If anybody knows a sure-fire way to save the Chicago Public Schools from bankruptcy, the whole city would love to hear it.
In the meantime, CPS’ disastrous financial condition, as detailed in a report in Sunday’s Chicago Sun-Times, is a reminder once again that government, at least here in Illinois, does a lousy job of living within its means. Maybe it’s something in the water.
To this day, Mayor Rahm Emanuel continues to borrow money to shore up the city’s short-term finances while looking high and low for long-term solutions. And while we’re sympathetic to the mayor’s plight — he’s just trying to buy time to clean up somebody else’s mess — we have to wonder about the wisdom of piling up even more debt. Folks around here have a way of predicting the future will be brighter — and punting.
A second obvious lesson to be drawn from Sunday’s story about CPS’ financial crisis is that it’s our own fault — the politicians, the union leaders, the voters. We really can’t blame a bad economy or the big banks.
For decades, elected officials at various levels of government cut union pension deals that nobody, save a few clear-thinking worrywarts, insisted on properly funding. And CPS, eyes open, agreed to the more recent so-called debt swaps that have left the school system in hock to the banks for hundreds of millions of dollars. CPS essentially gambled that interest rates would go up, saving the schools money. CPS lost the bet.
Now CPS is about to embark on new contract talks with the Chicago Teachers Union. CPS negotiators must hold firm, even as CTU must accept the reality of this financial crisis. This is no scare tactic. The mayor and CPS officials have made it clear that bankruptcy, which Gov. Bruce Rauner has suggested as a solution, should not be pursued, but any possible alternative will require great austerity.
Consider the dismal facts, as spelled out Sunday by reporters Dan Mihalopoulos and Chris Fusco.
Last month, Wall Street downgraded the school system’s credit rating to just one notch above junk status, making future borrowing more expensive. As a result of that downgrade, four financial institutions could demand payment of an estimated $228 million with just 48 hours notice. That would largely wipe out CPS’ cash reserves.
Also last month, CPS landed for the first time on the Illinois State Board of Education’s financial “watch list.” The state board noted that CPS has been spending more than it has taken in for two years and, at one point, had only eight days’ cash on hand. CPS is spending $5.8 billion this school year but has revenues of less than $4.9 billion.
And what is driving CPS’ troubles? Skyrocketing pension obligations. This school year, it is paying out $700 million for pensions, compared with just $200 million in 2012-13.
Adding to CPS’ woes is a crisis of leadership, one that threatens to undermine the school district’s credibility with state legislators whose votes might be needed to give the district an unlikely assist. On Friday, CEO Barbara Byrd-Bennett took a paid leave of absence after it was revealed that federal investigators are looking into a no-bid $20.5 million contract given to a company, SUPES Academy, that once employed Byrd-Bennett.
A second story in Sunday’s Sun-Times revealed that SUPES’s two owners also listed Byrd-Bennett as a “senior associate” in a second company they owned. In all, CPS has paid $15.2 million to the three companies owned by the two men.
The timing could not be worse, coming as the Legislature meets in Springfield and teacher contract talks begin.
That’s the problem with kicking the can down the road. You never know what disasters lie ahead.