As the chalk dust settles in Chicago . . . part one

. . . many difficult issues remain unresolved. Since school districts around the country are grappling with the same problems, here’s a quick run-down. I’m going to start with the money issues, and discuss some of the unresolved education policy issues in a second post.

Where’s the money going to come from? Chicago is very short of cash.

As Reuters reports:

The three-year contract, which has an option for a fourth year and which awaits a ratification vote by the 29,000-member Chicago Teachers Union, calls for an average 17.6 percent pay raise over four years and some benefit improvements.

Average teacher pay is now about $76,000 a year, according to the district, which pegged the annual cost of the new contract at $74 million a year, or $295 million over four years.

The $5.16 billion fiscal 2013 budget approved by Chicago Board of Education last month closed a $665 million deficit by draining reserves and levying property taxes at a maximum rate, while also slashing administrative and operational spending.

But that budget included no teacher salary raises with the understanding the budget would be amended once a contract was in place, according to a spokeswoman for the district. The increase agreed in the tentative contract with teachers called for a 3 percent increase in year one.

“There is really no room in the existing budget for that level of increase,” said Laurence Msall, president of the Civic Federation, a Chicago-based government finance watchdog group.

Msall said the nation’s third largest school system, which was already projecting a $1 billion budget deficit for fiscal 2014, will have to cut personnel, including teachers, and close low-enrollment schools to meet the contract’s financial demands.

So far, the Mayor isn’t explaining how he’s going to accomplish this magic:

Mayor Rahm Emanuel today offered no specifics on how he’ll pay for raises and other new costs in the Chicago Teachers Union contract, saying he would continue to look for savings in the Chicago Public Schools.

The mayor did not rule out a property tax increase. He chose to talk about unidentified cost-saving measures that he said will help pay for the deal.

And speaking of money, what about teacher pensions? As today’s New York Times reports,

One of the most vexing problems for Chicago and its teachers went virtually unmentioned during the strike: The pension fund is about to hit a wall.

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.

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.

What many Chicago residents may not realize is that their school district also has been paying $130 million a year to cover most of the pension contributions required of the teachers, a practice known as a “pickup,” which became a flash point last year in the collective bargaining battle in Wisconsin. Wisconsin’s public workers have agreed to make their own contributions, as a concession.

One comment

  1. Carolyn Sharette

    There is no way they are going to be financially able to sustain these pay rates and pensions (I realize that is an absurdly obvious statement). I am so grateful to live in a state where balanced budgets are the expected norm and living within our means is supported and expected. I realize we pay a price in comparatively low teacher wages and school funding. That is a price I am wiling to pay to maintain our solvency and security.

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