Gov. Bruce Rauner’s amendatory veto strips a Chicago bailout from Senate Bill 1, among other changes.
Illinois Senate President John Cullerton sent the new education finance bill, Senate Bill 1, to Gov. Bruce Rauner’s desk on July 31 after orchestrating a two-month delay.
In response, the governor has issued an amendatory veto, stripping a bailout of Chicago Public Schools and other elements from the bill, including an attempt to prevent a future pension cost shift, and eliminating special subsidies that benefit only a few districts.
Under the bill as altered by the governor’s amendatory veto, the state will pay for the normal cost of Chicago teacher pensions going forward. But the other extra funds granted to CPS have been eliminated.
SB 1 will now return to the Senate, where lawmakers will have three options:
- Lawmakers can agree with the amendatory veto and vote the altered legislation into law, which will require a three-fifths majority vote in both chambers.
- Lawmakers can override the veto and make their original bill stand, which would require a three-fifths majority vote in the House of Representatives and the Senate.
- Lawmakers can let the bill die by either failing to override the governor’s veto or by simply doing nothing.
If the last of those three scenarios occurs, SB 1 will become void and lawmakers will have to pass new legislation to release state dollars to districts before the 2017-2018 school year starts.
School funding is in jeopardy because state lawmakers purposely made state aid dependent on the separate passage of a new school funding formula when they passed the fiscal year 2018 budget, which also included the largest permanent income tax hike in Illinois history.
As it was passed to the governor’s desk, SB 1 rewrote the state’s education funding formula and included a bailout of CPS worth hundreds of millions of dollars. That bailout included new money for CPS pensions and maintained special CPS carve-outs that no other district gets.
It’s unfair to demand state taxpayers bail out CPS, as they were forced to do two decades ago.
Details of the amendatory veto
The governor stripped out several elements of SB 1 in his amendatory veto. The bill still contains the new “evidence-based” funding formula, but Rauner removed the CPS bailout and several other elements.
The state will pay for the normal cost of Chicago teacher pensions going forward. But the other extra funds granted to CPS have been eliminated.
- Removed $200 million in special state funding for CPS that no other district gets.
The governor struck language that grandfathered into the new funding formula the special annual “block grant” CPS has received for 20 years. The block grant gives CPS $200 million in extra funding that no other district gets. Putting the block grant into the funding formula would have locked that extra money in place. The governor’s veto cuts those additional dollars.
- Changed language so the state only pays for the “normal” cost of Chicago teacher retirements going forward.
The governor’s amendatory veto changed language to reduce many of the items that favored only Chicago in the bill. Instead, the state will now pay for the annual “normal” cost – the yearly benefits accrued by teachers – of CPS retirements, as it does for the rest of Illinois’ school districts.
- Cut language allowing CPS pension debt to crowd out funding for other districts.
SB 1 also allowed CPS to receive more money by allowing the district to appear poorer than it actually is.
Currently, CPS has to contribute about $500 million annually to pay down its unfunded pension liability. The new funding formula would have allowed CPS to deduct, or “hide,” the $500 million from the district’s local resources when it applied for state aid. That would have made CPS look poorer and ensured its place as a “Tier 1” district, meaning it would be first in line for new state aid dollars.
- Cut language that prevented any pension cost shift going forward.
The governor removed language from the bill that would have prevented the state from ever shifting the cost of teacher pension contributions to where they belong – local school districts.
Under current law, the state pays for the employer pension costs of school districts outside of Chicago despite the fact that teachers are not state employees. This gives districts incentives to dole out higher pay, end-of-career salary hikes, and perks that spike pensions, because districts know the state will pay for the resulting pension costs.
Districts will only moderate the benefits they offer when they are required to bear their own pension costs.
But SB 1 would have effectively neutralized any attempt to do that. The bill’s original language said that if the state ever instituted a pension cost shift, then the state would have to increase state aid to districts by the same amount – rendering a pension cost shift pointless.
- Removed districts’ ability to look poorer than they actually are when applying for state aid.
Despite SB 1 proponents constantly emphasizing “fairness” as a primary motivator for passing the bill, the new funding formula kept special subsidies in place that allowed select districts to look poorer than they actually are when applying for state aid – particularly CPS.
Districts whose revenues were affected by both local property tax caps and special economic zones were allowed to underreport their property wealth when applying for state aid. These subsidies, for the Property Tax Extension Limitation Law, or PTELL, and tax increment financing, or TIF, respectively, overwhelmingly benefit CPS.
The governor removed the language that allowed districts to underreport their property wealth using those subsidies.
- Made other changes that strip out other unnecessary and complicated parts of the formula.
The governor also made some technical changes to the bill, including creating a per-pupil “hold harmless” provision in 2021 and beyond – rather than a district-level “hold harmless” provision, which was included in the original bill – and eliminating the minimum funding requirement for evidence-based funding.
Real education reform
Rauner was right to strip the CPS bailout and other bad elements from SB 1, but lawmakers should go even further and scrap SB 1 entirely. Beyond the CPS bailout, the “evidence-based” funding model within SB 1 will be an expensive failure.
The new formula has failed to improve student outcomes in other states where it’s been tried. And it demands up to $6 billion a year in additional funding for school districts once it’s fully rolled out, all from taxpayers who have just been hit with the largest permanent income tax increase in Illinois history.
To allow all schools in Illinois to open as planned, lawmakers should change the budget so education funding can be distributed under the existing formula.
Once that’s done, lawmakers should start working on a new set of educational reforms that include a new set of priorities.
If lawmakers want to make sure more education dollars reach students, they should focus instead on freeing up the waste in Illinois’ sprawling, inefficient education bureaucracy.
Reforming expensive pensions, consolidating unnecessary school district bureaucracies, and eliminating executive pay for administrators are far more effective solutions than SB 1.
For additional reading on Illinois’ education funding formula and evidence-based funding, see the following:
Special report: Illinois education finance solutions
Illinois school district consolidation provides path to efficiency
Understanding Illinois’ broken education funding system
CPS pensions: From retirement security to political slush fund
Evidence-based education funding doesn’t work, would cost Illinois taxpayers billions
Busting Forrest Claypool’s 4 big myths about CPS funding