More bad news comes from the Windy City, which is already reeling from pension problems … the Chicago Teachers’ Pension Fund is short $1 billion, according to the fund’s consultants. This puts taxpayers on the hook to shore up (another) billion dollar shortfall.
The revelation was due to new estimates made based on reduced expectations of investment returns for the pension fund over the next decade. The adjustment was a half-percentage pint, from 7.75 percent annually to 7.25 percent. This seemingly minute change has resulted in an adjustment of the unfunded pension liability to $11 billion, up from $10 billion.
The Chicago Public School has been keeping the public hostage over the years. The CPS does this by forcing concessions from city hall while simultaneously letting shortfall fall on the heads of Chicago taxpayers. Therefore, it is no surprise that CPS CEO Janice Jackson response to questions about how the district will cope with rising pension cost was: “I think the biggest plan is to continue to lobby for additional funding to support our schools.”
This has been the apparent mantra for Chicago and Illinois public pension funds which have been struggling with the real prospect of insolvency- an inability to pay benefits when they are due. The situation has become so dire that it has resulted in other priorities being shelved. The result is taxpayers being made to pay higher taxes while obtaining fewer government services. In response, Chicago and Illinois have experienced a mass exodus of residents moving out to other states for tax relief. This will have a dual effect of decreasing revenues for the city and state which will invariably mean more taxes will from an increasingly shrinking tax base.
To make matter worst, the city will face ever-increasing and large pension payments due to the state law that requires Chicago teachers pension fund to be 90 percent funded by 2059. The current funding for the fund is a poultry 50 percent. The hope is that the CPS came reap enough returns to give taxpayers some relief. The issue with this is that current indicators do not give hope to the prospect of the ease of obtaining the necessary replacements. This is especially the case with CPS current target of 7.25%. To put this into perspective when New York Mayor Michael Bloomberg faced the prospect accepting a 7% percent rate of return for pension funds, he responded:
“The actuary is supposedly going to lower the assumed reinvestment rate from an hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” billionaire Bloomberg scoffed. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”