The Windy City's Pension-Driven Education Crisis

For Chicago Public Schools, the day of reckoning has arrived. Unfortunately, Mayor Rahm Emanuel and the Chicago Board of Education have yet to seriously confront this cold, hard fiscal truth.

Last month, the school board voted to cut $75 million from its overall budget. Meanwhile, the district's pension shortfall now amounts to a staggering $9.5 billion. All three major credit rating agencies have downgraded Chicago Public Schools to "junk" status.

Although Chicago teacher retirement plans are woefully underfunded, higher taxes are not the answer. The city is already reeling from last year's historic $700 million property tax hike. Even higher taxes would only drive more residents to flee the city, further eroding its revenue base.

Rather than self-defeating tax increases, Chicago's Board of Education should consider a variety of pension reform measures that would advance the interests of educators and taxpayers alike. Most fundamentally, it is well past time for the district to seriously consider modern, 401(k)-style alternatives to politically-controlled, traditional pensions.

In the world of higher education, defined contribution retirement plans, often administered by TIAA-CREF, are the norm - and professors, for the most part, love them. As I wrote in my last column, K-12 educators and their union representatives should embrace this model, for the sake of current and future teachers - not to mention the children they serve.

In addition to 401(k)-style accounts, other commonsense measures would improve the current system's financial health. For example, state law requires that 9 percent of educators' salaries go towards the funding of their retirement benefits. Currently, Chicago teachers only contribute 2 percent, with the district covering the rest. This practice has cost the district more than $1.2 billion over the last decade.

To its credit, Chicago's Board of Education now wants educators to cover the full 9 percent contribution towards their very generous retirement benefits. In response, the Chicago Teachers Union is now threatening a one-day walkout on April 1. This kind of reflexive opposition to reform is ultimately self-defeating. If the district fails to strengthen its long-term solvency, teachers will invariably be laid off, as the swelling costs of pensions for today's retirees increasingly crowd out spending that would otherwise fund the current salaries - and future retirement benefits - of today's dues-paying union members.

Bob Williams is a senior fellow at State Budget Solutions, a project of the ALEC Center for State Fiscal Reform.