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Pensions vs. schools: Chicago Public Schools

Pensions vs. schools: Chicago Public Schools

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Published by: Illinois Policy Institute on Jan 06, 2012
Copyright:Attribution Non-commercial


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The problem
Every year, Chicago Public Schools, or CPS,asks the state for more funding. But even if state government allocates more dollars to- ward CPS, not all of those dollars will makeit to the classroom. This is because teacherretirement costs at CPS are rapidly outpac-ing state aid.In 2014, CPS teacher retirement expen-ditures will equate to nearly 50 percent of the education dollars CPS receives fromthe state. While state support for CPS isset to increase by $40 million between s-cal years 2013 and 2014, CPS retirement ex-penditures will climb by approximately $480million
. Even the 2011-2012 budget forCPS acknowledges that escalating pen-sion and debt costs threaten to “crowd outspending on classrooms.
CPS is the largest school district in Illinois, with more than 400,000 students enrolled in617 schools
. State funding is an importantrevenue source for Chicago schools, andit has represented approximately 30 to 40percent of total, annual CPS revenue since1998
. And while state funding is not dedi-cated to spending on teacher retirementsat CPS, the fact is retirement spending willgrow at a pace that far exceeds new statedollars.
 Amanda Grifn-Johnson
is a Senior Budget and Tax Policy Analyst with the Illinois Policy Institute.
CPS pension costs rising faster than state aid can keep up
   T  a  x   &    B  u   d  g  e  t
   B  r   i  e   f  
   J  a  n  u  a  r  y   6 ,   2   0   1   2
Graphic 1. Projected CPS teacher retirementexpenditures by type, fiscal years 2010 to 2020
Pensions vs. schools:
Chicago Public Schools
Source: Commission on Government Forecasting and Accountability, Chicago Teachers’ Pension Fund and Illinois Policy Institute calculations. Assumes health care expenditures and CPS teacher payroll grow at 3 percent annually.
Page 2 of 7
 Teachers in CPS are part of the Chicago Teachers’ Pension Fund, or CTPF. Thispension fund is separate from the state’s Teachers’ Retirement System, or TRS, forsuburban and downstate teachers. TRS isseverely underfunded, and is facing signi-cant nancial challenges in the decades tocome. CTPF may be better funded than itsdownstate counterpart, but it will soon faceproblems of its own. CTPF was more than90 percent funded in 2003. Since then, how-ever, the funding level has fallen below 70percent
. CPS pays an annual contribution to theCTPF, plus an additional contribution inyears that the fund is less than 90 percentfunded. On top of those expenditures, thedistrict also has to pay for retiree healthcare and a portion of the “employee con-tribution” to pensions. Although employ-ees are supposed to contribute 9 percent of their salary to their retirement, the Chicago Teachers Union has negotiated for teachersto pay only 2 percent of their salary towardtheir own retirements; the district picks upthe 7 percent remaining share of teachers’contributions. The district’s pick up of the“employee contribution” is a considerableexpense. In scal year 2012, CPS estimatesits portion of the pickup will total $146 mil-lion
.In 2010, the Illinois General Assembly passed two pieces of legislation that affect-ed CPS. Public Act 096-0889 and Public Act096-1490 created a second tier of pensionbenets with higher minimum retirementages and caps on benets for new employ-ees hired after January 1, 2011
. Public Act096-0889 also extended to scal year 2059the time frame in which the CTPF had toreach 90 percent funding; previously, thefund only had to reach 90 percent funding by scal year 2045. In addition, the legisla-tion granted CPS a partial pension holiday for scal years 2011 through 2013
Source: Chicago Public Schools’ Comprehensive Annual Financial Report 
Graphic 2. Chicago Public School revenue sources: All funds,fiscal years 1998-2010
While state support for CPS is set toincrease by $40 million between  scal years 2013 and 2014, CPS retirement expenditures will climb by more than $400million.
Page 3 of 7
Over those three years of partial pen-sion holidays, CPS was allowed to contrib-ute less than the actuarially recommendedamount to the pension. When the pensionholidays end in scal year 2014, the city’s an-nual teacher pension contribution is set toincrease by more than 225 percent to $684million, up from $208 million in scal year2013
. After this increase in the level of pen-sion contributions, Chicago’s teacher retire-ment expenditures will equal 49 percent of the PK-12 education funding CPS receivesfrom the state.In 2010, CPS predicted 40-student class-rooms and school closures because of a direbudget situation, so the district’s CEO at thetime, Ron Huberman, asked the state for apension reprieve
. While the pension holi-days may have seemed like budget relief forCPS, it only delayed the inevitable pensionavalanche facing Chicago. Pension holidayssimply kick the can down the road, but theproblems do not go away. Without lasting solutions, there will be doomsday predic-tions for Chicago schools year after year.CPS is not the only Chicago pension fundthat will be facing budgetary challenges inthe future. Graphic 4 (page 4) shows thatother Chicago pension funds have paymentsset to signicantly increase.In order to meet its growing obligations andclose a $636 million gap in its overall budgetthis year, the city made some tough budgetcuts and increased nes and fees.
As Graph-ic 4 shows, police and re pension contribu-tions will increase, putting further pressurefuture city budgets. Trying to squeeze morerevenue out of Chicago taxpayers couldpush even more residents out of the city.Between 2000 and 2010, data from the U.S.Census Bureau shows that Chicago’s popu-lation decreased 6.9 percent
. Chicago localgovernments need the benet exibility thatis only available through pension reform. 
Pension holidays simply kickthe can down the road, but the  problems donot go away.Without lasting solutions,there will be doomsday  predictions  for Chicagoschools year after year.
Source: Commission on Government Forecasting and Accountability, the Chicago Board of Education and Illinois Policy Institute calculations. See appendix for more information.
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