It’s the bad idea that won’t go away, just maybe because it has nowhere else to go.
A panel of current and former Chicago Public Schools officials took turns Tuesday explaining why the financially troubled district will never file for bankruptcy, despite continued suggestions from Gov. Bruce Rauner and others that it may be the best alternative.
Minutes after the panelists finished addressing the City Club of Chicago, another civic group painted a picture of CPS finances so dire as to leave the question of the day squarely on the table.
Is bankruptcy inevitable?
That was how it was put to the group that included former CPS interim CEO and current board member Jesse Ruiz and former schools boss Paul Vallas.
There are those who would say it IS inevitable. Some of them write me regularly.
“It’s the math, stupid,” they tell me, as if just because I’m a journalist I can’t comprehend the sheer magnitude and hopelessness of CPS’ unfunded pension liability, operating deficit and long-term debt. OK, there might be some truth in that.
Unfortunately, none of those doomsayers participated in the City Club event.
The closest was George Panagakis, a bankruptcy expert with the law firm of Skadden Arps, who suggested a Chapter 9 bankruptcy filing could be a viable option for CPS.
“I think it’s a tool worth considering,” said Panagakis, making clear it would not be the simple or painless solution that some would have us believe — starting with the fact that Illinois law would have to first be changed to allow local governments to seek the protection of the federal bankruptcy courts.
Rauner, for one, would only be too happy to give CPS and other local school districts that authority, the thinking being that it would allow them to get out from under obligations in current union contracts.
Panagakis offered some insights there as well, noting that in the 600 or so municipal governments that have filed for bankruptcy over the years, those who lost the most money as a result usually were the bondholders who had invested in that unit of government’s debt offerings, in other words, the people from whom it borrowed.
Taking the smallest hit in a municipal bankruptcy scenario, he said, are retirees, with employees following somewhere in between.
That might be an eye opener to all those who think bankruptcy would be the best way to pare down the pensions of Illinois public employees.
Panagakis noted that one of the threshold questions for whether CPS would qualify for bankruptcy was whether it is indeed insolvent, which likely would become a matter of litigation, in which it would have to be demonstrated that taxpayers had already done their fair share to solve the problem.
That other report I mentioned, The Civic Federation’s analysis of the proposed 2016 CPS budget, would certainly suggest the district is on the brink of insolvency.
The Civic Federation said CPS’ reliance on prying an additional $480 million in funding from the state with no detailed contingency plan if that doesn’t work was both “risky” and “irresponsible.”
Without more state funding soon, CPS is facing a cash flow crisis that will require it to borrow heavily just to keep the doors open, which should help explain to you why nobody with the district is keen on screwing over the current bondholders.
As he has in the past, Ruiz reiterated that CPS will “never” file for bankruptcy as long as he’s on the school board.
He called the discussion “informative but not practical.”
Vallas predicted bankruptcy would be “literally the kiss of death” for CPS by driving more students out of the system, which would in turn further reduce state funding.
“Who wants to send their kids to a bankrupt school district?” Vallas said.
Chuck Burbridge, executive director of the Chicago Teachers Pension Fund, said bankruptcy has been raised as a “red herring” to divert attention from the state’s failure to properly fund education.
That includes teacher pensions, which are “part of education,” Burbridge said, calling it “reprehensible that the state would even consider bankruptcy.”
Until everyone can agree on another solution, consider it they will.
Follow Mark Brown on Twitter: @MarkBrownCST