Say what you will about Rahm Emanuel, Chicago’s Democratic mayor, but he has been in the thick of just about every major policy and political battle in recent history. Few politicians bring more savvy to whatever the fight may be.
Emanuel’s latest provocative move is to recast the Chicago public schools’ pension-funding woes as a modern-day lawsuit equivalent to Brown v. Board of Education.
Though the problems behind the case were made in Illinois, its implications are national. Emanuel’s city isn’t the first U.S. jurisdiction to face brutal trade-offs between the contractual entitlements of unionized teachers and the educational needs of America’s public school kids — most of whom, as of 2014, are “minorities.” And it won’t be the last.
To be sure, Chicago’s lawsuit expressly disavows attacking the teachers, or their pensions; Emanuel, having endured a 2012 teacher strike, isn’t going there. The defendant is the state government, for allegedly sending a disproportionate share of its annual $10.6 billion in education aid to mostly white school systems outside of Chicago, whose students are 88 percent black, Hispanic or Asian. That’s “separate and unequal,” the lawsuit claims, in violation of state civil rights law.
Chicago’s chronically underfunded teacher pensions are the heart of the matter, however. A state-law requirement to pay into them from city resources accounts for Chicago’s financial desperation. The city owes 13 percent of the schools’ operating budget, or nearly $1,900 a year per student in 2017, for teacher pensions.
Without a quick injection of $215 million, Emanuel has said, Chicago public schools may face drastic service cuts, imperiling the fragile but real progress they have made during his administration.
The proximate cause of the lawsuit was Illinois Gov. Bruce Rauner’s (R) veto late last year of a bill that would have supplied the $215 million pension fill-in. Rauner refused the money pending wider restructuring of the state’s troubled public sector pensions. And he had a point; the veto gave him leverage, which he is wielding in high-stakes negotiations with the Democratic legislature and with Emanuel. The outcome is anyone’s guess.
As for the lawsuit, the state has urged a state judge to dismiss it, denying that funding formulas shortchange Chicago and calling attention to the city’s past financial mismanagement.
The details of this dispute are less important, however, than the fact that it has to occur in the first place.
Teachers, like other public employees, oppose changes in existing pension arrangements, and courts, including, recently, Illinois’s Supreme Court, have often ruled that agreed-upon benefits cannot be reduced.
Yet absent reforms that reduce school systems’ legacy costs, intergenerational injustice will deepen. In a financially troubled state such as Illinois, where taxes are already high, it seems wrong to exempt any politically influential group of grown-ups from shared sacrifice, while children compete for resources.
Teachers do a vital, difficult job and should be compensated accordingly, including with retirement benefits. This could be done far more efficiently through a 401(k)-style plan paid for by both teachers and their employers, as in the private sector.
What’s more, there’s evidence that traditional defined-benefit pensions, with their upfront payroll deductions and backloaded benefits, are not optimal for teachers in today’s high-turnover market.
Unlike a 401(k), they’re not fully portable; teachers who go from one system to another over a career, as is common, can find themselves contributing to multiple pensions without fully “vesting” in any of them. They can withdraw contributions upon changing jobs, but with little or no interest.
A 2015 Urban Institute report estimated that more than three-quarters of teachers age 25 or older who would start in the profession that year could look forward to getting less out of a pension plan than they paid in.
The situation in bankrupt Puerto Rico illustrates what lies at the bottom of this slippery slope: New teachers will soon be contributing 14 percent of their salary to cover $55 million in monthly pensions for 42,000 retirees, even though the younger generation may never see a dime because the fund will be empty by next year, according to a recent New York Times report.
As it happens, Chicago’s teachers are relatively privileged in this respect, since the city pays most of their pension contribution for them, 7 percent of salary . The teachers union negotiated this perk as a short-term salve for pay cuts suffered amid a funding crisis four decades ago; it subsequently morphed into a permanent rule. When Emanuel proposed phasing it out, in the interest of financial stability, last year, the union threatened to strike.
Decades of political log-rolling, contradictory unfunded legal mandates and short-term funding patches have brought Illinois to its fiscal predicament, of which Chicago’s crisis over teacher pensions is only one manifestation.
Whatever its legal merits, or chances of success, the city’s lawsuit does serve one purpose: to remind everyone of the status quo’s costs, and who really bears them.