CHICAGO - A group of Illinois House Democrats proposed legislation Thursday to end the state's practice of subsidizing local districts' teacher pension contributions — a move that could help Chicago Public Schools.
House Bill 4272 would put an end to the cost-shift subsidy that local school districts receive, with the exception of CPS.
The bill would also limit funding cuts by requiring that appropriations for general state aid at least equal or exceed the previous year's allocation and direct 55% of new state revenue toward education funding. Sponsor state Rep. Christian Mitchell, D-Chicago, announced the legislation at a news conference Thursday and said the additional funding would provide CPS with $200 million.
The plan comes as Gov. Bruce Rauner and lawmakers have said they support efforts to overhaul school funding formulas but haven't offered up an agreed-to method; the Chicago school district is counting on $500 million of pension-related help from the capital to help close a $1.1 billion deficit this year.
The new bill actually runs counter to what CPS has sought from the state although it offers an alternative route to getting to $200 million in help. CPS currently is excluded from the subsidy that covers what's known as the "normal" cost pickup by the state. Chicago Mayor Rahm Emanuel and CPS chief executive officer Forrest Claypool want the state to cover the same costs, estimated at $200 million, that it does for suburban and downstate districts.
In other developments this week on efforts to manage its rising pension burden, CPS announced it would phase out its coverage of non-union pension contributions. The move is expected to save $21 million over the three-year phase out period and then $11 million annually in 2018. Principals will be not be impacted by the change.
"Making pension payments at the expense of our children's classrooms could result in reductions of thousands of teachers and unacceptable class sizes," Claypool said in a statement. "At the same time, protecting classrooms but shortchanging teachers' pensions isn't fair to the teachers who earned their pensions and deserve them, which is why everyone needs to be part of the solution."
The move sets the stage for the district to press teachers to accept the same change. CPS currently covers 7% of the 9% teachers are required to pay annually to their pension fund. The issue is subject to collective bargaining, although several pieces of legislation floated by legislative leaders and Rauner would remove the issue from collective bargaining and mandate the change.
If teachers were required to cover the full 9%, it would save CPS about $170 million annually. Chicago Teachers Union chief Karen Lewis had initially called such a demand a potential strike issue as CPS and the CTU negotiate a new contract to replace the one that expired in June.
"It is a pay cut," she said in broadcast interviews.
Lewis in a later interview on WTTW's Chicago Tonight news program left the door open, saying that if members supported the move she could go along with it. In a subsequent statement, the CTU president again called such a move "unacceptable" and "strike-worthy" signaling that teachers would likely want the loss offset by a pay hike.
CPS released a proposed $6.4 billion fiscal 2016 budget on Monday that pockets more than $300 million from one-time revenues and gambles heavily on the state coming through with nearly $500 million in pension help this year to close its gap.
Fitch Ratings last month dropped the district to BB-plus and has it on negative watch. That followed Moody's move in May dropping it to Ba3 with a negative outlook. Standard & Poor's rates the district BBB on CreditWatch negative and Kroll Bond Rating Agency assigns a BBB-plus rating on watch negative.
Kroll said in a special commentary Wednesday that it's concerned over the district's reliance on state action which poses questions as to the "timeliness and probability of action being taken to provide the support needed to balance the FY 2016 budget."
The district has warned without state help, more borrowing and cuts will be needed.
"KBRA views the potential for borrowing to balance operations in the absence of a funding solution from the state as negative. KBRA also remains concerned about the increased liquidity pressure in school financial operations," the agency said.
