WASHINGTON--(BUSINESS WIRE)--Today, in response to the Chicago Teachers Union’s decision to walk out on contract negotiations with the city, the Council for Citizens Against Government Waste (CCAGW) took the opportunity to highlight the need to reform public employee pension plans, which are among the principal drivers of state and local budget deficits across the United States. The Chicago Teachers Union, whose members average an annual salary of $76,000, rejected a 16 percent raise over four years. They had initially asked for 30 percent over two years.
The financial outlook for Chicago Public Schools (CPS), like that of the city of Chicago and the state of Illinois, is grim. CPS is facing a budget deficit of between $600 and $700 million in fiscal year (FY) 2013, while Chicago grapples with a budget shortfall of at least $369 million and Illinois faces a $43.8 billion deficit, the worst of any state. CPS’s bond rating has been downgraded this year by Standard & Poor’s and Moody’s, and Fitch changed its outlook from “stable” to “negative” in August. The agencies cited concerns about CPS’s looming $338 million pension payment in 2014.
Illinois public-sector pension programs are the most underfunded systems in America. While the crux of the negotiations between the city and the union is wages, CPS’s budget deficit is being driven in large part by an underfunded pension system. Proven funding for Chicago teachers’ pension plans amounts to just 31 percent of its future obligations, and the Illinois Teachers’ Retirement System has assets to cover a mere 18.8 percent of its liabilities.
A widely accepted rule of thumb for pension plans to be considered “healthy” is a funding to liabilities ratio of 80 percent. According to the Government Accountability Office, 40 percent of state and local government pension plans had already dropped below the 80 percent funding level before the 2008 recession began. Post-recession data from the Pew Center on the States shows that 62 percent have dropped below the 80 percent funding level threshold and 11 states are projected to exhaust all of their pension assets by 2020.
A new book by Mallory Factor, Shadowbosses: Government Unions Control America and Rob Taxpayers Blind, details the crippling cost of teachers unions across America, both in the classroom and taxpayers’ wallets. To the unions, the problems plaguing American education can typically be boiled down to a lack of sufficient funding. But as Factor points out, the United States “spends almost $10,000 a year per elementary schoolchild … 68 percent more than Japan, 84 percent more than Korea, and 14 percent more than the United Kingdom … yet our children finished far behind these nations in math and science over the last decade.”
“Public sector unions, especially in big cities, have become accustomed to receiving concessions from state and local politicians that their counterparts in the private sector could never obtain,” said CCAGW President Tom Schatz. “For decades, the opposing party in public sector contract negotiations has been a politician with a vested interest in keeping the unions – and thus a significant voting bloc – happy. Over the past few years it has become clear that some real bargaining needs to take place if cities and states are to avoid insolvency. Chicago Mayor Rahm Emmanuel deserves credit for taking a stand for taxpayers and, more importantly, students.”
The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation’s largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.