CHICAGO - The Chicago Public Schools yesterday filed a lawsuit in Cook County Circuit Court against Illinoisthat contends its teachers pension funding mandate is unconstitutional because the state has failed to meet its obligation to provide more cash for CPS' teachers fund.
The state's largest school district, which is the only one to manage its own pension fund for teachers, believes the state's system lacks equity because of a higher percentage of funding allocated to the statewide Teachers' Retirement System pension fund.
The result is an unfair burden on the city's taxpayers as CPS is forced to meet statutory payments to the pension fund, the lawsuit contends. School officials have long called the current funding scheme unfair and argued that it forces the diversion of operating funds that otherwise could be spent on education.
CPS contends that the state would owe it hundreds of millions of dollars in the coming years if the funding mechanism were equitable and the state lived up to a prior pledge that 20% to 30% of payments for teachers pension funds go to the Chicago fund. That percentage is a goal only and not required under law.
The state paid the TRS $738 million last year while the teacher's fund received about $75 million. The CPS fund also did not receive any proceeds from the state's $10 billion pension obligation sale. All of it went to the state funds. The district contends it should have received an additional $130 million.
"This system is horribly unfair," said Chicago Board of Education president Rufus Williams at a news conference.
CPS has seen double-digit increases in its pension payments in recent years. In fiscal 2007, the district appropriated a total of $291 million for teachers, a 23.7% increase over a year earlier. The teachers' pension fund for CPS is currently funded at about a 78% level based on fiscal 2006 figures, with an unfunded liability of $2.7 billion. Payments to cover the unfunded pension liability ramp up through 2010 under the state mandate being challenged that requires the school district to bring the funded level to 90% by 2045.
The unfunded liability figure includes an unfunded liability of about $420 million owed for retiree health care benefits. The district's payments solely for retiree health care are currently capped at $65 million, but that number can be raised by the state General Assembly.
By the end of fiscal 2008, the district anticipates that it would hit the cap in order to meet its obligation to cover 70% of retirees' health care costs, according to chief financial officer Pedro Martinez.
Illinois officials did not return calls to comment. The state faces its own $43 billion unfunded pension liability for which Gov. Rod Blagojevich has proposed a $16 billion pension issue to help improve the funded level. The state has yet to report its retiree healthcare liability though sources have said it is likely to be in line with the pension liability.
The lawsuit seeks a declaratory judgment that the 1995 state mandate that requires the CPS to bring the funded ratio up to 90% is unconstitutional.