The most pressing problem for schools CEO Arne Duncan, though, is to close a $328 million budget gap. One really bad idea being kicked around is to ask lawmakers in Springfield to declare a pension holiday at CPS, freeing the district from having to kick in about $70 million it will owe its teachers pension fund next fiscal year. The pension bill is expected to grow in future years, and the district may also ask legislators to change rules to reduce those costs.
The Illinois legislature could teach a course in how to mess up a pension system.
The solution being discussed for city schools points to exactly how the legislature undermined the state's pension plans--it skipped and slipped on pension payments because it needed the money for other things. And now it has created a huge problem that legislators have tried to solve with massive borrowing and delayed payments. The state's pension woes threaten to drain taxpayers dry in coming years.
It's easy to see why Chicago schools officials would be tempted to ease their budget problems by following the state's lead. If the state can skip out on its pension-fund obligations, then why not city schools? Unlike the state pension funds, the Chicago teachers fund is in fairly good shape. But state law requires that it have funds to cover 90 percent of its liabilities, and that means the schools have to contribute $70 million this year. They're talking about changing state law so they can skip that payment.
If school officials skip that payment, they will substantially weaken the financial standing of the pension fund. They also will be paying for ongoing operations with money they can't count on year after year. They will push off a budget problem, not solve it.
In fact, they'll make it worse. Every dollar placed in the pension fund earns money on the investment. If the Chicago schools skip a $70 million payment, the pension fund will also lose out on the money that would have been earned on that investment. One widely accepted rule of thumb is that every dollar diverted from a pension fund costs $11 in lost income over 40 years. And remember, the pension relief the schools seek may not be confined to just one year.
The only way to ensure your retirement money is safe is to have ownership over it and can choose where to invest it. Relying on others to look out for your retirement will result in a failure to fund your retirement.
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