The House of Representatives acted on numerous parts of the Governor’s so-called Turnaround Agenda in hopes of avoiding a third consecutive year without a budget. Republicans continue to demand further concessions in order to be in line with what the governor is seeking. A flurry of activities continues at the state Capitol as the new fiscal year approaches. .....................................................................................................................................
Budget
A Budget agreement appears unlikely, as Republican and Democratic leaders continue to meet without resolution. Those talks are said to be constructive. However, a new fiscal year begins July 1, and without a budget and revenue to fund government in place, Illinois is headed for junk-bond status.
At the crux of the standoff is Governor Rauner’s refusal to accept compromises made by legislative leaders on his “Turnaround Agenda” items. These include further changes to workman’s compensation, a property tax freeze for the duration of any temporary income tax increase, and term limits for legislators and state-wide office holders. House Democrats submitted a spending plan that relies on the increases in the Senate Democrats’ revenue plan to fund state government. Key pieces of the House plan include:
Five percent cut to higher education, compared to the GOP 10 percent cut;
Full funding for group health insurance programs;
Transference of $900M to operating funds from state technology upgrades (Governor Rauner’s pet project); and
Full payment towards pensions.
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School funding reform
On May 31, the House and Senate passed SB 1 (Manar/Davis) a new K-12 public education funding formula using an evidence-based model for school funding. The new formula is based on 27 research-based best practices and establishes a unique adequacy funding target for each school district. SB 1 also directs new education dollars on a needs-based measure, with dollars going to low wealth districts first. The bill also promises to “hold harmless” districts at the funding they received in FY17.
The Governor has said that even though SB 1 contains 90 percent of the Governor’s desires for school funding reform, he will veto the bill.
Working with the Governor, the Senate Republicans introduced SB 1124 (Barickman). SB 1124 is very similar to SB 1 in terms of how the evidence-based model of school funding would work. However, it makes several changes that will have a substantial impact to CPS pension and block grant funding. In addition, the bill adds mandate relief provisions previously filed by Senator Barickman in SB 1125 that IFT opposed.
The mandate relief and property provisions are as follows:
Allow school districts to contract with a commercial driver training school for driver education without having to seek a waiver of the School Code;
Allow school districts to determine the schedule and frequency of PE, provided it is offered a minimum of 3 days a week, and allow districts to exclude pupils in grades 9-10 from PE, on a case by case basis, for participation in interscholastic athletics;
Remove language requiring districts to offer a comparable benefits package to third-party employees if a district enters into a contract with a third party for non-instructional services;
Replace the current process that allows districts to opt out of any unfunded mandate by petitioning its ROE with a more localized process that requires a board vote;
Add a provision requiring that, for districts whose adequacy target is 110 percent or higher, the question of establishing a lower tax rate for educational purposes shall be submitted to the voters at the regular election for school board members, but only if the voters have submitted a petition signed by at least five percent of voters in the district.
The four legislative caucuses continue to discuss education funding reform alternatives to SB 1, including a full discussion in a House Committee of the Whole. Currently, SB 1 has a procedural hold called a motion to reconsider the vote placed on it. Pending any agreements between the leaders, the bill cannot be transmitted to the Governor until that hold is removed. SB 1124 has yet to be heard in Senate Committee. .....................................................................................................................................
Pensions
The House of Representatives approved HB 4045, which provides several changes to Illinois pension systems. Among the changes contained in the legislation is a status quo consideration for individuals in Tier 1 and a Tier 3 hybrid plan for new hires and current Tier 2 members. Provisions of the legislation include:
Status quo option for Tier 1 members
Tier 1 members can elect to make no changes to their current benefit;
OR Tier 1 members can elect to take a reduced cost of living adjustment in retirement of 3% or half of CPI, whichever is lower, in exchange for a 10% reduction in their future contribution rate and receive a 10% refund of current contributions.
Creation of a Tier 3 hybrid plan for new hires and current Tier 2 members
New hires and Tier 2 members have the option of participating in Tier 3.
The benefit provides for 1.25% of salary for each year of service.
Members of Tier 3 will have access to a defined contribution plan with a required employee contribution of 4% and a required employer contribution of at least 2%.
Funding changes for Tier 3 employers
Beginning in FY19, employers will be responsible for the normal cost of defined benefit portion of all Tier 3 members, however this cost will be temporarily subsidized by the state until FY21.
The amount of payroll for the employers will equal at least 2% beginning in FY21.
Buy-out for inactive members
Governing pension board must approve the offering of the buy-out.
The accelerated payment will be equal to 70% of the present value of benefits.
Accepting the buy-out will result in the forfeiture of any right to receive a pension benefit under that system.
Voluntary defined contribution plan
On a first come, first served basis, up to 5% of a system’s Tier 1 members are eligible to participate in the plan.
After a specified date, participants would freeze their current defined benefit and have all future service in the defined contribution plan.
Member contributions to the new plan will equal that of the defined benefit contributions with the state contributions will be at least 3%.
The legislation now moves to the Illinois Senate for further consideration. .....................................................................................................................................
Property tax freeze
In an effort to find compromise the Illinois House debated SB 484, a measure that would freeze property taxes for four years. SB 484 includes exemptions for school districts that ISBE deems in financial hardship or on the financial watch list. The bill also contains increased exemptions for veterans and seniors. It does NOT include Chicago Public schools. The measure failed.
The IFT has always opposed a property tax freeze because it would stunt the most stable portion of a school district’s finances. The Center for Tax and Budget Accountability projects that even a two-year property tax freeze would cost Illinois schools up to $830M to K-12 education.
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A look ahead
The Governor has signaled his intent to require the legislature meet in special session until a budget agreement is reached.
Stay tuned to ift-aft.org for updates.