Editorial: A single, grim reality for the Chicago Public Schools

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Two conflicting narratives about the Chicago Public Schools’ fiscal crisis are in fierce competition.

Mayor Rahm Emanuel and schools leaders say CPS is at the precipice, out of money and out of time. The path out includes sacrifice all around, including from teachers’ pockets and pensions. Chicago Teachers Union leaders acknowledge a budget shortfall but insist it’s manufactured. “Broke on purpose” is their new tagline. They offer modest cost-saving ideas, but focus mostly on taxing the rich and ending tax breaks for corporations to dig out of this year’s $1 billion deficit and bigger deficits to come.

Wherein lies the truth?

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CPS is by no means crying wolf, as we have long argued and a new analysis of CPS’ finances by Ernst & Young confirms.

And no single revenue solution — or even a new set of taxes on the rich — is workable. Yes, new revenue is required. The hole is simply too big to say otherwise. But cost-cutting and slowed growth in CPS’ two largest budget lines — pensions and salaries — must be part of the solution. And CPS cannot solve its budget woes on its own. It needs help from the state Legislature, the governor and, of course, from the CTU and its members.

The clock is ticking: A $634 million pension payment is due June 30. CPS has only about 30 percent of that cash on hand. The teachers’ contract expires the very same day. The two sides are miles apart.

This page for years has watched CPS sputter along, passing bare-bones budgets that rely on sleight-of-hand, masking an underlying mismatch between spending and revenue that was destined to one day reach a breaking point.

That day has arrived. An analysis of CPS’ finances, obtained by the Sun-Times and outlined in a story on Sunday, makes that clear.

The report by Ernst & Young was commissioned by the school system to assess its financial condition. The firm relied on CPS’ numbers, casting some doubt on its objectivity. But it also turned to multiple outside sources and CPS’ basic budget figures generally are not in dispute, particularly the massive size of its pension debt, which mushroomed after both CPS and the state failed for years to contribute to the Chicago Teachers Pension Fund.

The numbers are grim. Between 2011 and 2014 CPS had annual deficits of $500 million, which it patched over with non-recurring revenues sources.

CPS has no more rabbits to pull out of a hat, and could run out of cash this summer, the analysts said. By next summer, CPS is projecting a cash shortfall of roughly $1.9 billion. The Ernst & Young analysis predicts annual deficits of $1 billion or larger going forward, culminating in 2020 with an accumulated deficit of $5.4 billion. That’s nearly CPS’ annual operating budget.

If CPS fails to pay pension debts in each of the next five years — which would be a huge mistake — its deficit will still hit $2.4 billion in 2020. Excluding pension debt, CPS is still spending $400 million more a year than it takes in because of a loss in federal and state funding, as well as growing debt service on capital projects, money paid out of CPS’ operating budget. Looking back, the EY analysts said teacher salaries have grown 4 to 5 percent a year on average, which includes cost-of-living increases and other automatic increases.

The school system is in serious, deepening, trouble. CPS and the state have failed miserably in planning for this financial reckoning, but there is no wishing it away now. The EY analysts laid out a laundry list of solutions, including unions concessions on pensions, salaries and health care reductions, increased state aid for the classroom and for Chicago pensions, cutting expenses back to 2011 levels, state capital money and two property tax hikes.

CPS cannot make these happen on its own. Most of these solutions require cooperation from legislators, the governor, taxpayers, teachers and their union.

It’s time to end the competing narratives. There is only one grim reality.

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