Chicago Teachers Union representatives said yesterday that the strike they authorized is not principally about money, but about issues like teacher evaluations (though the negotiations have gotten stuck over financial issues like the cost of health care). However, the backdrop to this strike is the long-term financial plight of the Chicago school systems, exacerbated by the soaring costs of pensions in the budget. That budget is in such bad shape that in July the Civic Federation of Chicago, a good government group, opposed the new school budget for the first time in 5 years because the budget is structurally out of balance, meaning it uses gimmicks to make the numbers work and is unsustainable over the long term.
CHICAGO SCHOOLS REQUIRED PENSION CONTRIBUTIONS
As the Civic Federation notes, the school system balanced this year's budget by not making its full annual required pension contribution even though the pension system is seriously underfunded, and by using all of its reserves to close a $665 million budget deficit. As the chart above shows, the school system's pension costs were soaring until the state legislature stepped in and lowered its mandated pension contributions for three years. This is what's called 'pension relief' in Illinois, where in lieu of real reform legislators simply pay less into a system whose debt is growing. Presently, the Chicago teachers' pension fund is 67 percent funded by the generous standards used in public accounting, but only about 55 percent funded when future investment returns are figured using a conservative rate of return. Perhaps most alarmingly, the system was considered 100 percent funded in 2001.
The current schools budget includes a pension contribution of just $196 million, which the board of education acknowledges is "artificially low." To keep the fund solvent and funding growing, annual contributions are set to soar, growing by $338 million in 2014 to $534 million, then increasing every year after that until the fund reaches 70 percent funding status by 2047, when the annual contribution would be $1.2 billion (and this of course all depends on the system hitting its investment goals, which it has not done.
Also not helping are the costs of retiree health care for teachers, which is paid by the retirement fund and is another growing burden. Subsidies paid to retired teachers by the system for health insurance have risen from $44 million in 2002 to $79 million last year, an 80 percent increase.
The losers in all of this are (you guessed it) Chicago property taxpayers, who are taking it on the chin with the maximum allowable property tax increase (on top of steep Illinois income tax increases last year), and face even bigger tax increases down the road to pay for Chicago's other underfunded government employee pension funds. As former Mayor Richard Daley said back in December of 2010 about the city's developing pension crisis and its impact on local taxes, if the state legislature doesn't step in with real reform, taxes will go so high that, "you won't be able to sell your house."
The current schools budget includes a pension contribution of just $196 million, which the board of education acknowledges is "artificially low." To keep the fund solvent and funding growing, annual contributions are set to soar, growing by $338 million in 2014 to $534 million, then increasing every year after that until the fund reaches 70 percent funding status by 2047, when the annual contribution would be $1.2 billion (and this of course all depends on the system hitting its investment goals, which it has not done.
Also not helping are the costs of retiree health care for teachers, which is paid by the retirement fund and is another growing burden. Subsidies paid to retired teachers by the system for health insurance have risen from $44 million in 2002 to $79 million last year, an 80 percent increase.
The losers in all of this are (you guessed it) Chicago property taxpayers, who are taking it on the chin with the maximum allowable property tax increase (on top of steep Illinois income tax increases last year), and face even bigger tax increases down the road to pay for Chicago's other underfunded government employee pension funds. As former Mayor Richard Daley said back in December of 2010 about the city's developing pension crisis and its impact on local taxes, if the state legislature doesn't step in with real reform, taxes will go so high that, "you won't be able to sell your house."
ANNUAL REQUIRED PENSION CONTRIBUTIONS, CHICAGO SCHOOLS, PROJECTED
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