August 25, 2010
On Monday the Civic Federation released its analysis of the Chicago Public Schools FY2011 proposed budget. The Federation supported the $6.5 billion spending plan because it offered a short-term solution to the District’s difficult, deepening financial crisis. This budget will allow schools to open on time and continue to provide students with access to education across Chicago.
The Civic Federation, however, was very concerned with the District’s proposed budget as several components expose the District to greater financial risk in future years. The District’s proposal to take a partial pension payment holiday especially puts future pressure on CPS’ overburdened pension system.
In April 2010 Illinois enacted P.A. 96-0889, which created a different level of pension benefits for new employees and granted pension funding relief to CPS, thereby revising the standards set forth in P.A. 89-15. The law reduced CPS’ required employer pension contribution for FY2011, FY2012 and FY2013 to an amount estimated to be equivalent to the normal cost. It also delayed the year that the pension fund must reach a 90% funded ratio from 2045 to 2060.
Prior to the passage of P.A. 96-0889, the CPS required contribution for FY2011 was calculated to be $586.9 million, or almost double the FY2010 amount. P.A. 96-0889 reduced the District’s required FY2011 contribution to $187.0 million, which is $120.5 million, or 39.2% less than the prior year contribution.
In FY2014, the year when the reduced payment provision granted by P.A. 96-0889 expires, the District’s pension payment will increase to $599.6 million, an increase of $403.6 million over the scheduled FY2013 pension contribution, as the schedule to reach a 90% funded ratio by 2060 resumes. The funded ratio is projected to fall to 48.0% in 2024 before beginning to climb up to 90% by 2060. The graph below shows projections of required CPS contributions to the Teachers’ Pension Fund from FY2010 to FY2019 based on P.A. 96-0889.
The Federation believes the District cannot afford its existing pension system. Dramatic changes are necessary to reduce this large burden on the District. The three-year partial payment reprieve, while sparing the District additional pain in the upcoming fiscal year, will only intensify the District’s enormous pension funding problem in outlying years. The pension funding cliff created by this legislation is a ticking time bomb for CPS and must be addressed by reforming the benefit structure and funding sources for the teacher pension system.