Next Minooka 201 School Board Meeting

The next meeting of the Minooka CCSD 201 school board is Wednesday, May 23, 2012. The Committee of the Whole Meeting starts at 6:00 p.m. in the board room (the old library) at the Minooka Primary Center located at 305 Church Street in Minooka. The Committee of the Whole Meeting will be followed by the regular Board Meeting at 7 p.m. Both meetings are open to the public, and everyone is encouraged to attend. You can find the agenda for each of the meetings here.  You may notice that one of the items on the agenda is the second reading of the new Risk Management Plan (see here for a discussion of risk management plans and tort immunity levies).

Risk Management Plans: Legitimate Policy or End Run Around Tax Caps

At the last meeting of the Minooka CCSD 201 school board, the superintendent presented a new Risk Management Plan for the district (see here).  So what is a risk management plan?  Is it a legitimate policy tool to reduce the risk associated with running our schools or is it an attempt at an end around the tax caps placed on certain funds in the school district's budget (or is it a combination of the two)?  And why is this coming up now?

To answer these questions, you have to know a little bit about school finance and how an Illinois school district raises revenue.  You also have to understand that our school district raises the overwhelming majority of its funds (80 to 90%) through local property taxes.  Now, if you own property in the district, you get a property tax bill every year which includes an entry that shows the tax rate for Minooka CCSD 201.  For example, that tax rate for last year (if you lived in Grundy County) was 2.95428 (this is the number you get when you add the rate for "Minooka Grade 201", which was 2.87206 with the rate for "Social Security" listed just below "Minooka Grade 201", which was 0.08222).  Well, this one number really consists of a combination of tax rates for each of the various categories of spending that the district has.  You can think of these as buckets.  The buckets are labeled: education; operations, building and maintenance; transportation; working cash; municipal retirement; social security; tort immunity; special education; fire prevention and safety; lease purchase; and bond and interest.  Now some of these buckets (or categories) have rate limits that are set by law and can only be increased by the voters of the district pursuant to a referendum.  Others do not have limits that are set by law.  The categories and their limits for Minooka CCSD 201 are as follows (the rates are per $100 of equalized assessed value):

Education: 1.62
Operations, building and maintenance: 0.25
Transportation: 0.12
Working cash: 0.05
Municipal retirement: none
Social security: none
Tort immunity: none
Special education: 0.02
Fire prevention and safety: 0.05
Lease purchase: 0.05
Bond and interest: none

You will notice that the funds that do not have tax caps are municipal retirement, social security, tort immunity and bond and interest.  The amounts levied for municipal retirement and social security are merely a function of the school district's payroll and so there is not much here to play with.  The amounts levied for bond and interest are a function of the school district's current indebtedness.  The county clerks are required to levy enough in the bond and interest category to pay the current principal and interest payments on the school district's debt.  Since the amount of this debt is limited by statute and the debt typically can only be issued pursuant to a referendum of the voters (but see my post on the Back Door Referendum), the amount levied for this fund is subject to certain controls.  You may notice if you look at one of the levies approved by the school board, that the school board does not set a levy amount for this fund.

That leaves the tort immunity fund.  Now, the purpose of the tort immunity fund is two-fold.  The first is reactive and the second is proactive.  The reactive part is to allow the school district to raise money to pay tort claims for which it becomes subject pursuant to a judgment as a result of a lawsuit.  The proactive part is to allow the school district to raise money to pay for insurance to cover such tort claims and to pay for risk management activities to decrease the chances of such tort claims in the future.

There is, however, a potential for abusing the tort immunity fund as a way to raise revenue that is more properly categorized under one of the other funds and therefore create an end run around the statutory tax caps.  This has been documented by commentators (here and here), as well as being remarked upon by the Illinois legislature itself ("Notwithstanding the extraordinary nature of the [tort immunity tax] . . . it has become apparent that some units of local government are using the tax revenue to fund expenses more properly paid from general operating funds."  745 Illinois Compiled Statutes 10/9-107).

At the end of the day, as long as a school district is raising revenue in the tort immunity fund in accordance with the letter and spirit of the law, the school district should not have any problem.  However, if the school district is using the tort immunity fund to pay for items that really should be paid for with another fund, then the school district has a problem.  A taxpayer has the right to sue the school district for return of the improperly levied funds.  Now, you might think that the likelihood of recovery on a lawsuit of this nature is slim.  But there have been some high-profile cases in which taxpayers have won and forced the school district in question to return the improperly levied funds.  (See here and here).  Notably, the Illinois State Board of Education has even cautioned school districts about their use of tort immunity levies in the wake of the Freeport and Quincy cases (see here).

So, why is this topic coming up now here at Minooka CCSD 201?  Well, probably because the school district is levying taxes at the maximum rate in each of the funds that has a rate limit.  In addition, the district is currently operating at a deficit with more deficits as far as the eye can see.  Faced with that situation, what is a district likely to do? 

Par for the Course

Dramatically increasing a superintendent's salary at the end of his career so as to pad his retirement is nothing new in Illinois.  Rather, it is par for the course.  Illinois seems to have a tradition of doing just this, among our other illustrious traditions.  It is one of the reasons (among other reasons, like the state failing to pay its required contributions in full over the last thirty or so years) that the Teachers' Retirement System (TRS) is in financial trouble.  In fact, TRS is projected to become insolvent by 2029 according to Executive Director Dick Ingram (see here).  School districts all over Illinois have engaged in this practice of increasing salaries and thereby padding retirement pay (you can read about it here).  This may be one of the reasons that Governor Quinn has proposed in his pension reform plan to shift the state's responsibility for TRS contributions to the local school districts (click here for analysis of the pension reform proposals).

You see, this problem of school districts dramatically increasing salaries just prior to retirement in order to pad pensions has been going on for a long time.  Because the burden of those increased pensions is borne by the state, the state has tried to rein in the practice.  In 2005, they passed a law saying that the local districts could continue to do this but that a district would have to pay a penalty (meant to help the state bear the burden of the increased pension) for any raise greater than 6% per year.  Since the passage of that law, it is interesting to note just how many of these end of career raises were exactly 6% per year (the recent proposed contract for the Minooka CCSD 201 superintendent contains annual raises of exactly 6% per year).

Now 6% per year is still a large number (and remember this is just the increase in salary--it does not include the three years of retirement payments or post-retirement health insurance costs) when your economy and, therefore, tax revenues are growing at a much slower rate.  It is a very large number when, as is the case in Minooka CCSD 201, the equalized assessed valuation upon which property tax revenue based is dropping (the EAV of the district dropped almost 6% from 2009 to 2010 and nearly 10% from 2010 to 2011).  All the talk about our district's budget over the past three years has been about how we are projecting sustained and growing deficits as far as the eye can see (remember deficits, debt and insolvency are not the same thing, but deficits over a sustained period of time certainly create debt and insolvency once your cash balances are depleted).  In addition, as we will see in the near future, even these projections do not present an accurate picture since the assumptions of stable or growing EAV upon which they are based are already proving to be seriously flawed.  As many of you are aware, over the course of the past few years, our school district has instituted many deficit reduction measures from saving money on our health insurance costs, increasing our student registration fees, and, unfortunately, reducing teaching and support staff positions.  And, based on the budget realities going forward, there will be many more such hard decisions to come.  But, the taxpayers and parents of Minooka CCSD 201 can rest assured that the district has taken care of its superintendent both now and in retirement (see previous post).

Superintendent Offered New Contract

At yesterday's meeting of the Minooka CCSD 201 school board, the school board voted (by a 5-2 vote) to offer the current superintendent, Mr. Al Gegenheimer, a new four-year contract (click here for a copy of the proposed contract).  Those voting "yes" were Skwarczynski, Hannon, Budde, Carlson and Satorius.  Those voting "no" were Brozman and Martin.  The new contract, which purports to take Mr. Gegenheimer up to his retirement, includes a 6% raise for each of the four years of the contract.  This is after the school board voted at the January 2012 meeting to increase the superintendent's salary by 3% for the 2011-2012 school year, retroactive to July 1, 2011 (another 5-2 vote, with the same members voting "yes" and the same members voting "no").  The salaries over the four years of the new contract would be as follows (the superintendent's current salary for the 2011-2011 school year is approximately $136,269):

2012-2013:  $144,445
2013-2014:  $153,112 (approximate based on 6% raise)
2014-2015:  $162,298 (approximate based on 6% raise)
2015-2016:  $172,036 (approximate based on 6% raise)

A little quick math tells you that the final projected salary of $172,036 represents an increase of approximately 26% over the superintendent's current salary.  If you include the 3% retroactive raise from January of this year, the $172,036 represents an increase of approximately 30% over the superintendent's salary at the end of the last school year. 

In addition, the new contract provides for three annual post-retirement payments equal to 20% of the superintendent's final annual salary.  So, assuming a final salary of $172,036 as projected above, the three annual payments would be $34,407 each.  That is, the taxpayers of Minooka CCSD 201 will be paying the then former superintendent $34,407 each year for three years at the same time he is collecting a pension of up to 75% of the average of his highest four years of salary from the Teachers' Retirement System (approximately $118,480 based on these assumptions).  Keep in mind also that in addition to paying the then former superintendent, the taxpayers of Minooka CCSD 201 will be paying the salary of a new superintendent as well.

The contract also provides for the school district to provide the superintendent with health insurance (hospitalization/major medical) during his retirement until such time as he qualifies for Medicare (typically at 65) or becomes employed by another employer offering health insurance coverage.  This means that if the current superintendent retires at the end of this agreement, the school district would be obligated to provide him health insurance for approximately five years.  At the time that the proposed contract was voted on, it was unclear whether this provision was legal.  As a consequence, the motion that was voted on provided that the proposed contract be accepted pending further consultation with the school district's attorneys.  Since the proposed contract was presented to the school board for the first time at some time after 10 p.m. on the night of the meeting, it would have been difficult to consult the school district's attorneys before the vote was taken.

For those who like to put the pieces together and see the big picture, see my previous posts regarding financial projections, unsustainable spending, and underfunded pension systems.  The most difficult thing about being an elected official is that it is easy to spend other peoples' money (Margaret Thatcher had a famous saying about spending other peoples' money).  It is much more difficult to enforce discipline.  There is something akin to a moral hazard at work.  If you need proof, you can merely look to the budget deficits of the federal, state and local governments.

Bumps in the Road: Part 2

So here is Governor Quinn's pension reform plan.  As you can see, the plan calls for an increase of 3% to employee contributions, reduction of the cost of living allowance (COLA), delay of COLA, increase of the retirement age to 67, and shifting the state's current payment responsibility to local school districts, community colleges and public universities over a period of years.  Of course, this is merely a plan at this point and will be subject to political deal-making and subsequent modifications.

Next Minooka 201 School Board Meeting and Superintendent Contract

The next meeting of the Minooka CCSD 201 school board is Wednesday, April 25, 2012. The Committee of the Whole Meeting starts at 6:00 p.m. in the board room (the old library) at the Minooka Primary Center located at 305 Church Street in Minooka. The Committee of the Whole Meeting will be followed by the regular Board Meeting at 7 p.m. Both meetings are open to the public, and everyone is encouraged to attend. You can find the agenda for each of the meetings here.  You may notice that one of the action items on the agenda for the regular Board Meeting is the superintendent's contract.  Hiring and reviewing the superintendent is one of the most important functions of the school board (some would say the most important function).

Bumps in the Road

I saw this article about municipal defaults, and it reminded me about the bumps in the road.