Rahm pitches teacher contract after bond rating drop

One day after the Chicago Public Schools’ bond rating dropped even deeper into junk status, Mayor Rahm Emanuel on Thursday tried to sell the new teachers contract partially responsible for the latest reduction.

In a state-of-the-city-style address to the Civic Federation’s board of directors, Emanuel never mentioned the fact that he’s using one-time revenue to stave off another teachers strike: An $87.5 million tax-increment financing surplus that the mayor’s own City Council floor leader acknowledged is “not sustainable.”

Instead, Emanuel argued that the new contract is a dramatic improvement from the contracts that preceded it.

It was the same strategy the mayor’s hand-picked school team used when it finally came clean about the $9.45 billion cost of the new four-year agreement after teachers ratified it. That’s a first-year price tag $55 million higher than originally budget.

“I can’t end in one contract the challenges financially for CPS. It’s not possible. The seeds of those challenges were laid in contracts before. But I will put up this contract against any other contract that has been negotiated before,” Emanuel said.

The mayor then walked board members through a show-and-tell chart of the new four-year contract and those that came before it, dating back to 1996.

He emphasized the two-year pay freeze, increased health care contributions and benefit changes. He did not mention the 11th-hour concession that sealed the agreement: his decision to drop his longstanding demand to eliminate the 7 percent “pension pick-up” granted to teachers years ago in lieu of a pay raise.

Instead, veteran teachers will continue to contribute just 2 percent to their pensions. Newly hired teachers will contribute the full 9 percent, but they will get a commensurate pay raise to off-set the cost.

“First time ever in 30 years, new hires will pay the full pension contribution. . . . First time ever on the cost-of-living increases there’s not only one zero. There’s two. And there’s not only two, they’re back to back,” Emanuel said.

“Wages and benefits. Look at the past. Look at what was just negotiated — not what’s in a perfect world. … This fundamentally at the end of the contract is a zero-sum game. Never happened before. And I’m not saying it’s perfect, but if you compare it to what came before it,” the new agreement is better.

The mayor argued that the “bigger driver” of the financial crisis at CPS is the fundamental unfairness of the state school aid formula and the disparate way teacher pensions are funded.

“If you are a poor child in Illinois, you are penalized because you are poor. And school districts with predominantly poor kids are getting hurt. School districts with students from wealthy homes are getting rewarded. And anybody who knows anything about education knows that it takes more to educate a child from poverty than a child from a wealthy background,” he said.

“The second driver is that we’re the only city in the state of Illinois that pays for our teacher pensions fully and pays for other school districts teacher pension…If you want to make a fundamental turnaround, you have to reverse those two historical facts.”

Civic Federation President Laurence Msall acknowledged that Emanuel’s second teachers contract is better than the first. But the mayor’s sales pitch did not alleviate his concerns about how CPS plans to pay for the four-year contract.

“The only thing that’s been identified is the TIF surplus, but even the TIF surplus fund won’t be available next year and it’s a multi-year contract,” Msall said.

“There were problems before the contract. They had hoped to have $30 million in savings. It’s clear the contract is going to cost more. The Civic Federation was pleased we didn’t have to endure a strike. But how CPS will pay for the contract and other pressures already on it is an open question besides borrowing” at exorbitant interest rates that just got higher with the latest drop by Standard & Poor’s.

Nineteen months ago, a newly re-elected Mayor Rahm Emanuel shifted his focus to solving the city’s $30 billion pension crisis and ending the risky financial practices that his predecessor, former Mayor Richard M. Daley, had used to mask the true cost of government.

On Thursday, Emanuel returned to the Civic Federation to essentially report: mission accomplished.

The city’s structural deficit has been reduced by 80 percent. All four city employee pension funds now have dedicated sources of revenue. Swaps and variable-rate debt are out. The city is on track to eliminate scoop-and-toss borrowing by 2019. No longer are assets being sold and reserves being raided. In fact, $50 million has been returned to the rainy day fund. And the dubious practice of borrowing money to pay settlements and judgments against the city is being phased out.

“Chicago’s fiscal condition has been righted, stabilized and is now on the path to finishing the job of being fully healthy,” the mayor said.

“I know a lot of you would like to have seen faster, quicker. But, I still believe doing it in a prudent, methodical, step-by-step way — laying out the goals, making the pledges, then fulfilling them — was the right way to do it for the economy and job creation. Which is ultimately how you solve the fiscal” crisis.”

During a question-and-answer session after reporters were asked to leave, Msall said Emanuel “expressed optimism” about getting things done under Donald Trump and voiced high hopes for the President-elect’s call for a major infrastructure investment and the benefits it could provide to Chicago.