The following is an excerpt from an article in the Wall Street Journal. I call your attention to the last paragraph. Pensions are underfunded because the district dodged payment, really?. The truth is more in the fact the pensions are unaffordable, as are the pay increases the teachers won in light of the large deficits faced by the school district. At the same time during their recent strike teachers complained about large class sizes, closing schools, lack of supplies and equipment, poor working conditions and teacher layoffs.
Where do the teachers think the money is going to come from?
What were the politicians thinking when they agreed to these benefits knowing they could not pay for them? In the September 21 WSJ an editorial speculates that Illinois will seek a federal bailout to resolve its budget problems, in large part due to pension obligations. If you find that all hard to believe, even that such speculation could have any credibility, think about Social Security and Medicare, think about what some politicians are telling you and promising you while ignoring the reality of budgets, deficits ands taxes. Where do Americans think the money is going to come from?
“The Chicago Public School administration faces a dire financial situation with enormous challenges that will require not only cost cutting and reductions but begs for pension reform,” said Laurence Msall, president of the Civic Federation, a Chicago government-watchdog organization.
The problems date to 1995, when Mayor Richard Daley, eager to avoid another strike, like the one that emptied schools for 19 days in 1987, took over control of the school district. To give him wiggle room, the state legislature passed a law allowing the city to pay just part of its pension obligation. Chicago took that windfall and increased teacher salaries, which in turn increased pension obligations. From 2002 to 2011, the district’s yearly expenses increased by 41%, while total enrollment fell by about 8%.
Over nearly that same period, the pension fund went from being nearly fully funded to 60% funded, according to the Chicago Teachers’ Pension Fund.
The jump in pension payments, along with the four years of salary increases from the teachers’ contract, will contribute to the district’s projected $1 billion shortfall in each of the next several years. The school district is its own taxing authority and under state law can only raise its tax every year as high as the Consumer Price Index.
The city will have to consider draconian actions, says Terry Mazany, a former schools chief in the city. He estimates 1,000 to 2,000 teacher layoffs (out of 26,000 teachers) and 100 school closings over the next few years.
“To balance the books is going to require extreme measures and a Hail Mary from the state legislature to augment funding,” Mr. Mazany said.
The union didn’t respond to requests for comment. On its website, it said the pensions are underfunded because the district “has dodged payment.” The union said teachers don’t pay into or receive Social Security and that one-fifth of 87,000 retired teachers receive pensions below $20,000 a year.
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9-24-12
QUINNSCOMMENTARY 
Stop putting more money into the educational system, it works just fine if your kids are there to get an education. We need to put money into fixing the broken homes that these kids come from. Schools have become more than a place to learn, they provide things that should be provided by the parents. As long as schools are responsible to raise kids and their needs outside of an education, more money will never work. It doesn’t take a village, it take a good home with supportive loving parents to raise a child as a productive member of society.
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Excellent points.
Dick
Richard D Quinn Editor Quinnscommentary.com
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This is little different than corporate America, and single employer pension plans or multi-employer plans sponsored by unions. That is, it is little different because we have a long history of overstating investment returns and underfunding. ERISA was passed nearly 40 years ago and signed by President Ford. Why do we still need legislative funding reforms approved in 2006 and the subsequent relief from those same reforms, in 2010 and 2012? How is it that the bailout of GM was more about funding past commitments for retiree medical and pensions than about the future of the automaker? As they say, follow the money.
Until there is some discipline, for both pension and retiree medical commitments, where such deficits are included in a state’s annual or biennial budget (like FAS 106, FAS 158 on the corporate balance sheet), in the regular accounting where you can’t assume 8% returns, we won’t see any substantial reform.
Amazing, Chicago will be looking to the almost bankrupt State of Illinois for relief – a state that has yet to reform its own pension obligations?
I did a paper on this in law school where I predicted at least a few of the government entities will wait until they have to declare bankruptcy – believing that state law (sometimes in the state constitution) precludes any rollback in accrual rates for current employees (kind of a European vesting/accrual method). Only under the cover of bankruptcy do they believe they can reform pensions and retiree medical benefits.
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