US - A non-partisan government research organisation has criticised the Chicago Public Schools (CPS) for failing to develop a viable plan to address ballooning pension costs.
The Civic Federation made the statement in response to the CPS' staff-proposed $5.3bn FY2007 operating budget.
The organisation pointed out that overall compensation costs had risen 21.2% (US$570.1m) since FY2003, while benefit costs had risen 40.6% from $525.0m to $738.2m.
A significant 25.1% of that $213.2m was attributable to the fact that the CPS must pay over $50m more into its Teachers’ Pension Fund in 2007, than it paid the year before.
Employee benefit expenses are set to rise by 14.1% this year and pension costs are also ballooning, the organisation said. The CPS must contribute an additional $55.9 million to the Teachers’ Pension Fund in FY2007, a hefty 23.7% increase from the previous year.
Pension payments could total as much as $266.1m by 2015, but despite these problems, CPS has not developed a long-term financial plan that would identify future problems and opportunities and ways to address them, nor does this budget evince any indication that CPS has begun to explore ways to contain pension costs.
The organisation made a number of suggestions to curb the spiralling pension costs, including a cap on annual benefit increases for new hires at 3% or the rate of inflation, whichever being the lowest.
Retirees currently receive an automatic 3% increase each year.
It also called for the employee share of pension costs to be increased. Of the 9% of salary that constitutes the employee share of pension costs, CPS covers 7%, while employees only pay the remaining 2%.
The Civic Federation believes the employee share should increase to at least to 3% and that this shift of pension costs should be a top priority when CPS negotiates new collective bargaining agreements.
Should changes not be enacted, the organisation warned CPS finances faced several daunting structural problems.
Total CPS personnel costs for salaries and benefits are expected to rise 4.4% in FY2007 from $3.1bn to $3.2bn, despite the elimination of over 2,000 positions, the organisation said. It also highlighted Skyrocketing benefit costs. which have come at a time that enrolment continues to decline.
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