February 16, 2018
Illinois Governor Bruce Rauner presented his annual budget address on February 14, 2018, outlining his budget proposal for the State fiscal year 2019. The 2019 fiscal year begins on July 1, 2018 and ends June 30, 2019. The Civic Federation will release a full analysis of the Governor’s proposal in the coming months. This blog will focus on two key elements of the Governor’s budget proposal that will most significantly impact local governments and the State’s higher education institutions.
Shifting Employer Pension and Healthcare Costs to School Districts, Community Colleges and State Universities
The Governor’s proposed budget includes a measure that would require downstate and suburban school districts, as well as community colleges and public universities, to begin picking up normal pension costs for employees enrolled in the Teachers’ Retirement System (TRS) and State Universities Retirement System (SURS) in State FY2019. Under the Governor’s proposal, Chicago Public Schools (CPS) would pay for both its pension fund normal cost and unfunded liabilities, which would decrease State funding to the District by $228 million in FY2019. Starting in FY2018, the State provided funding to CPS for the normal cost of its teachers’ pensions but not for unfunded liabilities. The normal pension cost is the annual cost of providing future retirement benefits for services performed by today’s workers and the unfunded liability is the difference between the value of a pension fund’s assets and liabilities.
The Governor proposes that suburban and downstate school districts, community colleges and universities pick up the employer share of normal pension costs over a four year period in 25% increments. According to the Governor’s budget proposal, the shifting of the normal pension costs onto school districts, community colleges and State universities would save the State $363 million in FY2019.
The Civic Federation has long supported the gradual shifting of normal pension costs to school districts, but paired with the State taking on responsibility for funding unfunded liabilities for CPS teachers. Further, the Civic Federation recommends that the Chicago Teachers’ Pension Fund (CTPF), the pension fund for Chicago Public Schools teachers, be consolidated with the TRS, the pension fund for suburban and downstate public school teachers. The Civic Federation recommends this consolidation because currently the CTPF is required to fund the majority of its pension system, whereas the State of Illinois pays for normal costs and contributes toward the unfunded liability for downstate and suburban districts. Under the Federation’s proposal, the State of Illinois would assume responsibility for the unfunded liability of CTPF, and CPS would pay for the normal cost of its pension fund.
The Governor’s proposal also includes changes to healthcare funding for some current employees and retirees. The Governor proposes shifting healthcare costs of current public university employees to State universities, which is estimated to save the State $105 million in FY2019. He also proposes to end State contributions for health insurance costs for retired K-12 school teachers and community college employees outside Chicago who participate in TRS and SURS. The State would offset the additional pension and employee healthcare costs for public universities and community colleges by increasing higher education appropriations by $205.7 million in FY2019. However, it is unclear how K-12 school districts would offset any additional cost of their retired teachers’ healthcare.
Continuation of 10% Cut to Local Government Distributive Fund, Public Transportation Fund and Downstate Public Transportation Fund
In July 2017, following the permanent income tax increase approved by the General Assembly and as part of the FY2018 budget, the State made two changes to the way income taxes are shared with local governments through the Local Government Distributive Fund (LGDF) and transit agencies through the Public Transportation Fund (PTF) and Downstate Public Transportation Fund (DTPF). First, rather than directing the money to pass through the General Revenue Fund, the State directed the money straight to the LGDF, PTF and DPTF to speed up payments to local governments and transit agencies.
Second, the State budget cut the income tax payments to local governments and transit agencies through the LGDF, PTF and DTPF. This was intended to be a one-year adjustment of 10.0%. The Governor’s budget extends these cuts another year. According to the Illinois Municipal League, the local government share of the income tax provided through the LGDF was reduced to 5.45% of total collections for FY2018 and is scheduled to increase to 6.06% in 2019 and thereafter unless the law is altered again.
These two proposals included in the Governor’s budget could change as the General Assembly moves through its budget process this spring. The Civic Federation will continue to provide information related to the Governor’s budget proposal and the General Assembly’s amendments to the Governor’s proposal in the coming weeks and months.