Congrats to Lori Lightfoot! No Pension Failures on Her Watch!

Sometimes the only way to win is to lose

This past Tuesday, there was an election for the Chicago mayor. Nobody reached the 51% mark, so there will be a runoff between the top two vote-getters. I will come back to that at the end of the post.

Here are the top 5, and you can see that incumbent Lori Lightfoot came in number 3.

While many others are casting Lori Lightfoot’s electoral loss as payback for all sorts of bad behavior on her part [I need not link these], I want to congratulate Lightfoot on her win: no pension failures on her watch.

The Next Person May Not Be So Lucky

To keep this simple, I will look solely at the two most significant Chicago pension funds: the Teachers fund and the Municipal workers fund, using data from the Public Pensions Database.

Now, the Chicago Teachers fund is not in an asset death spiral, but it is financially strained.

The pattern of contributions took a very large step up in 2014, which is good, but it is still not a full contribution, which is bad:

That the “required” contribution is about half of payroll is very expensive for Chicago and the state of Illinois, of course.

But the concerning part is this, the pattern of the funded ratio:

The funded ratio, which is a ratio of how much assets the fund has versus how much the promises already earned are worth right now (that is, the actuarial present value of the liabilities), has been on a sideways path for almost a decade.

This isn’t a death spiral, as I said, but this isn’t great. This is a large fiscal pressure for Chicago and Illinois.

The Real Disaster: The Municipal Workers Fund

Here we go, a true disaster to come. When the assets run out, Lightfoot is going to be super-happy to know she lost last Tuesday’s race.

She knew, after all. I mentioned this in a podcast a month ago. Maybe she thought the state would run to her rescue.

The contributions have been extremely inadequate.

They should be contributing about 60% of payroll. They’re not even contributing half of that.

The funded ratio shows a plan in an asset death spiral.

Re-projecting cash flows for the Chicago Municipal Plan

In a post in 2017, I projected the assets running out in 2024, but that’s before they really ramped up contributions.

With my last projection tool update from Labor Day 2022, here are some stats:

Those contribution growth rates, even the 10-year, are unlikely to be sustainable for Chicago. The 5-year growth rates are definitely unsustainable.

But this is what happens as a “frozen” scenario - no increase in contributions, no increase in benefits, no investment returns (or losses):

Failure in 2032 — but that’s if nothing gets more expensive.

What if investments again do nothing, contributions are frozen, but benefits increase by 4% per year?

Yeah, Lightfoot would be thanking her lucky stars then.

Here’s an optimistic assumption set:

This was me playing around with the assumptions to get something that would just barely extend it past 2040.

I will note that this is a “toy” model intended to play out possibilities.

One reality it does not yet reflect is recent asset value drops.

The two losers fighting to be grand loser of Chicago

So now there’s Chicago Teachers Union-backed Brandon Johnson and former CEO of Chicago Public Schools Paul Vallas fighting for the right to deal with the mess that is Chicago.

Let us see what Wikipedia has to say about them.

Paul Vallas

Paul Vallas:

Vallas also originated and supported a proposal to reallocate money earmarked for teacher pensions into a general operating budget, which, alongside a decrease in returns from the stock market and an increasing number of retirees caused CPS to be unable to make their full payments on time in later years. This has been identified as an inciting incident for the subsequent $1 billion budget crisis, attributed largely to spiking pension payments in later years.

I will note that the footnote on this particular bit claimed it was retrieved March 1, 2023, but given the link was dead today, somehow I am doubtful.

Luckily, the Wayback Machine has a copy of the footnote link:

How Did Chicago’s Public Schools Get in Such a Huge Financial Hole?

What happened? In 1995, CPS was facing a projected 1999 deficit of $1.4 billion, plus the familiar problems of low scores and dropout rates. So Paul Vallas proposed a fix:

Vallas, who will submit his proposed $2.9 billion budget to the Chicago School Reform Board of Trustees Monday, said he trimmed $161.8 million by reducing 1,700 central office staffers and trades workers; eliminating waste from special education and other departments; and gutting an elaborate program designed to network the district's computers.

At the same time, he came up with $206.8 million in revenue by contributing less to the teachers pension fund; keeping some of the discretionary funds schools get for low-income students; putting 20 surplus properties up for sale; and shifting to the general fund monies that financed after-school programs at school fieldhouses.

So CPS was able to reduce its pension funding; they were supposed to pay in $93 million, but cut that to $10 million.

Yeah, I think I will be revisiting this.

But yes, AnimaZen who added this bit on 1 March 2023, and that article was not retrieved on 1 March 2023, you liar. That said, it’s good info. Thanks for having it there, even if retrieval date is a lie.

Brandon Johnson

Brandon Johnson in Wikipedia:

He became an organizer with the Chicago Teachers Union in 2011, and helped organize the 2012 Chicago teachers strike.

….

Johnson works as a paid organizer for CTU, focusing on legislative affairs. [needs a date]

….

Johnson has been described as a "progressive" and a favored "candidate of the left."^[26][27][28] His campaign has emphasized funding and resources for public schools,^[29] a public safety platform that includes efficiency audits and non-police responses to mental health emergencies,^[30] support for a real estate transfer tax to fund homelessness response and prevention,^[29] and a budget that proposes raising $1 billion in new revenues through a city income tax on high earners, a financial transaction tax, and other new proposals.

Emphasis added.

Well, I certainly look forward to seeing who wins this one.

I will wait to see who wins before I make any predictions…