Economy

Chicago Public Schools To Abandon Pension Commitments

CREDIT: AP Photo/Charles Rex Arbogast

Chicago Mayor Rahm Emanuel (D)

Chicago Public Schools is plotting huge layoffs and abandoning its longstanding policy of contributing to employee pensions as other options for balancing the system’s budget go by the wayside.

The decisions come two years after Chicago closed scores of schools and gutted the system’s arts education curriculum and staff. The city’s public education system typifies a vicious cycle of resource cuts, underperformance on tests, gentrification, and more resource cuts.

Over 2,000 non-union staff will have to start paying the full cost of their annual pension contributions, schools chief Forrest Claypool will reportedly announce Wednesday. The district had previously paid 7 percent of employees’ salaries into the pension fund each year, leaving staffers to pay the other 2 percentage points of the 9 percent annual contribution. But after a gradual phase-out, employees will foot the full 9 percent out of their own pay beginning in 2017. The plan effectively cuts workers’ pay by shifting the cost of retirement savings entirely onto them.

The Chicago Teachers Union is bracing for a similar move in upcoming contract talks with the city’s school system. Union head Karen Lewis has suggested in the past that teachers might strike if the city tries to impose the same pension shift on them.

The pension news is the second blow to Chicago school employees this week. On Monday, Claypool’s office started sending out layoff notices to 479 teachers and another 1,012 support staff employees across the district. Even after those layoffs and the pension cuts for non-union staff, the school system is still hundreds of millions of dollars away from a balanced budget.

Pension obligations are frequently cited as the driver of the school budget shortfall. But the union notes that the system had been fully funded as recently as the mid-1990s, before the school board withheld more than $2 billion in pension contributions over a decade, leaving the system drastically underfunded today.

Mayor Rahm Emanuel (D) has tried to position himself as a pragmatist on pension matters, pledging to support increased tax revenue ideas if the city’s public workers will agree to shoulder increased costs in some form. But in making that public case, the former White House consigliere has used hyperbolic misrepresentations of the choices facing the city. “If we make no reforms at all across our pension funds, we would have to raise City property taxes by 150 percent,” he said in 2012. That framing of the problem ignores one large resource already available to the city, and another revenue proposal that wouldn’t affect property taxes at all.

For decades, Chicago has relied on a budget mechanism called Tax Increment Financing (TIF). The city designates a neighborhood as a “TIF District,” and then diverts any future increases in property tax revenue from that district away from the city’s general fund and into special accounts that are controlled by officials from the city and surrounding counties. Over $5 billion has been set aside in TIF accounts since the 1980s. The annual TIF diversion would have been enough to cover the city’s full pension payments across all categories of workers in every year since 2007, according to Good Jobs First analysts. The resulting sense that Chicago has more money to cover pension obligations than it claims makes proposals like Claypool’s harder to stomach for workers.

Unions have countered Emanuel’s argument by calling for the city to impose a financial transactions tax on the financial exchanges that are based in Chicago. Such a tax, long called for on a national level by progressive lawmakers, would be small enough not to interfere with traditional trading activity, but big enough to discourage aggressive computer-based trading – exactly the business model relied upon by conservative megadonor Ken Griffin, whose Chicago-based Citadel LLC has been a major source of campaign funds for the mayor.

The pension fight is heating up amid broader cuts to education spending in Illinois. New Gov. Bruce Rauner (R) won a 2.25 percent across-the-board cut to state services, including education funding to local school districts. Chicago Public Schools are getting most of that cut back after the governor agreed to a partial restoration of schools cuts. Instead of losing $35 million in state money, Chicago’s schools will lose $1.7 million. About 200 of the state’s 800 school districts will see no such relief from the cuts, however. And the steady flow of students away from public schools and toward charter schools will cost traditional public schools another $60 million in lost per-pupil funding.