* Strike could have implications for Obama's campaign
* Community leaders had urged agreement
* Teacher pay, evaluations are major issues
By James B. Kelleher
CHICAGO, Sept 9 (Reuters) - Chicago public school teachers will strike for the first time in a quarter century on Monday after they failed to reach agreement with the nation's third-largest school district over education reforms sought by Mayor Rahm Emanuel.
The historic confrontation between Emanuel - Barack Obama's former top White House aide - and organized labor could have implications for education reform nationwide and for the president's re-election campaign.
"We have failed to reach an agreement that will prevent a labor strike," Chicago Teachers Union President Karen Lewis told a press conference on Sunday night. "In the morning, no CTU members will be inside our schools."
About 29,000 teachers and support staff in Obama's home city will not report for work on Monday morning, affecting some 350,000 students.
Lewis was interrupted by applause from about 100 union supporters as she spoke, some wearing red in support of the union and carrying signs "On Strike" even before she had finished speaking.
Leigh Nevels, an occupational therapist who works at several schools in the city, said she came out to support Lewis and other union leaders. "The teachers work really hard and they deserve every penny that they get, and then some," Nevels said. "Rahm (Emanuel) just pulled the rug out from under us."
The union wants Chicago to drastically reduce class sizes and increase funding for education.
It is suspicious of efforts to erode traditional job protections such as tenure, teacher autonomy and seniority.
Earlier, Chicago School Board President David Vitale said the talks had broken down after the city had made its "best offer" to the union, which included a proposed pay rise of an average 16 percent over four years.
"We've done everything we can," Vitale said.
Emanuel said the union chose to strike even though the two sides were close to agreement. "This is totally unnecessary, it is avoidable and our kids do not deserve this," he said at a press conference after the strike was announced.
The strike means parents will have to scramble to make arrangements for children either by sending them to alternative facilities like churches or keeping them home.
"It's not fair to the kids," said Alison Lange, who has two children in a magnet elementary school on Chicago's north side and who says she supports the teachers in the standoff. She said children went to bed on Sunday night not knowing whether they would go to school or not.
Community leaders had begged both sides to come to an agreement and keep children in school.
"We can't afford to have young people in harm's way," said Cy Fields, senior pastor of New Landmark Missionary Baptist Church, which is located in a violence-torn community.
A protracted stoppage could hurt relations between Obama's Democrats and national labor unions, which are among the biggest financial supporters of the Democratic Party and will be needed by the party to rally the vote in the Nov. 6 election.
The union believes charter schools supported by Emanuel, which are taxpayer-funded but not subject to all public school regulations, will undermine public education.
Just over 12 percent of Chicago public school students go to the non-union charter schools, which will be open for classes on Monday, school officials said.
Emanuel said the two unresolved issues in the negotiations are his demand for teacher evaluations tied to the standardized test results of students, and giving principals of schools more authority and autonomy.
Teacher evaluations based on student results on tests is at the heart of a national debate on school reform.
Jesse Sharkey, the union vice president, said the evaluations sought by Emanuel would distort the curriculum, cheapen education and hurt school performance.
Both sides in Chicago agree the city's public schools need fixing. Chicago students lag national averages in key tests of reading math and science achievement, according to the U.S. Department of Education.
Only about 60 percent of high school students in Chicago graduate, compared with a national average of 75 percent and more than 90 percent in some affluent Chicago suburbs. More than 80 percent of Chicago public school students qualify for free lunches because they are from low-income families.
Chicago Public Schools has projected a $3 billion budget deficit over the next three years and faces a crushing burden of pensions promised to retiring teachers.
During the strike, the city has allocated $25 million to provide breakfast and lunch to students in the district and to pay for half a day of supervision at 144 of the city's 675 schools. Children also will be housed at churches, community centers and other locations under the plan.
The union has expressed concern about the plan for supervising children, calling it a "train wreck." Many of the people supervising children have not received proper training, the union said. And parents are uneasy about putting students from different schools together in neighborhoods which have suffered from gang-related shootings this summer.