Reports

Educating Illinois: Volume II

Release: February 29, 2024

After seven years of implementation, including six that included New Tier Funding, or new year-over-year funding, Illinois' funding formula for K-12 Education—the Evidence Based Funding for Student Success Act, or EBF—has worked towards its promise of closing the drastic funding gaps between school in property-rich and property-poor districts,  as well as between schools in predominantly white communities and schools that serve predominantly Black and Latinx students, putting the funding responsibility on the state to ensure equity for districts with less local resources. The EBF accomplishes this by distributing new K-12 funding to those districts that are furthest away from having adequate resources, and furthest away from hitting their respective "Adequacy Targets" --which is the amount the research indicates is required to provide the level of education the students they serve need to succeed academically.

The EBF replaced a formula that was based on a one-size fits all "Foundation Level" of per-pupil funding that was both inadequate in amount and inequitable in distribution. In fact, Illinois' disinvestment had been so inadequate that local property tax revenue became the primary method from which education was funded. Now, seven years later, the EBF has drastically changed public education funding allocation and has worked to close Adequacy Funding Gaps for students across all regions of the state and from all demographics by continuing to increase the state level investment each year.

State Disinvestment in Higher Education: Student Debt Issue

Release: February 29, 2024

State funding for Illinois colleges and universities in FY 2024 was still some 39% lower than it was in FY 2000 when adjusting for inflation and this long-term disinvestment in higher education over the last 20 years has had significant consequences. It has forced public universities to increase their tuition and fees, causing the average cost of in-state tuition at Illinois’ public universities to increase 121 percent, substantially higher than the national average in this time period, making college in Illinois considerably less affordable. It has forced virtually all Illinois students to incur student loans in order to pay for college, especially Black and Latinx students, perpetuating an educational attainment gap. This report touches on the widespread issue of student debt and why Illinois needs to prioritize investing adequately in its public higher education system.

Updated: Illinois Teachers’ Retirement System and Tier II Pension Law: An Overview

Release: February 7, 2024

There is a growing consensus that the design of Tier II, which charges its members the same contribution rate as Tier I members, but pays a much lower retirement benefit, will be insufficient under the aforesaid federal Safe Harbor standards. This report has been updated to include small efforts that have been made to modify Tier II benefits and allow for Safe Harbor compliance within some pensions systems, though progress thus far has been insufficient.

 

Illinois Teachers’ Retirement System and Tier II Pension Law: An Overview

Release: October 30, 2023

Illinois state government has the responsibility to fund five public pension systems: the Teachers’ Retirement System (“TRS”); the State Employees’ Retirement System (“SERS”); the Judges’ Retirement System (“JRS”); the State Universities Retirement System (“SURS”); and the General Assembly Retirement System (“GARS”). The state’s pension systems are not in a good place fiscally. As of November 2022, which is the most recent data available, the state’s five pension systems collectively had $248 billion in liabilities, but only $109 billion in assets to cover those liabilities. This results in a funded ratio across all five state systems of just 44 percent.

In a poorly conceived attempt to reduce overall costs for the pension systems, legislators passed Public Act 96–0889 in 2010, which modified the Pension Code by creating a new tier of retirement benefits that were significantly less than the benefits payable under the state’s prior plan. Known as “Tier II,” these lesser benefits were applicable to all workers eligible to participate in any of the state’s five public pension plans that were hired on or after January 1, 2011. The concept of using a lesser benefit level to reduce overall costs in the state’s five pension systems was poorly conceived, because all the data show that plan benefits were not the driver of either the creation of the unfunded liability the state owes to its pensions systems, or the growing financial pressure that the pension systems are putting on the state’s General Fund.

Those lesser Tier II benefits created problems. For instance, it clearly is not equitable for the state to charge public workers the same contribution rate for lesser benefits than their peers receive. Of course, because their benefits are less than provided under Tier I, members of the Tier II system have less retirement security than their Tier I peers have, despite providing the same public services. On top of that, from a purely fiscal perspective, the design of the Tier II system will ultimately put Illinois in violation of the Federal Insurance Contributions Act (“FICA”) exemption. This exemption creates a “Safe Harbor” which allows state governments to be exempt from enrolling public sector employees in Social Security coverage—and hence paying into the Social Security system—but only if those employees are provided a “sufficient” pension package from the state claiming the exemption. There is a growing consensus that the design of Tier II, which charges its members the same contribution rate as Tier I members, but pays a much lower retirement benefit, will be insufficient under the aforesaid federal Safe Harbor standards.

The policy questions this raises for decision makers are varied, and include, at a minimum: how can Tier II be modified to provide a level of benefits that would satisfy federal Safe Harbor requisites, create retirement security for Tier II members, and help recruit high quality workers to the public sector generally and teaching specifically?

This report analyzes those questions using data from TRS, which is Illinois’ largest pension system by number of enrollees, liabilities, and asset holdings, and will provide:

  1. A breakdown of Federal Safe Harbor and Social Security Equivalence standards;
  2. An overview of TRS;
  3. An explanation of why Tier II benefits exist in Illinois; and
  4. A demonstration of how Tier II benefits are in violation of federal standards.

Fully Funding the Evidence-Based Formula: Volume VIII

Release: October 9, 2023

Volume VIII of the Fully Funding the EBF series continues CTBA’s modeling of fully funding the EBF to 90% of Adequacy, which aligns with the Illinois State Board of Education’s methodology. Volume VIII uses the new tier funding and the calculated shortfall based on the ISBE EBF calculated shortfall for FY 2024 (released in August 2023) as well as references Illinois Department of Revenue Corporate Personal Property Replacement Tax from FY 2019-FY2023.

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