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?
Cut benefits and hike taxes. That’s what they’re going to have to do. And it’s gonna suck.
We have been warned and we continue to get warned that we can’t keep kicking this can down the road. And the longer we wait, the worse it will get. You can see in this story that the state is requiring Chicago to “triple” their contributions. How are they going to do this when they’re being forced to fund teach raises and other state mandated programs? Plus, isn’t state’s contributions to Medicare suppose to start increasing? Suck might not begin to describe how bad it could get.
We can’t stand another sales tax or income tax hike, but there is still a lot of waste to cut, streamlining or ending TIF (tax increment financing) would go a long way to alleviate some of these issues. Very notoriously generous corporate welfare policies under the last Mayor that Rahm is cracking down on and a lot of city services that could be outsourced. I definitely do not envy Rahm though Dick Daley left him with a fiscal time bomb.
then their investments would be doing better.
But until we we spend our way out of the depression through Keynsian pump priming, e.g. as FDR did, it ain’t gonna happen.
might be “consoled” by the idea of the economy improving eventually fixing it, but these problems are going to manifest themselves very soon. With the potential of a very bad 2013 on the horizon, even the existing investments may go in the toilet and cause the existing assets to drop and not go up!
In his first term, unemployment dropped by 40% and GDP growth averaged over 8% per year.
To get out of this depression, we need to follow the same plan. The current battle of the Austerity Party vs. the Even More Austerity Party is absurd and only damages us further. Both parties are championing failed ideas that have, as far as I know, never been demonstrated to work for the 99%.
What a crummy story.
It says the city pays $1 billion per year, not that it loses that sum. It says that the $1 billion is “much more” than it has been taking in, but doesn’t bother to get more specific than this.
So, there is a coming crisis, but we don’t know if it is coming next Tuseday or in 2037.
It is likely that some of the losses get made up as the economy improves, but probably not very much. The pension fund is most likely invested in the equity markets. Equity markets hit a peak in 2007, crashed in early 2009, and have since recovered almost all the way back to their bubble era peak. Something else will be required, in the form of (i) higher taxes, (ii) greater contributions by the employees, and (iii) benefit cuts.
a crappy article, though JohnD should be commended for sourcing a non-partisan news source.
I was reading a blog post that pointed out one major thing wrong with mainstream media reporters: they are lousy researchers and readers. With a world of info at their electronic fingertips, they don’t bother to search for stuff. Had the NYT reporter bothered to do a little searching (I’m talking a minute: type in “pension” and “CTU”), she would have come up with the context for Chicago teacher pensions. She wouldn’t have had to trust the CTU, but she would have had the context for the story and could have then pursued more traditional sources.
Anyway, here are the facts:
Further, the Chicago teachers contribute about 9% of their pay to their pensions, and like Massachusetts teachers, they don’t contribute or receive Social Security. If you keep reading what CTU statement on the issue, you’ll see it’s actually cheaper for the state to fund their pension obligation than it is to fund social security.
Why do I believe the CTU site? It’s basically the same as Massachusetts’s Teacher Retirement System. Here teachers my age and younger contribute 11% to their retirement. In Massachusetts, Commonwealth operates the MTRS and pays the administrative costs. Raising the contribution rate from 9% to 11% happened in the 1990s in an effort to eliminate the MTRS operating on a pay-as-you-go basis. The MTA has been working on this since the 1980s. It should also be noted that the MTRS is significantly cheaper than having teachers participate in the social security system.
So the problem isn’t a defined benefit system. It’s not the stock market, though that has inhibited the MTRS goal to achieve full-funding by 2040. The problem in Chicago is that the state/city hasn’t done its part. I don’t know the history behind all this, but it also seems that other Illinois teachers don’t have the same problem.
Illinois is a good microcosm of the country. We are all aware of the maps that show that the red state, the typical anti-government ones, actually leech off of states like NY, CA, IL and the New England states since they pay far less than they get back in federal funds. Similarly, Chicago actually pays far more to the state of IL than it could ever hope to get back in funds. But outside of Cook County most of the state is purple-deep Red and blames Chicago and the ‘machine’ for all its problems. The irony is most of the state patronage and waste goes downstate and the city of Chicago gets very little from the state. The State of IL hates the city so much it actually refused to help the CTA by maintaining its obligated levels of funding. We were also barely able to get a capital bill passed, its so bad that the City of Chicago has hired its own lobbyists to go down to Springfield. We also pay a 3-5% higher sales tax in the city than the rest of the state does, and the collar countries (adjacent to Cook) are all horribly mismanaged by Republican patronage machines so the rich white folks in DuPage, Lake and McHenry countries get to work in a great city that gives them great jobs while paying nearly nothing for it and bitching anytime they have to fund something that might help brown poor people in the city like the CTA, the schools, or our health departments. The fiscal time bomb will wreck this state and the irony is Chicago is the only thing keeping it from being another rust belt failure like OH or MI.
I cannot stress how much I miss Massachusetts, its low tax rates, no tax on food or clothes (my girlfriend honest to god acts like a Bostonian in New Hampshire when she goes shopping in Massachusetts), and relatively good fiscal management during a terrible recession which none of us give Gov. Patrick enough credit for. Quinn is a good man but he is in over his head and will need to make some pretty awful decisions that his counterpart in Massachusetts doesn’t need to. Hopefully if my interviews and job hunt goes well I’ll be back sooner than planned. You can go to indeed.com or monster and just see in seconds how there are a ton of better jobs in Massachusetts than IL. So quit griping you all got it good.