The End to the Chicago Teacher Strike Underscores Pension Crisis | Citizens Against Government Waste

The End to the Chicago Teacher Strike Underscores Pension Crisis

The WasteWatcher

While Windy City children can finally start heading back to school, the Chicago Teachers Union’s (CTU) 11-day strike resulted in no reform, to the detriment of students, taxpayers, and the fiscal health of the entire state of Illinois.

With a median salary of $78,000, Chicago Public Schools (CPS) teachers make more than 60 percent of all Chicagoans with a college education.  Compared to the nation’s 10 largest cities, the Illinois Policy Institute (IPI) found that CPS has the highest average salary, beating out school districts in cities like Dallas, Los Angeles, and New York City.

Originally, Chicago Mayor Lori Lightfoot offered teachers a 16 percent pay raise that would increase their average salary to nearly $100,000 over five years, but CTU rejected the deal. The union had demanded at least a 15 percent salary bump over three years, along with a reduction in health insurance premiums.

On October 31, 2019, Mayor Lightfoot and CTU “settled” on a 16 percent pay raise over five years as well as several other costly concessions.  The deal includes a 40 percent pay increase for teaching assistants, $35 million investment in reducing classroom size, and a particularly problematic decision that increases the amount of unused sick days that can be exchanged for pension credit from 40 to a whopping 244 days.  According to IPI, the five-year contract will cost taxpayers roughly $627 million, with at least $114 million due in the first year.  Even more ludicrous, some union members were unsatisfied with the more than half-billion-dollar agreement.  The deal was tentatively confirmed by split decision, with some teachers demanding more funding.

While CTU argued for a salary bump, 361,314 students, 76.6 percent of which are low-income, were stuck at home.  The strike not only hurt Chicago’s youth, who chronically underperform academically and have high rates of truancy and absence, but their parents as well.  Many of these parents work and rely on their children being in school so they can make a living.

The strike also brought attention to the city’s looming pension debt.  Currently, CPS’s pensions are only 48 percent funded and $11 billion in the hole.  For fiscal year 2020, Chicago’s budget is $838 million in the red, including nearly $300 million owed to police and fire pension funds.  By 2023, City Hall will need an additional $989 million annually to meet its obligations to retirees.  Chicago’s total pension liabilities have grown to around $46 billion, which is higher than the unfunded retirement obligations in 44 states.  Illinois has $134 billion in unfunded pensions, so it should come as no surprise that the state ranks dead last in the Mercatus Center’s 2018 State Fiscal Rankings and continually has one of the lowest credit ratings in the country.

Instead of getting at the root of the problem, the burden once again falls on the shoulders of Chicago’s taxpayers.  Under former Mayor Rahm Emanuel, the city tried and failed to address the pension issue by enacting $864 million in new tax hikes, 63 percent from property taxes. 

As a result of the massive pension debt and the crowding out of funds for other purposes, both Chicago and Illinois have seen a mass exodus of taxpaying citizens and businesses moving to neighboring states that have lower taxes and stable job growth.  With Governor J. B. Pritzker pushing for a new graduated income tax that disproportionately affects middle-class workers, the city and state seem destined for a sixth consecutive year of population loss, intensifying the tax burden for those who remain.

There are practical solutions to fixing Chicago’s pension woes.  IPI has proposed several structural reforms to the pensions system, including increasing the retirement age, adjusting automatic annual increases to inflation, and capping maximum pensionable salary.  The Manhattan Institute suggests that a larger portion of the budget should go to teachers’ take-home pay and recommends a switch to a portable defined-contribution system.

Another solution to the pension problem is a constitutional amendment that would curb future retirement benefits.  A 2015 Illinois Supreme Court decision determined that a government workers’ pension benefits cannot be changed.  This severely restricts lawmakers’ ability to make financial reforms when needed.  As explained by IPI, “the ‘earned, but not going forward’ standard strikes a suitable balance between providing states with needed financial flexibility while still guaranteeing that no government workers will lose benefits they had a reasonable expectation of receiving.”  Since only future benefits can be modified, workers would not have to worry about the loss of previous benefits if they decided to change jobs or relocate.  Reforming future pensions benefits has a track-record of success in states like Arizona, Michigan, Pennsylvania, and Utah.

Chicago’s economy has promise.  The city consistently ranks first among large cities for corporate expansion and Moody’s Analytics projects that Chicago “will continue to develop as the transportation and distribution center for the Midwest.”  The best way to release this economic potential is by sticking to a budget and spending less, not by adding more to the city’s mountain of debt.

CTU’s strike has made a bad situation much worse for Chicago’s irresponsible and unsustainable pensions.  Windy City lawmakers can no longer neglect this crisis and must push for solutions that bring costs into line with benefits, prioritize the city’s long-term fiscal health, and avoid further damaging tax hikes.

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