Master the CPS Pension Crisis in 5 Easy Steps

Playing Teacher (Prang Co. lithograph), Courtesy Library of Congress.

Should we sympathize with the Chicago Teachers Union (CTU)?  On Friday, the teachers walked off the job and took to the streets, ostensibly on a crusade, not principally for their own benefit, but for the sake of increasing education funding more generally.  Union boss Karen Lewis, looking jaunty, proclaimed, ‘We’re dying a death of a 1,000 cuts,’ implying that teachers were among Governor Bruce Rauner’s victims, and that all would be well if only the union could squeeze more money out of the state and its taxpayers.

Yet, if a report of the Illinois Policy Institute is correct, the financial woes of the Chicago school system and its teachers are largely internal and have been brought on by themselves.  The Chicago Teachers Union has been complicit in the ruin of the pension system established to provide retirement security, allowing money to be diverted from the fund while accepting overly generous increases in working teachers’ salaries.  Meanwhile, the Chicago Public Schools (CPS) leadership has so mismanaged its finances that a pension system that was fully funded in 1999 now represents a $9.5 billion liability, despite the fact that, over the same period, public funding for CPS has increased at 150% of the rate of inflation, when calculated on a per-student basis.

The IPI’s report, published in late 2015, analyzes the funding of teachers’ pay and pensions over several decades.  It explains the arrangements that have created the pension crisis while debunking some leading claims about where the solution lies.

1. Pension pick-ups:  In 1981, when Ruth Love was CPS superintendent, the district and teachers agreed that the district would pay the part of the teachers’ pension contributions.  Instead of pension contributions coming out of teachers’ pay, a part of their share would come out of the schools’ general operating funds.  These pension “pick-ups,” which continue today, amount to a loss of operating revenue of $1.266 billion over the last decade.  Meanwhile, the pick-up has not been counted as part of the CPS’s mandated contribution to the pension fund.

2. Pension holidays: On two occasions, in 1995 and again in 2010, the General Assembly allowed the CPS to forego paying in to the teachers’ pension fund as mandated.  The first of these ‘pension holidays’ lasted from 1995 to 2006.  During this period, the school system diverted all the money that should have gone for pensions (amounting to $1.5 billion) into its general operating funds.  During the second pension holiday, from 2011 to 2013, the CPS diverted another $1.3 billion from the pension fund.

3. Colossally bad management: While the public is constantly being told that the schools’ problems stem from under-funding, the IPI claims that ‘Tax-payer provided revenues for the Chicago Public Schools have more than doubled‘ between 1997 and 2014, rising from $2.6 to $5.3 billion annually.  Meanwhile, the size of the student population has dropped by about 7 percent, from a high of roughly 383,000 students in 2003 to 355,634 students in 2014.  In 2014, the CPS received revenue of $15,011 for each child enrolled.

4. Unwise salary increases: The lifetime compensation of CPS teachers is the highest in the nation, relative to other major urban school systems.  A beginning teacher with a BA earns $51,092 a year.  Salaries increase rapidly during the first decade of service, so that teachers with 10-14 years of service earn an average pay of over $84,000 per year.  The salary structure increases the pension benefits of teachers earlier in their careers, enhancing the payout to younger ‘retirees.’  In 2014, over 72% of teachers in the Chicago schools had less than 14 years’ seniority.  The pension fund’s pool of beneficiaries is increasing, while the number of teachers paying into it is declining, another factor pushing it toward insolvency.

5. Reckless borrowing: It’s hard to escape concluding that the Chicago schools have been terribly mismanaged. Between 1998 and 2014, despite enjoying many years of pension ‘holidays,’ the CPS sank ever more deeply into the red, borrowing instead of confronting its true fiscal constraints.  CPS indebtedness totaled $6.2 billion in 2014.  Its bond offerings have been floated at ever higher rates of interest, even as its bond rating tanks.  Today, nearly eight percent of the CPS budget goes right to debt payments.  Another 68 percent goes to compensation costs, leaving just 24 percent for all the other expenses of running the schools.

Image: “Playing Teacher”
(1890 Prang Company lithograph)
from this source.

2 responses

  1. A well written post. I simply no longer understand why the teachers keep pushing, pushing, and pushing for more money. I think their pay is pretty darn good.

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    • Karen Lewis has just rejected a contract offer without putting it to a vote. The sticking point is that she wants the ‘pension pickup’ to continue. A friendly media notwithstanding, I doubt Chicagoans sympathize much with the union now.

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