Experts to Chicago teachers union: Changing up pensions could feel like a raise

As the stalemate between the Chicago Teachers Union and Chicago Public Schools continues, there's a big cost affecting both parties that few are talking about: pensions.

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"The problem with pensions is that it's easy for politicians to promise it today, but then — Chicago is a perfect example of this — they don't put the money in. ... The education system puts the money in, but then the politicians take it and spend it for other things. Somebody else 20 or 30 years down the road has to deal with the problem," Heritage Foundation economics research fellow Rachel Greszler told FOX Business.

On Sunday night, the teachers union rejected the city's latest offer, which included 16% across-the-board raises for teachers and support staff over the next five years. Meanwhile, their pensions are less than 50 percent funded and could lead the city to raise taxes, Greszler said.

CHICAGO TEACHERS, SCHOOL SYSTEM BACK TO NEGOTIATING AS STRIKE HITS DAY 11

That could start a dangerous cycle, since high-income people who experience the biggest jump in taxes would flee the city first, Greszler said.

"They leave, that's your biggest source of incoming revenue, and it's just this declining cycle," Greszler said.

Students affected by the teachers' strike attend a program at the McCormick YMCA on October 17, 2019 in Chicago, Illinois. (Photo by Scott Olson/Getty Images)

She pointed to research by the conservative-leaning Illinois Policy Institute that found that Chicago Mayor Lori Lightfoot's offer would raise costs for a Chicago family in a median-value home by $13 if the entire cost of the first year of the contract went to property taxes.

The pricetag if the union got its way? A $221 increase.

Chicago Public Schools CEO Janice Jackson seemed to reference the dilemma in a tweet late Sunday night.

"I’m incredibly disappointed that classes won't resume tomorrow. We have to be realistic about the state of our finances, and we won't have a deal until [Chicago Teachers Union] figures out that we're a family putting gas and groceries on the credit card," Jackson wrote on Twitter.

Greszler suggests that teachers ask for a change so that pensions are less of a burden on the system going forward.

"The pensions are forcing budget cuts in other areas. Something teachers should be looking at: is there a way to provide teachers with more upfront pay in their paychecks for a smaller pension benefit? There's an economic study of [Illinois] teachers, it showed they valued every dollar of pension benefits at 20 cents. That's not very valuable," Greszler said.

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Union spokeswoman Chris Geovanis pushed back against such an idea, citing how hard it is to save for retirement for employees like teaching assistants who make less than $28,000 a year.

A protester holds a sign as Democratic presidential candidate Elizabeth Warren called for people across the country to support striking Chicago teachers after joining educators picketing outside an elementary school, Tuesday, Oct. 22, 2019, in Chicag

"Because of the Windfall Elimination Provision, members can expect, at best, [to] see a pittance from Social Security, and I mean a pittance, even if you've got decades in non-public sector work under your belt. Your pension is literally what you've got when you retire," Geovanis told FOX Business.

"New CPS employees who are members of our union pick up the full cost of their pension contributions – meaning that they're essentially already investing in a 401(k)-type program – their pension – already, with the added benefit that their pension benefit cannot be reduced, unlike a 401(k)-type program, which can go south whenever 1% financial titans blow up the economy," Geovanis continued.

Like Greszler, Manhattan Institute senior fellow Daniel DiSalvo advocated for a system "makeover," calling for a portable contribution system. He cited the approximately half of teachers who don't work long enough to vest their pensions.

"Such a plan would not only prevent the city from making promises it can't deliver, but would also translate into an effective raise for the 4 out of 5 Illinois teachers who never profit from their current defined-benefit plan," DiSalvo wrote in an op-ed in The Chicago Tribune earlier in October.

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