Charles Burbridge is the new executive director of the $10.8 billion Chicago Teachers’ Pension Fund. He’s only been on the job about three months, but Burbridge is no stranger to Chicago or the state’s pension woes.
From 1995 to 2000, he was deputy chief financial officer at Chicago Public Schools. Also, he served for 12 years as chief economist for the Illinois Economic and Fiscal Commission (now the Commission on Government Forecasting and Accountability), where he helped promote legislation that required employer pension contributions to be determined by actuarial calculations. He’s also worked in top finance roles for public schools in Atlanta and Los Angeles, commuting from his Oak Park home for more than a decade.
Burbridge comes to the pension fund at a time of uncertainty. CPS owes the fund $634 million by June 30, but that payment is still up in the air. Meanwhile, the pension fund’s 12-member Board of Trustees is set to get two new members from the CPS board, with Andrea Zopp and Carlos Azcoitia set to leave later this month.
Catalyst Chicago reporters Kalyn Belsha and Melissa Sanchez sat down with Burbridge to get the lay of the land on a complex issue that’s often not fully understood by the public. (This interview has been edited and condensed.)
Catalyst: Where does the pension fund stand on the upcoming $634 million payment?
Burbridge: We’re expecting the payment. …We have not been told that we won’t get it or that we’ll get some discounted portion of it. Last year we got it.
Catalyst: What happens if it’s not paid?
Burbridge: If it’s not, then we’ll have to explore options that are available to us, see what the Board of Trustees is interested in pursuing. We’ll have to cross that bridge when it comes.
Catalyst: Explain what’s included in the outstanding payment.
Burbridge: One component is the money that should be paid for the benefits current teachers are earning. Last year that amount was about $145 million and it is similar this year. The second component, much larger, is the [amount] required to make the annual contribution toward the debt that’s been run up over the past 10, 15, 20 years. That total [debt] is now almost $10 billion.
Catalyst: Why such a huge unfunded liability?
Burbridge: Pension funding works when the employer pays for benefits as they are earned. When the employer doesn’t pay for those benefits, you get into problems.
Catalyst: What would happen if the district somehow in the next couple of weeks was able to get a ‘pension holiday’ again?
Burbridge: It would exacerbate the current situation. The unfunded liabilities – the benefits that the employees are earning – would not be paid and [there would not be] a contribution to reduce the outstanding debt.
Catalyst: Does that have an impact on current teachers or current retirees?
Burbridge: Not directly, because the benefit is a defined benefit. There’s not a direct connection between whether an employer payment is made and the benefit that’s being paid out to the individual member. The indirect impact is that there are a lot of conversations about threatening to change statutes and [cut] benefits somehow. The state Supreme Court has indicated that [lawmakers] probably don’t have that ability.
Catalyst: How would a non-payment affect your ability to invest?
Burbridge: It typically means that our ability to invest is impaired. We need to keep more of our assets in a cash position to pay out benefits. … We’ll get a reduced rate of return because we will have to use assets to pay out benefits that we could otherwise have invested.
Catalyst: So at some point, you might run out of money if the district doesn’t pay?
Burbridge: Yes, long-term, if the district stopped paying altogether, at some point the pension fund would run out of money. I couldn’t give you a date, but it’s a long time from now.
Catalyst: Is there a broader economic impact to this issue?
Burbridge: The pension fund and, more importantly, the pensioners have a significant impact on the local economy. We have around 30,000 retirees and approximately half of them live in Chicago. These retirees are often anchors of their local communities. The average [annual benefit] is around $47,000. Probably altogether you’re talking close to $500 million annually being spent in neighborhoods by Chicago Public Schools pensioners.
Catalyst: Is there anything you wish people better understood about this puzzle?
Burbridge: People tend to try to look to who’s to blame and often they try to say, ‘Well, it’s the teachers.’ The teachers came to work. They had a benefit package just like you had a package that was offered to you when you took your employment. And they made a decision to work based on what you offered them. A lot of people don’t know that our teachers generally don’t get a Social Security benefit and somehow they think this is something on top of it, and if this was taken away there wouldn’t be a problem.
Catalyst: How do you see the fund moving forward through this moment?
Burbridge: I see the fund continuing to fulfill its role and responsibilities – that we will continue to invest assets prudently and administer our benefits efficiently and effectively. We cannot determine the outcome of the discussion and the whirlwind of issues surrounding us.
Photo: Pension loose change/Shutterstock