect for fiscal 2022 and 2023.

Holcomb, a Republican, pushed a similar early payment last year when he announced the use of $150 million of reserves to pay off a pension liability that schools had funded. Officials said it saved school districts about $65 million a year.

“Together, that’s $115 million more available annually to increase teacher pay with more to come after the compensation commission releases its recommendations,” Holcomb said in his prepared speech. Holcomb’s $115 million figure is a combination of savings achieved from each of the one-time payments into the teacher retirement funds.

Holcomb said that the Next Level Teacher Compensation Commission will make additional recommendations for teacher pay in the spring. Indiana is ranked 31st among the 50 states in teacher pay during 2016, with average salaries of $50,715, according to the National Education Association.

The commission, chaired by businessman and community leader Michael L. Smith, was set-up by Holcomb last year to identify resources that can be made available to make sure teacher compensation is competitive with neighboring Midwestern states and be ready to act on by the 2021 legislative session.

“I am disappointed that he has doubled down on his commitment to make teachers wait yet another year before seeing substantial pay raises,” Senate Democratic leader Tim Lanane said. Lanane said more needs to be done on teacher pay before the legislative session wraps up in mid-March.

Senate Democrats, led by Sen. Karen Tallian, D-Ogden Dunes, introduced a similar plan last week to free up money for teachers.

“I am pleased that the governor saw the value in my teacher pay bill, Senate Bill 306,” Tallian said. “Unfortunately, his plan is only half the money and a year too late. We could absolutely enact this plan now and get that money to our Hoosier teachers this year. Our educators deserve an immediate pay raise.”

Senate Bill 306 would lower state payments by $100 million a year by extending those payments into the fund by several years past the 2038 budget year as planned by Holcomb’s administration.

Republican lawmakers also rejected proposals from Democrats for immediate action on teacher pay, including one that would have directed $291 million in unexpected state tax revenue toward one-time teacher pay bonuses.

Higher education funding is also in the spotlight. The Indiana House on Monday approved a spending bill that uses the surplus dollars to pay for several capital projects at higher education institutions with cash instead of issuing debt.

The state finished the last fiscal year with $410 million more than expected. In July, Holcomb asked to use that extra revenue to pay for previously approved state construction projects in cash instead of bonding for the funds. Holcomb said paying cash instead of borrowing for construction projects will save the state $40 million dollars a year in interest payments and it avoids committing the state to long-term expenses with one-time money.

The $410 million surplus brought reserves up to $2.27 billion, or nearly 14% of current-year expenditures. Spending $291 million would drop reserves to about 12%.

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State budgets Public pensions Eric Holcomb Indiana