Teacher pensions: The full story

Higher property taxes might actually serve as an education investment and increase home values



By Ted Cox

The Illinois Policy Institute is out with a new report attacking public-worker pensions for causing property taxes to rise, especially teacher pensions. Which is somewhat comical, because the only other way to pay for those pensions is with the state income tax, and the IPI doesn't want that, either.

"The most egregious thing about the article is the IPI wants to have it both ways," said Bridget Shanahan, spokeswoman for the Illinois Education Association, which of course is in the IPI's crosshairs as the state's leading teacher organization, with 135,000 members. "They're complaining about property taxes being too high on the one hand, but on the other hand the IPI wants to shift more pension costs onto local school districts," as with language "buried" in the state budget compromise that passed earlier this year.

"That will only mean additional property-tax dollars will have to be used to pay for that," Shanahan added. "So their argument just makes absolutely no sense. They can't have it both ways."

We won't link to the IPI report — "Pensions Make Illinois Property Taxes Among Nation's Most Painful" — because at One Illinois we don't distribute trash, we burn it. But Shanahan pointed out that one of the hidden things about its methodology is that it compares 1996 pension levels to 2016. The IPI well knows that those 1996 levels were measured just as the General Assembly, in a bipartisan budget-crunching effort under Gov. Jim Edgar, was approving diminished pension payments.

"So intentionally lawmakers made the pension payments low to backload the payment to future years," Shanahan said. "This is something lawmakers did knowingly."

"The employees, of course, never missed a payment. The employees made their contributions," said Prof. Robert Bruno of the University of Illinois. "There should be some moral obligation to those folks."

The employees, of course, never missed a payment. The employees made their contributions. There should be some moral obligation to those folks.
— University of Illinois Prof. Robert Bruno

Yet Bruno added that it isn't just a moral obligation to fund pensions for teachers and other public employees. There's common sense behind the "economic viability of retirees."

According to Shanahan, the average teacher pension in Illinois is about $50,000 a year. But that's pretty much the same across the state to help make education equitable statewide. Keep in mind, teachers also don't pay into Social Security, so they don't receive federal retirement benefits. Their pension is all they have.

"There's an to upside to them as consumers that's not appreciated," Bruno said. "They should have some discretionary money. They're consumers, and a good percentage of that income stays in the state."

 What's more, Bruno added, there's a strong correlation between the money spent on education per pupil and the quality as measured in test scores, which should come as no surprise to any conservative raised on the idea that "you get what you pay for."

Good benefits, including a pension, help recruit and maintain good teachers, he pointed out. States that have been trimming teacher benefits, such as Wisconsin, Oklahoma, West Virginia, and Arizona, have been prone to teacher shortages (not to mention teacher marches on the state capitols).

"There are a lot of good benefits to providing middle-class compensation in retirement for educators," Bruno said.

"Attracting and maintaining quality teachers obviously means students are going to get a better education, and the entire community is going to improve," Shanahan said. "When you have a quality school district, that increases home values."

Attracting and maintaining quality teachers obviously means students are going to get a better education, and the entire community is going to improve.
— IEA spokeswoman Bridget Shanahan

So much for the IPI argument that higher property taxes diminish home values, when they might actually prove to be an investment.

"You're investing really in the instructional quality for the student," Bruno said. "So there's good reason for sustaining those modest pensions."

In fact, Shanahan blamed Illinois's current struggles with a teacher shortage on a 2010 law that established diminished, second-tier retirement benefits for newly hired teachers, such as the requirement that they work to age 67 before collecting benefits. "This is something the IEA warned about back in 2010," she said. "We did advise this could lead to a teacher shortage, and that's what we're seeing today."

Bruno took part in a recent study with the Illinois Economic Policy Institute showing that "Illinois Teachers Are Not Overpaid." It found that Illinois teachers are exceptionally well-educated themselves, with almost two-thirds, 62 percent, having advanced degrees. Yet the study found that, compared with workers in the private sector with advanced degrees, they were earning much less.

"They actually suffer a wage penalty," Bruno said, of about 17 percent, just for their choice of teaching as a vocation. Even with the pension accounted for, he added, in the end they're still making 11 percent less than their education-level counterparts in the private sector, "so they're still getting screwed."

Bruno laid much of the blame on the state's "antiquated tax system." The state's relatively low and uniform income-tax rate means of course property taxes have to make up the difference in paying for what residents want and need, especially in local schools, where the state hasn't fulfilled its constitutional requirement to be the "primary" funder of education in decades.

Which drove us back to some data state Rep. Tony McCombie of Savanna recently passed on to One Illinois. A study from last year, focusing just on the Quad Cities, found that a family head making $150,000 and with a $250,000 home actually paid less taxes overall (income taxes, property taxes, and other fees) in Moline or Rock Island than in any of the other Quad Cities. While East Moline paid just slightly more than Bettendorf, Iowa, Davenport paid the most due to — note this, IPI — Iowa's progressive income tax, which has no fewer than nine tax brackets.

In short, Illinois knows that good education is essential to keeping the state vital from one end to the other. It just has to settle on a way to pay for it.

"Retirement benefits have been mismanaged and underfunded by the state over the years," Shanahan said. "The Teachers' Retirement System was set up by the state, and it's up to the state to adequately fund it."