Last week, Chicago Public Schools chief executive Ron Huberman announced that the school district, the nation's third-largest, wants to slightly increase property taxes to help cover a rising budget deficit for fiscal year 2010. But the real pain, as Huberman hastened to add, will come in 2011, when the red ink may reach $1 billion due to exploding pension costs.
It should be clear by now why Mayor Daley chose a highly-regarded budget whiz with no education experience to succeed U.S. Secretary of Education Arne Duncan. Huberman, with the help of the General Assembly, came to CPS straight from saving the Chicago Transit Authority from financial ruin. Chief among his accomplishments at the CTA was renegotiating employee pension benefits to bring them in line with the CTA's long-term budget.
Huberman and Daley have already begun to test the waters on renegotiating teacher pensions. The response from the Chicago Teachers Union has been predictably apoplectic. Both Daley and the union have tried to shift some blame to the state. And taxpayers, who feel like they already taking it on the chin, are understandably fed up with both the union and politicians at all levels.
Like a lot of issues in Chicago, though, nearly everyone shares the blame for creating this mess. Below, I've highlighted some facts that demonstrate how a dysfunctional administrative and political culture -- in CPS and the union, in Chicago and Springfield -- has brought us to where we are.
1.) The Chicago Public Schools underfunded pensions for a decade, from 1995 to 2005. One of the biggest reasons the teachers pension fund is so weak is that CPS underfunded it for 10 years. Are teachers wrong to ask why they should pay for the fact that the district's problem is one of its own making? The CTU certainly has its answer: "We're not the federal government, and we're not going to provide a bailout to CPS," said CTU spokeswoman Rose Genova.
2.) Part of the reason for the pension under-funding was that CPS increased teacher salaries without increasing classroom time. For years, CPS has bought labor peace by increasing salaries at a fast clip without asking for longer hours. In fact, CPS has one of the shortest school days and school years of any big city, meaning that teachers do quite well if an hourly wage is computed. According to Crain's Greg Hinz, the current pension plan lets teachers retire at age 55 (with a minimum of 34 years on the job) with 75 percent of average pay of the highest four of the previous 10 years. Benefits rise at 2.2 percent per year. The average pension today is $42,000 on a salary of $57,000.
3.) CPS teachers have no Social Security benefits, and so slashing their pension benefits or switching to a defined-contribution system is borderline cruel. Critics of the union argue that the private sector has all but abandoned traditional defined-benefit pensions. As an employee of a charter school, I receive a 503b (the non-profit equivalent of a 401k), not a pension. But I, like all private employees, will (in theory) also have Social Security as a guaranteed source of income. Since CPS teachers, like many Illinois governmental employees, do not pay Social Security taxes, they don't receive these guaranteed benefits.
4.) Chicago residents are being double taxed. As if Chicagoans weren't sick of paying for enough things that actually benefit the entire region (*cough* Olympics *cough*), Mayor Daley makes the valid point that the Illinois pension system is extraordinarily unfair to Chicago taxpayers. The state covers the pensions of all the teachers in Illinois who are outside of Chicago, while CPS must cover the pensions of its own employees. Given that Chicago taxpayers contribute tax dollars to the state like everyone else, the system double-taxes Chicagoans. And I'll leave aside that this is triple punishment for that subset of Chicago taxpayers known as Chicago teachers, who all must live within the city limits due to the CPS residency requirement.
5.) TIFs are diverting tons of money. Mayor Daley's beloved Tax-Increment Financing districts siphoned off over $275 million from the CPS last year. Granted, some TIF uses are legitimate, but even if we assume that just 15 percent is wasteful (a number that Ben Joravsky -- and many others -- would call laughably low), canceling these TIFs would provide more money for CPS than Huberman's newly-announced property tax hike.
What does this all mean? Well, mostly that no one has seriously sat down and thought of wholesale reform to the way CPS pays for its obligations -- and that those who have likely found it impossible to cut through the warring interests and design a system that makes sense.
The best solution, I think, is the one espoused by my good friend, the crusading labor lawyer Tom Geoghegan. As Tom argues, what we really need in the United States is a guaranteed public pension through the Social Security system:
Compared to other developed countries, the United States is very miserly in what it spends on Social Security. Our rivals typically provide 60 percent or more of working income as part of the public pension while we pay under 40 percent. Far from "controlling the costs" of Social Security we should be increasing the pay out by lifting the payroll tax and moving to progressive income taxation. [W]orkers should contribute more for a meaningful retirement now that the private pension system has virtually collapsed.
If the federal government provided a higher Social Security payout (i.e., a public pension) funded by higher payroll taxes, entities from the Chicago Public Schools to the old General Motors could actually devote their attention to their work rather than worrying about how to pay for their retirees' pensions.