A teacher who is employed by District 115 for his entire career earns a pension that is paid after he retires, but that pension is not paid by District 115. It is paid by the State of Illinois.

There are 27,466 people living in District 115. There are 12,875,255 people living in Illinois. (2012) So 99.8 percent of the people in Illinois who do not live in District 115, but they are still guarantors of the District 115 pensions.

Of course, the people who live in District 115 are also guarantors of the retirees’ pensions from the other 3,400 school districts in Illinois.

There is no such thing as a free lunch. This mismatch of where-the-teachers-work and where-their-pensions-come-from does not make the pension less expensive for the taxpayers nor more lucrative for the teachers. It simply obscures accountability.


externalities

The essence of “collective” bargaining is self-interest. The idea is that the two parties are assumed to be adversarial and each will try to take advantage of the other. It is assumed to be a zero sum game.

It two parties to a bargain can strike a deal that exploits a third party, that is a “win-win” from their joint perspective. Such externalities fundamentally corrupt the bargaining process. The third party is no part of the bargain, but is on the hook for what results nonetheless.

It works like this: The teachers want bigger pensions, ceteris paribus. The school districts don’t want to pay more than they must, but pensions are not paid by the individual districts, they are paid by the State of Illinois from its taxing power over all the People of Illinois.

So when a school district offers a bigger pension, the teachers get something the school district does not have to pay for – at least not more than the district’s share of the total state obligation.


a Ponzi scheme that Bernie Madoff could not imagine

The pension of a public school teacher in Illinois is set by the teacher’s last salary before retirement. Teachers’ unions, sitting at the bargaining table, seek to have the pay of that final year grossly inflated to establish a high pension payout for all the years that follow. Individual school boards were willing to concede that final year inflation because they were not the ones on the hook for all those following years.

In this way, each Illinois school district burdens all other Illinois school districts. A school district that did not participate in this charade still had to pay for the excesses of other school districts; participating was necessary just to keep the local teachers even with what other districts were offering their teachers. There was no incentive for any one district to resist the grand scheme.

So teachers demanded huge final-year salary boosts, and individual school districts did not resist. Which means everyone got a boost in their pensions that everyone else had to pay for. Which means everyone had to pay for everyone else’s inflated pension. Which means there is no free lunch.


the LFHS 0.2 percent

Which means the State of Illinois had to place a state-wide limit on this pseudo-bargaining. Illinois statute provided that the raises in the final three years of a teacher’s employment may not exceed 6 percent each year. These raises have nothing to do with merit. They simply equalize and limit the gouging of third parties by individual school districts.

In the current (2012-2016) District 115 contract with the LFEA, Article XIV (Fringe Benefits), Section C (Retirement), Part 3 (Service Recognition Program), Paragraphs a, b and c provide 6 percent, 6 percent and 6 percent.


the other 99.8 percent

But this was too little, too late. As of September 30, 2013, the Teachers’ Retirement System had $41 billion in the bank, available for pension payments to Illinois teachers. The actuarial estimate of the amount the Teachers’ Retirement System must pay to retired teachers is $97 billion.

That $55.73 billion shortfall is the result of individual school districts promising their teachers more pension benefits than the State of Illinois has provided for such payments. And it has resulted in the lowest credit rating of all the fifty states.

And it gets still worse. The 1970 revision of the Constitution of Illinois added the following provision to Article XIII, Section 5: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

And so, even though “the state's pension benefits have become unsustainable, with the obligation eating up nearly 1 dollar in 4 of the state's operating funds, despite an income tax hike,” the teachers’ lobbyists have made it very difficult to reform the system.


and the beat goes on and on and on

In December, 2013 both houses of the Illinois legislature passed a pension reform bill that Governor Quinn signed into law. Naturally, in January, 2014 the IEA (umbrella organization including the LFEA) sued to halt what they term as “pension theft.” On the other hand, Republican candidate for Governor Bruce Rauner says the reform bill didn’t go far enough.