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* Sun-Times…
Mayor Rahm Emanuel’s hand-picked school team is trying to persuade the Chicago Teachers Pension Fund to accept a partial pension payment — as little as $200 million of the $634 million due June 30 — because the Chicago Public School system doesn’t have enough cash on hand to make the full payment and still pay its employees. […]
In a statement Thursday, an Emanuel spokeswoman said: “Mayor Emanuel believes we are at a tipping point and that Springfield must take action to ensure the city is not forced to make a decision that forces us to choose between making a $634 million pension payment and the educational investments that our children need and deserve. The impact of this year’s massive payment means CPS would spend $1,600 less per student on education than every other district in the state, with severe and harmful consequences.” […]
Municipal finance expert Matt Fabian said a partial pension payment is the latest in a string of “budget gimmicks” that got CPS into this mess. It will make the long-term solution more costly.
But he said, “It’s the better of several fairly wretched options. It’s better than defaulting on their bonds. It’s better than not making payroll. Not making payroll becomes a direct operating issue. Then, they’re pushing cost onto students and families. They’d have to cut teachers. Politically, not making payroll is distinctly more negative.”
* Catalyst interviewed Charles Burbridge, the new executive director of the $10.8 billion Chicago Teachers’ Pension Fund…
Catalyst: Where does the pension fund stand on the upcoming $634 million payment?
Burbridge: We’re expecting the payment. …We have not been told that we won’t get it or that we’ll get some discounted portion of it. Last year we got it.
Catalyst: What happens if it’s not paid?
Burbridge: If it’s not, then we’ll have to explore options that are available to us, see what the Board of Trustees is interested in pursuing. We’ll have to cross that bridge when it comes.
Catalyst: Explain what’s included in the outstanding payment.
Burbridge: One component is the money that should be paid for the benefits current teachers are earning. Last year that amount was about $145 million and it is similar this year. The second component, much larger, is the [amount] required to make the annual contribution toward the debt that’s been run up over the past 10, 15, 20 years. That total [debt] is now almost $10 billion.
Catalyst: Why such a huge unfunded liability?
Burbridge: Pension funding works when the employer pays for benefits as they are earned. When the employer doesn’t pay for those benefits, you get into problems.
Catalyst: What would happen if the district somehow in the next couple of weeks was able to get a ‘pension holiday’ again?
Burbridge: It would exacerbate the current situation. The unfunded liabilities – the benefits that the employees are earning – would not be paid and [there would not be] a contribution to reduce the outstanding debt.
There’s plenty of worry that CTPF will sue, but that will take some time.
posted by Rich Miller
Tuesday, Jun 16, 15 @ 10:30 am
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Another example of Chicago not being able to pay, and not wanting to pass a property tax increase, and trying to force a financially troubled state, and state tax payers, to pay for its mismanagement of the Chicago Public School System!
Comment by Anonymous Tuesday, Jun 16, 15 @ 10:36 am
For crying out loud, Mayor Gravitas just got re-elected. If he doesn’t have the testicular virility to bite the bullet now and reverse the Daley legacy of fiscal recklessness, he never will.
Comment by Wordslinger Tuesday, Jun 16, 15 @ 10:38 am
Wasn’t Emanuel supposed to be a savvy Wall Street guy? Where’s the smarts now?
Comment by Joe Biden Was Here Tuesday, Jun 16, 15 @ 10:40 am
“If it’s good enough for Illinois, it’s good enough for Chicago!” — Fake Rahm quote.
Comment by Tourés Latte Tuesday, Jun 16, 15 @ 10:42 am
And remember that the delayed payment means that the fund missed out on the investment returns the money would have earned if there were 12 monthly payments throughout the FY or something similar.
Comment by Salty Tuesday, Jun 16, 15 @ 10:45 am
=The impact of this year’s massive payment means CPS would spend $1,600 less per student on education than every other district in the state=
That statement seems dubious at best, but also matches the time worn narrative that CPS is not getting it’s fair share from the state.
This is a problem that was literally created during the Daley era and, with an economy that is growing slowly, only gets worse. CPS and Chicago have the ability to “levy” specifically for the teacher pension costs, no other district in the state has the capability. Increase the levy to pay the bill and move along.
Comment by JS Mill Tuesday, Jun 16, 15 @ 10:45 am
@Anonymous
This is CPS, it has nothing to do with Chicago’s inability to pass a tax increase since they are separate governmental entities with separate taxing authority.
It actually has to do with CPS being restricted from increasing property taxes higher than the CPI or 2%. They’re screwed regardless of Chicago’s willingness to increase taxes.
Comment by PMcP Tuesday, Jun 16, 15 @ 10:46 am
Why would it take a lot of time to sue. The he complaint has already probably been drafted. The pension board itself will get sued unless it takes action to enforce the statutory payment obligation.
Comment by Sue Tuesday, Jun 16, 15 @ 10:50 am
That was and this continues my worry about SB 777.
Sure, it may look good NOW.
But what about 5, 10, 15 years from now?!
Same with this. Potentially a good idea for NOW. But again - what about 5 years from now?
This is the problem with real debt and real obligations. These bills MUST be paid. There is no magic wand.
Comment by Team Sleep Tuesday, Jun 16, 15 @ 10:53 am
Chicago has $55 million tax dollars to build a hotel and basketball arena on the near-south side for DePaul’s publicly subsidized basketball arena, but not enough to make the Chicago public school teachers pension payment.
Comment by Enviro Tuesday, Jun 16, 15 @ 10:54 am
@Enviro
Money in government is not fungible. Funds in one pot cannot be easily transferred to another. TIFs are restricted funds, once dedicated, that is a liability until paid and cannot be reversed without recourse.
Comment by PMcP Tuesday, Jun 16, 15 @ 10:57 am
“TIFs are restricted funds, once dedicated, that is a liability until paid and cannot be reversed without recourse.” How does this same reasoning somehow not apply to pensions?
Comment by anon Tuesday, Jun 16, 15 @ 11:05 am
And we’re gonna throw a world class party for the Blackhawks at taxpayer expense!!! Oops, I mean at the expense of those entitled to a pension.
Comment by anon Tuesday, Jun 16, 15 @ 11:06 am
PMcP, true, they’re not fungible. But State law governs the use of TIFs funds, and the Mayor had to get a law changed to enable the construction of the DePaul arena. I have yet to see them promote any sort of plan in Springfield that would give the taxing bodies in the city greater flexibility to access cash that they already have to make pension payments. Just the annual attempt to get partial holidays.
Comment by Juice Tuesday, Jun 16, 15 @ 11:06 am
@PMcP -
TIF funds are to be used for infrastructure but those funds can be used to supplant some O&M costs. O&M funds are fungible, they can move money around more than you think. Whether that movement is right or wrong is a different matter.
Comment by JS Mill Tuesday, Jun 16, 15 @ 11:07 am
The money to pay up doesn’t exist. Rahm didn’t start this rodeo, what do you expect him to do?
Comment by flea Tuesday, Jun 16, 15 @ 11:08 am
@JS Mill
Agreed, I don’t mean to speak unequivocally but it just really perturbs me when people think money is laying around to solve the problem and that’s just wrong. Taxes need to be raised and everyone just needs to accept it.
Comment by PMcP Tuesday, Jun 16, 15 @ 11:15 am
What Rahm really needs to think long and hard about is asking the legislature for bankruptcy authority- Chicago’s only way out of this mess is a federal bankruptcy restructuring -one that will not have to be constrained by the Illinois supreme court’s recent contract impairment decision- in a Chapter 9 proceeding- the pension is an unsecured creditor like any other- it is going to happen at some point so why not now
Comment by Sue Tuesday, Jun 16, 15 @ 11:15 am
I thought the DePaul area money came from a Senate bill. That was a specific “vehicle” for a very specific obligation. I believe that bonding was/is/will be in play for that project.
Comment by Team Sleep Tuesday, Jun 16, 15 @ 11:22 am
Sue, can you tell us what prompted “fiscal conservatives” like yourself to get all goofy for bankruptcy?
Comment by Wordslinger Tuesday, Jun 16, 15 @ 11:22 am
==Springfield must take action==
Chicago must take action. Cuts, layoffs, or raise your taxes to a similar rate to those of nearby areas?
Comment by Formerly Known As... Tuesday, Jun 16, 15 @ 11:26 am
There’s a bunch of things that Rahm has done to make things worse. He did make matter worse by creating a longer day and a longer year that there was no money to pay for. He also privatized the janitors which has led to a $30,000,000 cost overrun, shut 50 schools that have cost CPS money to close, and his hand picked board if full of conflicts of interest from SUPES Academy, to AUSL, to horrible rate swaps neogotiated by bankers on the board with other bankers.
According to CPS’s own figures, they’re spending over $690 million on charter schools this year. That doesn’t include the free facilities, the special ed, and speech teachers, that charters don’t pay for, but instead come out of the public school budget. Still CPS is looking at opening up 30 new charters this year. CPS is also paying an enormous amount on redundant testing. They do way too many standardized tests.
A lot of this is a revenue problem though. We have a lot of money going into TIFF funds for upscale neighborhoods that is coming right out of the CPS coffers and our state’s flat tax leaves some of the wealthiest in Chicago paying very little.
Comment by Carhartt Representative Tuesday, Jun 16, 15 @ 11:31 am
@PMcP- I agree.
@Sue- So, no problem. Anyone owing you money can just not pay. Sounds good. I am sure that if we all adopt your economic policy the economy will be Boomin’ Big Time!
Comment by JS Mill Tuesday, Jun 16, 15 @ 11:38 am
“Pension funding works when the employer pays for benefits as they are earned.”
That is not a fully true statement. The actuarial analysis is impacted by many factors. Admittedly initial funding is key but DB programs have a never ending risk to the employer. Contrary to what the Supreme Court says, risk is not a one way street. The bottom line is employer, employee, taxpayer, and elected official all share in this risk. There is going to be way more pain here than raising taxes to satisfy a modest number of pensioners benefits.
Comment by A Watcher Tuesday, Jun 16, 15 @ 11:45 am
== one that will not have to be constrained by the Illinois supreme court’s recent contract impairment decision ==
In the few municipal bankruptcies that went through the federal courts in recent years, most of the time the pensioners walked away with 85% - 90% or better. Bankruptcy isn’t going to solve CPS’s pension debt / lack of revenue problem.
Comment by RNUG Tuesday, Jun 16, 15 @ 11:51 am
2/3 of TIF revenue dollars would have otherwise gone to the schools. Many of the TIFs ( Chicago has dozens) use the receipts to service bonds - that is even if the Tifs were concluded the cash flow still goes to the bond holders. By the way selling those bonds generates big fees for investment bankers and lawyers.
Comment by anin Tuesday, Jun 16, 15 @ 12:02 pm
P.S. investment bankers and lawyers make political donations - just sayin’.
Comment by anin Tuesday, Jun 16, 15 @ 12:03 pm
CPS really got addicted to not making the payment. My wife started with CPS in 2000 and at the time the pension was over 95% funded, but CPS hadn’t made a required payment in several years because the pensions investment return was high enough to not have to put anything else in. Then we had the holidays. This isn’t a ridiculous credit card bill from only making the minimum payment. This is never even making a minimum payment and wanting to continue the free ride.
Comment by Carhartt Representative Tuesday, Jun 16, 15 @ 12:10 pm
“This is CPS, it has nothing to do with Chicago’s inability to pass a tax increase since they are separate governmental entities with separate taxing authority.
It actually has to do with CPS being restricted from increasing property taxes higher than the CPI or 2%. They’re screwed regardless of Chicago’s willingness to increase taxes.”
——————
First off, just as a technical note, the CPI numbers used in Tax Cap calculations for next year (2015 pay 2016 RE taxes) is actually going to be 0.8% (that’s 8/10TH of 1%), so no, not much of an increase - and the top cap limit is 5%, not 2%. Just a minor correction.
But here’s the real problem - even if you can increase RE taxes, it’s still going to be 15+/- months before you get the first of the new money.
Short Take:
1) This is the City of Chicago going to have to push their legislators (virtually all Democrat) to move the levers of state government to change laws.
2) The law changes needed will allow CPS to drastically increase RE tax levies outside of Tax Cap to fund retirement benefits for CPS.
What’s going to persuade the Governor to sign off on such legislation?
Chicago (CPS) is going to have to give up something to get something. What’s it going to be?
Fun times…..
Comment by Judgment Day Tuesday, Jun 16, 15 @ 12:19 pm
RNUG- so what your saying is 85 percent is the same thing as 100. All in all eliminating the COLA which the Supreme Court said is a no no would be worth a chapter 9 filing
Comment by Sue Tuesday, Jun 16, 15 @ 12:29 pm
How much does Rahm have available via TIF? It seems that money could be used for this.
Comment by Cheryl44 Tuesday, Jun 16, 15 @ 12:47 pm
@Cheryl44:
There probably is enough TIF ‘excess’ that would go to CPS to make *this* payment. But the payment due in 2016 is the same size, and there wouldn’t be any excess left. So, that’s just a different form of kicking the can down the road.
Comment by Chris Tuesday, Jun 16, 15 @ 12:55 pm
“How much does Rahm have available via TIF? It seems that money could be used for this.”
————
There’s problems with doing this. What you are trying to do is to take RE taxes levied under municipal (City of Chicago) redevelopment statutes (State of Illinois) and transfer that money into a chartered school district (Chicago Public Schools) to fund retirement obligations.
Talk about litigation heaven. And you are right back into the same old mess - what are the players going to put on the table to get the Governor to sign off on the deal?
Comment by Judgment Day Tuesday, Jun 16, 15 @ 1:11 pm
Word, they only support bankruptcy when it’s viewed as an easy way to stick it to public workers. Now make it easier for folks to get out of their business debts, that’s when you touch their selfish nerves.
Comment by Norseman Tuesday, Jun 16, 15 @ 1:15 pm
==Rahm didn’t start this rodeo, what do you expect him to do?==
1) Curb the use of TIFs
2) Allow for property tax hike
Comment by Robert the Bruce Tuesday, Jun 16, 15 @ 1:15 pm
Burbridge doesn’t sound like he actually expects the full amount.
Comment by A. Staller Tuesday, Jun 16, 15 @ 1:50 pm
== so what your saying is 85 percent is the same thing as 100.==
Sue, I’m saying bankruptcy isn’t going to save CPS. They will still have to pay most of the pensions IF they can get the GA to allow CPS, not the city of Chicgao, CPS to declare bankruptcy.
Comment by RNUG Tuesday, Jun 16, 15 @ 2:19 pm
“==Rahm didn’t start this rodeo, what do you expect him to do?==
1) Curb the use of TIFs
2) Allow for property tax hike”
—————–
Regarding curbing use of TIF Districts. There’s already around 120 +/- TIF districts in City of Chicago. Went and counted then a while back.
That option has already gotten away from you. IIRC, under state law, the initial term of a TIF district is 23(?) years (fixed, not variable), and then you can get an extension on top of that.
And if they have TIF Redevelopment bonds (most do), then you are on the hook until the bonds expire. Oh, and if the TIF District gets extended, the bonds can be re-financed. The reality-to-date has been that most TIF districts once created never go away.
Issue #2: Allow for a property tax hike. City of Chicago has it easy - they are a ‘Home Rule’ tax district. ‘Home Rule’ powers exempt a municipality (or Cook County) from the limitations imposed by PTELL (Tax Cap).
Problem is that CPS does not have ‘Home Rule’ powers, and as far as I know, there is no statutory option for ‘Home Rule’ powers for a school district.
Short Take:
1) CPS can file RE tax levies for any amount they want.
2) Cook County Clerk - Tax Extension will apply the rules governing PTELL to the requested tax levies as part of the tax extension process.
3) The CPS RE tax extensions will be found to be substantially over the limit and limiting rates will be calculated and the limiting rates will be applied and the vast portion of the increased tax extensions will be cut back.
The above is a very, very simplified explanation of what happens.
4) You want to get serious money for CPS? Pass a referendum (good luck with that) or change state law(s). The latter option may not be any easier.
IF you don’t want to allow for federal bankruptcy for units of local government, come up with other options.
Pick your option…..
Comment by Judgment Day Tuesday, Jun 16, 15 @ 2:44 pm
Bankruptcy is really the best option. CPS can cut pensions that way.
Comment by Tone Tuesday, Jun 16, 15 @ 5:16 pm
== CPS can cut pensions that way. ==
Ain’t been turning out that way. It was the bondholders and other debtors who lost almost everything. See Detroit and other recent examples.
Comment by RNUG Tuesday, Jun 16, 15 @ 6:21 pm
Thanks for your (lack of) insight Sue Sandack.
Comment by Precinct Captain Tuesday, Jun 16, 15 @ 10:04 pm
=Ain’t been turning out that way. It was the bondholders and other debtors who lost almost everything. See Detroit and other recent examples.=
Yes, and Rahm doesn’t want that backage and there are a lot of powerful politicians with ties to the investors ready to lose big bucks with bankruptcy.
Comment by Carhartt Representative Wednesday, Jun 17, 15 @ 7:46 am
I might be wrong, but I have compared similar valued properties in Chicago to some suburbs properties and the property taxes in Chicago are, in some cases, thousands of dollars less. Thus there is room for property tax increases in Chicago.
Comment by Steve Wednesday, Jun 17, 15 @ 4:18 pm
If, on June 30, 2015, the Chicago Teachers Pension Fund accepts a CPS partial payment, it will a day that will live in infamy.
My husband is a retired member of the CTPF. When he was working as staff to the Illinois General Assembly, the unwritten golden rule was: “Keep anyone you are going to screw away from the bargaining table especially as deals leading to their demise are being hatched.” With this in mind, there are only 12 days remaining before retired members of the Chicago Teachers Pension Fund will be screwed if this proposal is agreed upon by the CTPF board.
For if the CTPF agrees to this travesty, they will be setting precedent that allowing CPS to make less than the full required pension payment complies with contract law. Needless to say, this can (and most probably will) be used at a later date by the Mayor/CPS board to make “partial” payments of even $1.00 a year until the fund’s assets vanish into bankruptcy.
Comment by Diana Eiranova-Kyle Thursday, Jun 18, 15 @ 1:36 pm