The Chicago Teachers’ Pension Fund has about $10 billion in assets, but is paying out more than $1 billion in benefits a year — much more than it has been taking in. That has forced it to sell investments, worth hundreds of millions of dollars a year, to pay retired teachers. Experts say the fund could collapse within a few years unless something is done.
Now, this is not unusual and many cities, towns and states have dropped their responsibilities to their workers and now will be seriously screwed. How can Chicago (for one) recover from losing $1B a year to their pensioners, while receiving a very low return on their existing assets, plus combined with an ever increasing number of new pensioners? This is a disaster which doesn’t look like it will go away.
Having skipped its pension contributions for many years, Chicago is supposed to start tripling them in another year under state law. But the school district has drained its reserves. And it cannot easily turn to the local taxpayers because of a cap on property taxes. Borrowing the money would be difficult and expensive as well, because of a credit downgrade this summer. One of the few remaining choices would be to make deep cuts in other services.
Not helping matters is the recently signed teacher contract will cost Chicago tax payers another $200-400 Million depending on who you believe. This additional burden from a government which is stretched to the limit. What is Chicago going to do? The economy is going nowhere soon and even if it does pick up, it won’t be enough to save anything.
What is the logical outcome for Chicago?