CPS Pension Costs
There has been a lot of discussion regarding CPS pension costs and how they are included in the proposed changes to the State education funding formula in SB1. Below is a recap of the changes and our questions regarding the potential long term impact on future State education funding.
What was included in the final version of SB1 regarding CPS pension costs?
- The State would pay the normal future pension costs for CPS. The State's payment of $215 million and the related CPS expense of $215 million would both be included in the formula. This change provides much needed pension parity for future normal costs.
- The final amendments also included providing a $500 million dollar "credit to CPS" for the CPS unfunded pension costs (past pension costs that accumulated because of skipping pension payments in the past) in the formula.
What was the impact of including the "credit" for the historic CPS unfunded pension costs in SB1?
- Including the "credit" for the CPS unfunded pension liability reduced the adequate funding percentage for CPS from 71% to 62% .
- This is the primary reason that CPS moved from tier 2 (middle tier) to tier 1 (highest need) district in the formula between the original version of SB1 that passed the Senate and the final amended version that is being sent to the Governor.
Were both the cost and any related revenue of the unfunded pension liability included in the proposed SB1 funding formula?
- Only the $500 million dollars in CPS unfunded pension costs was included in the formula.
- The related revenues of $250 million dollars a year from the reinstated CPS pension tax levy was not included in the formula.
What could be the long term impact of including the historic unfunded pension liability in the funding formula?
- The costs of the CPS unfunded pension liability will continue to grow each year and will consume a greater portion of future State funding with the proposed formula. The annual pension costs for CPS are expected to exceed 1 billion dollars annually by 2030.
- Based on a high level simulation that increases the cost of the CPS unfunded pension liability by 5% annually, the cost of including the unfunded pension liability in the formula could double within 5 years.*
- The below charts shows the projected growth in the unfunded pension liability and how this growth could impact future funding.
Note: The projected 5 year impact only included changing the amount of additional funding per year each school district would receive if the State increased it's investment by $350 million dollars annually and increasing the costs of the unfunded pension liability for CPS by 5% per year. This simulation did not take into account changes in the comparable wage index, potential demographic changes, changes in property valueor the impact of how the PTELL calculation is being done in the proposed formula.
Consider the following compromise on CPS pension costs.
- Include the $250 million dollars a year in revenue from the reinstated CPS pension tax levy in the formula to offset the "credit" of $500 million dollars for the unfunded pension liability costs.
- Continue to work with Chicago on determining the best way to fund the remaining unfunded pension liability either locally or through a separate state appropriation that is outside of both the statewide education funding formula and also outside of the funding that should be used by CPS for the classroom.
- As new revenue sources are identified to pay for CPS unfunded pensions, include the new revenue in the formula to offset the CPS unfunded pension liability cost.
- Add language to SB1 to create a 10% cap on the maximum amount that a school districts adequacy percentage can be reduced by from "adjustments" made in the distribution portion of the Evidence Based Model formula.
The goal should be to get more money into the classroom for both CPS and schools across the State.