The reason I initially ran for election to the Chicago Teachers Union was Paul Vallas. For younger teachers, who unfortunately are in Tier II of the pension system, the Daley/Vallas regime are a big part of the blame.
Prior to 1995, when Paul Vallas took control of Chicago schools, the Chicago Teachers Pension Fund was in good shape, with a stable source of funding. Until then, city property taxes were paid into a dedicated pension account and CPS couldn’t shift the money to anything else.
This was an important protection. Not even TRS, the fund for non-Chicago Illinois teachers had it. The state legislature, both when the Republicans were in control and when the Democrats ran it, consistently shorted those pension payments to fund other projects. This allowed state politicians to avoid tax increases and use retirement pension money to fund lakefront improvements and city projects like Maggie Daley Park, all with no tax increases.
When Paul Vallas was picked by Mayor Daley to be his budget director and then shifted over to run the schools, he got the state law protecting the Chicago teacher pension fund changed. At the time, we weren’t even sure our retiree health-care benefits were intact.
He could do that because in the mid-1990s the Republicans took power in Springfield, and Illinois House Speaker Michael Madigan (who remained as Speaker even among Republican control) cut a deal with Daley to hand him full control of CPS.
Jumping at the opportunity, Daley and Paul Vallas quickly got the pension law changed and diverted the pension tax levy, money which had been dedicated to funding pensions, into the CPS operating budget to cover operating costs.
The booming economy during this period masked this funding loss and the pension fund appeared on paper to still have ample funding as a result of high investment returns.
Vallas left CPS in 2001, and went to temporarily run the school system in Philadelphia (during which the district had been taken over by the state). After being fired there, he temporarily ran the schools in New Orleans after Katrina (where he oversaw the complete privatization of its public schools during a state takeover) and in Bridgeport, Connecticut (when he was also hired in the midst of a state takeover). He was fired there when the district returned to elected control, for not fulfilling credential requirements.
Meanwhile, back in Chicago because of the Vallas/Daley misuse of pension funds, unfunded pension liabilities began to rise. The pension holiday that Vallas started at CPS proved to be crippling to the pension fund when the economic boom ended. Charles Burbridge, the CTPF executive director of the teachers’ fund at the time (he left in 2020), has said that the decision to shift funds away from the pension fund during that period was risky.
“When the rate of returns dropped, they had to scramble to find a source of funding again,” said Burbridge, who also served as the deputy chief financial officer at CPS under Vallas.
In 2006, Daley’s administration did start making payments into the pension fund, but the decade-long pension holiday had already cost the pension fund over $2 billion dollars. And as another school financial crisis loomed after the housing market crashed, the mayor went back to Springfield in 2010 to secure permission to reduce payments for yet another three years.
When Rahm Emanuel followed Daley to the fifth floor, he also went to Springfield and asked lawmakers to grant CPS pension payment relief for an additional two years. This time the legislature refused, thanks, in part, to aggressive lobbying by CTU. Even while Rauner attempted to bankrupt and takeover CPS, and Rahm was busy closing schools and slashing libraries, CTU fought to address the longstanding funding inequities at our schools.
In 2017 the state legislature approved a restoration of the dedicated pension levy for the teacher’s pension fund, as well as a new education funding formula that put CPS on better financial footing. This was the situation Lori Lightfoot faced when she replaced Rahm as Chicago mayor.
No surprise here but, actuarial science was completely over the head of Daley. He used the money with no concept of the long term issues he would create.
