Gov. Rauner Issues Amendatory Veto to Illinois’ Senate Bill 1

Continuing to push for his vision of pension reform, Gov. Bruce Rauner issued an amendatory veto against Illinois school funding bill Senate Bill 1 on Tuesday, sending it back to the Illinois General Assembly, where if lawmakers uphold his changes, the state’s education funding will achieve a “historic” reform, Rauner said.

In mid-July, the Chicago Public Schools (CPS) issued a statement, claiming Rauner couldn’t legally veto SB 1, citing that his amendatory veto “exceeds the power of the Governor under the State Constitution.”

Compared to the current bill, Rauner’s version would cause CPS to lose $203 million, according to calculations from his office.

“As written, Senate Bill 1 places the burden of the Chicago Public Schools’ broken teacher pension system on our rural and suburban school districts through three major provisions: pick-up of CPS’ normal pension costs, retention of the so-called Chicago block grant, and a deduction for the CPS unfunded pension liability,” Rauner said in his veto letter. “Taken together, these three provisions put Chicago in line for millions more in funding that are diverted from other, needier districts, thus going against the Commission recommendation that any additional money be distributed first to districts farthest from adequacy. This is not about taking resources away from Chicago. This is about making historic changes to help poor children in Chicago and throughout the state of Illinois.”

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In his amendatory veto, the Governor asks the General Assembly to make the following changes to the bill:

Maintain a per-district hold harmless until the 2020-2021 school year, and then move to a per-pupil hold harmless based on a three-year rolling average of enrollment.

Remove the minimum funding requirement. While the governor is committed to ensuring that the legislature satisfies its duty to fund schools, the proposed trigger of 1% of the overall adequacy target plus $93 million artificially inflates the minimum funding number and jeopardizes Tier II funding.

Remove the Chicago block grant from the funding formula.

Remove both CPS pension considerations from the formula: the normal cost pick-up and the unfunded liability deduction.

Reintegrate the normal cost pick-up for CPS into the Pension Code, and treat Chicago like all other districts with regards to the state’s relationship with its teachers’ pensions.

Eliminate the PTELL and TIF equalized assessed value subsidies that allow districts to continue underreporting property wealth.

Remove the escalators throughout the bill that automatically increase costs.

Retain the floor for the regionalization factor, for the purposes of equity, and adds a cap, for the purposes of adequacy.

The amendatory veto also removes the accounting for future pension cost shifts to districts in the Adequacy Target, preventing districts from taking full responsibility for the normal costs of their teachers’ pensions.

“These changes included in my amendatory veto reflect years of hard work by our education reform commission and our ability to overcome our political differences for the good of our young people’s futures,” Rauner said. “I urge the General Assembly to act quickly to accept these changes and let our students start school on time.”

Initially passed by both the Illinois Senate and House of Representatives in May, SB 1 seeks to increase state funding in order to properly fund each of the state’s 850-plus school districts.

This would be done by increasing the state funding over time after taking into account each district’s local funding capacity and the amount of state funding it already receives as a baseline. Funding goals are then set based on the “essential elements” of each district, as well as their respective costs of implementation based on demographics and regionally variated staff salaries.

Tags: Governor Bruce Rauner, Illinois, Pension, Senate Bill 1, Teachers

The Universities Superannuation Scheme (USS), one of the largest principal private pension plans for higher education institutions in the UK, reported an investment return of 20.1% for the fiscal year ending March 31.

However, while the plan’s assets rose to £60 billion from £49.8 billion, the liabilities increased from £59.8 billion to £72.6 billion, leading to an increase in its deficit. The USS said the main reason for the growth in deficit is the large drop in long-term interest rates during the year.

Despite the 20.1% returns, the fund still lagged the 22.7% appreciation recorded by the reference portfolio, as well as the 20.5% rise in the gilts proxy for the plan’s liabilities. As a result, the pension underperformed the reference portfolio by 2.05%

BBC News reported that the USS deficit soared to £17.5 billion, making it the largest deficit of any UK pension fund. However, the USS argued that this was misleading.

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“Members may have seen a larger deficit reported in the media recently of £17.5 billion,” said USS Chief Executive Bill Galvin in a letter to plan members. “That calculation is based on accounting rules and is not the figure that drives the benefit and contribution decisions for the scheme.”

Galvin said that figure assumes the pension’s assets are wholly invested in AA rated company loans. The “assets are invested in a diversified portfolio of equities and infrastructure, as well as government and corporate debt,” he said, adding that the “investment strategy is to look to participate in the growth of the global economy to contribute to the cost of pension provision, but only to the extent that our sponsoring employers can make up the difference if growth is lower than anticipated.”

The USS said that the pension’s funding levels remained stable at 83% in the year, and that they continue to be lower than the 89% level judged at the last formal valuation in 2014. It also said that its 2017 valuation is “underway with a full review of all assumptions,” and added that “initial analysis points to expected future investment returns being lower across all asset classes.”

The pension also boasted that its returns come at a much lower cost than its peers—as much as £34 million less expensive per year, in part because it actively manages more than 70% of its assets in-house, rather than paying external management fees.

Tags: Fiscal Year, Pension, Report, Universities Superannuation Scheme