Pensions vs. schools: Chicago Public Schools

8/3/2019 Pensions vs. schools: Chicago Public Schools

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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 make

it to the classroom. This is because teacher

retirement 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 from

the state. While state support for CPS is

set to increase by $40 million between s-

cal years 2013 and 2014, CPS retirement ex-

penditures will climb by approximately $480

million1. Even the 2011-2012 budget for

CPS acknowledges that escalating pen-

sion and debt costs threaten to “crowd out

spending on classrooms.”2

CPS is the largest school district in Illinois,

with more than 400,000 students enrolled in

617 schools3

. State funding is an importantrevenue source for Chicago schools, and

it has represented approximately 30 to 40

percent of total, annual CPS revenue since

19984. And while state funding is not dedi-

cated to spending on teacher retirements

at CPS, the fact is retirement spending will

grow at a pace that far exceeds new state

dollars.

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 retirement

expenditures 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. This

pension fund is separate from the state’s

Teachers’ Retirement System, or TRS, forsuburban and downstate teachers. TRS is

severely underfunded, and is facing signi-

cant nancial challenges in the decades to

come. CTPF may be better funded than its

downstate counterpart, but it will soon face

problems of its own. CTPF was more than

90 percent funded in 2003. Since then, how-

ever, the funding level has fallen below 70

percent5.

CPS pays an annual contribution to the

CTPF, plus an additional contribution in

years that the fund is less than 90 percent

funded. On top of those expenditures, the

district also has to pay for retiree health

care 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 teachers

to pay only 2 percent of their salary toward

their own retirements; the district picks up

the 7 percent remaining share of teachers’

contributions. The district’s pick up of the“employee contribution” is a considerable

expense. In scal year 2012, CPS estimates

its portion of the pickup will total $146 mil-

lion6.

In 2010, the Illinois General Assembly

passed two pieces of legislation that affect-

ed CPS. Public Act 096-0889 and Public Act

096-1490 created a second tier of pension

benets with higher minimum retirement

ages and caps on benets for new employ-

ees hired after January 1, 20117. Public Act

096-0889 also extended to scal year 2059

the time frame in which the CTPF had to

reach 90 percent funding; previously, the

fund 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 20138.

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 to

ncrease by

$40 million

between scal years

2013 and

2014, CPS

retirement

expenditures

will climb

by more than $400

million.



Page 3 of 7

Over those three years of partial pen-

sion holidays, CPS was allowed to contrib-

ute less than the actuarially recommended

amount to the pension. When the pensionholidays end in scal year 2014, the city’s an-

nual teacher pension contribution is set to

increase by more than 225 percent to $684

million, up from $208 million in scal year

20139. 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 receives

from the state.

In 2010, CPS predicted 40-student class-

rooms and school closures because of a dire

budget situation, so the district’s CEO at the

time, Ron Huberman, asked the state for a

pension reprieve10. While the pension holi-

days may have seemed like budget relief for

CPS, it only delayed the inevitable pension

avalanche facing Chicago. Pension holidays

simply kick the can down the road, but the

problems 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 in

the future. Graphic 4 (page 4) shows that

other Chicago pension funds have payments

set to signicantly increase.

In order to meet its growing obligations and

close a $636 million gap in its overall budget

this year, the city made some tough budget

cuts and increased nes and fees.11 As Graph-

ic 4 shows, police and re pension contribu-

tions will increase, putting further pressure

future city budgets. Trying to squeeze more

revenue out of Chicago taxpayers could

push 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 percent12. Chicago local

governments need the benet exibility that

is only available through pension reform.

Pension

holidays

simply kic

the can

down the

road, but

problems d

not go away

Without lasting

solutions,

there will

doomsday

predictions

for Chicag

schools yeaafter year.

Source: Commission on Government Forecasting and Accountability, the Chicago Board of

Education and Illinois Policy Institute calculations. See appendix for more information.

Graphic 3. projected state pK-12 fundinG for chicaGo

compared to cps teacher retirement spendinG

(dollars in millions)



Page 4 of 7

Graphic 4. chicaGo pension systems:

r equired cps and city pension fund payments, 2011-2020

Source: Commission on Government Forecasting and Accountability



Page 5 of 7

The solution

State lawmakers are under pressure to send

more funding to PK-12 education in Chica-

go, but the state is not in a nancial position

to do so. Retirement funding for downstateand suburban PK-12 education and higher

education is set to skyrocket and is threat-

ening to crowd out appropriations for those

classrooms and schools in future years. Ad-

ditionally, the federally mandated expansion

of Medicaid through the Patient Protection

and Affordable Care Act will cost Illinois

$10 billion between 2014 and 201913. Finan-

cial support from the state will not be forth-

coming.

However, the state can improve the situation

in Chicago through changes in the law.

Today, the Illinois General Assembly sets

the rules that determine CPS teacher pen-

sion benets, but the district is responsible

for funding the system. Instead, the state can

provide support by giving CPS greater con-

trol over the level of pension benets they

would like to offer employees.

In order to create a sustainable pension sys-

tem, CPS should consider decreasing future

benets for current employees or moving

employees to a dened contribution sys-

tem. Additionally, as part of the next col-

lective bargaining agreement, CPS could

require employees to contribute more of or

the entire “employee share” of their retire-

ment savings, of which the district currently

pays the majority as a perk for teachers. This

would save the district as much as $150 mil-

lion annually 14.

Chicago needs a retirement system that re-

ects the nancial reality of the school dis-

trict and also collects an appropriate share

of payroll to cover the costs of benets.

Why this works

Chicago public schools are facing a pension

showdown in the imminent future. The state

is facing increasing Medicaid and retirement

costs in coming years, and CPS cannot rely on the state to signicantly increase fund-

ing to the district. Another pension holiday

would just be a short-term patch, making

CTPF’s funding level, and future retirement

payments, even more precarious. In the

long-run, such scal irresponsibility weak-

ens the retirement fund’s ability to pay out

pensions to retired teachers and will require

even greater contributions from the school

district.

If the state puts control of the pension ben-

et system at the local level, by allowing the

district to determine the pension benets

and rules for CTPF, the district will be able

to manage its own nancial future. Chicago

can look also to state level pension reforms

that are being proposed to start developing

its own pension solutions. While additional

employer contributions seem unavoidable,

employees will also need to participate inensuring the sustainability of the pension

system.

The pension crisis in CPS is just a few years

away, so now is the time for reform. Left un-

changed, retirement expenses will pressure

the CPS budget and negatively impact class-

rooms. Real pension reform that fundamen-

tally changes future benets and funding is

necessary to move forward at both the state

and local level.

In order

to create a

sustainabl

pension

system,

CPS shou

consider

decreasing

future benets

for current

employees

or moving

employees

to a dene

contributiosystem.



Page 6 of 7

Appendix

Methodology

This report uses state funding gures from the comprehensive annual reports of Chicago Public Schools to deter

mine the state’s “PK-12 funding for Chicago.”

CPS pension expenditures are calculated by taking required employer contributions to the Chicago Teachers’ Pension

Fund, or CTPF, from the Commission on Government Forecasting and Accountability, or COGFA15. These required

contributions are added to retiree health care cost data from CTPF comprehensive annual nancial reports. Finally

while the employee contribution to pensions is legally expected to be 9 percent of teacher salary, through collective

bargaining, CPS has agreed to pick up 7 percent, while employees pay 2 percent. Using payroll gures from CTPF

comprehensive annual nancial reports, this report estimates the 7 percent pick up CPS pays annually and assumes

this practice will continue in future years.

CPS required contributions to CTPF + retiree health care + 7 percent pick up of employee contribution = CPS pen

sion expenditures

Assumptions

State PK-12 education funding to CPS will grow at 2.3 percent annually. This is the rate the COGFA estimates revenue will grow at in coming years16.

Retiree health care costs will grow at 3 percent annually.

This is a conservative estimate of health care cost growth which COGFA uses for some retiree health programs, such

as the Teachers’ Retirement Insurance Program and the College Insurance Program17. In fact, the 2012 budget for

CPS estimates that health care costs will grow at 8 percent annually in future years18.

CPS teacher payroll will grow at 3 percent annually.

COGFA estimates that employee contributions for the Chicago Teachers’ Pension Fund would grow at 3 percent an-nually in future years19. If employee contributions grow at 3 percent annually without a change in contribution policy

it is sensible to extrapolate that payroll will also grow at approximately 3 percent annually.

CPS will continue to pick up 7 percent of the employee contribution. As the 7 percent pick up policy is part of the current collective bargaining agreement, this analysis assumes this policy

continues into future years.

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Page 7 of 7

Endnotes

1 Commission on Government Forecasting and Accountability,

“Illinois Public Retirement Systems,” January 2012.<http://www.ilga.gov/commission/cgfa2006/Upload/FY2011SmallSystemsReport.pdf>.

2 Chicago Public Schools, “Final Budget 2011-2012,” <http://www.cps.edu/About_CPS/Financial_information/Documents/

FY12FinalBudgetBook.pdf>.

3 Illinois State Board of Education, “Interactive Report Card,” <http://iirc.niu.edu/District.aspx?districtid=15016299025>.

4 Chicago Public Schools, “Comprehensive Annual Financial Report Fiscal Year 2010,” <http://www.cps.edu/About_CPS/Financial_information/Documents/FYBudget2010.pdf>.

5 Commission on Government Forecasting and Accountability,“Illinois Public Retirement Systems,” January 2012.

<http://www.ilga.gov/commission/cgfa2006/Upload/FY2011SmallSystemsReport.pdf>.

6 Chicago Public Schools, “Final Budget 2011-2012,” <http://www.cps.edu/About_CPS/Financial_information/Documents/FY12FinalBudgetBook.pdf>.

7 Chicago Teachers’ Pension Fund, “Comprehensive Annual Financial Report FY 2010,” July 2011. <http://www.ctpf.org/

general_info/Financial_lists.htm>.





10 Ahmed, Azam. “CPS Faces $1 Billion Decit, Huberman

Says.” Chicago Tribune. 12 Oct. 2011. <http://articles.chicagotribune.com/2011-10-12/news/chi-police-station-closings-fee- ne-increases-eyed-in-emanuels-rst-budget-proposal-20111012_1_ mayor-rahm-emanuel-rst-budget-budget-shortfall>.

11 “Chicago City Council passes budget.” Associated

Press. 16 Nov. 2011. < http://www.boston.com/business/articles/2011/11/16/chicago_city_council_passes_budget/>.

12 “Chicago (city) QuickFacts from the U.S. Census Bureau.” State and County QuickFacts. U.S. Census Bureau.<http://quickfacts.census.gov/qfd/states/17/1714000.html>.

13 Ingram, Jonathan. “Overloaded: One in three Illinoisans on Medicaid by 2019?” Illinois Policy Institute. 20 Oct. 2011.

<http://illinoispolicy.org/uploads/les/overloaded10-20.pdf>.

14 Chicago Public Schools, “Final Budget 2011-2012,” <http://www.cps.edu/About_CPS/Financial_information/Documents/

FY12FinalBudgetBook.pdf>.


“Illinois Public Retirement Systems,” January 2012.<http://www.ilga.gov/commission/cgfa2006/Upload/FY2011SmallSystemsReport.pdf>.


“Monthly Brieng,” January 2011. <http://www.ilga.gov/commission/cgfa2006/Upload/0111revenue.pdf>.

17 Commission on Government Forecasting and Accountability,“Teachers’ Retirement Insurance Program and the College Insurance Program,” July 2009. <http://www.ilga.gov/commission/cgfa2006/Upload/July2009TRIP-CIPprograms.pdf>.

18 Chicago Public Schools, “Final Budget 2011-2012,” <http://www.cps.edu/About_CPS/Financial_information/Documents/FY12FinalBudgetBook.pdf>.

19 Commission on Government Forecasting and Accountability,“Illinois Public Retirement Systems,” January 2012.<http://www.ilga.gov/commission/cgfa2006/Upload/

FY2011SmallSystemsReport.pdf>.