Rahm: Rauner bankruptcy rhetoric raised CPS’ borrowing cost
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The Chicago Public Schools paid more to borrow less because of Gov. Rauner’s continued talk of bankruptcy — and if that was the governor’s intention, it’s “shameful,” Mayor Rahm Emanuel said Friday.
“The governor is well-versed in finance, coming out of private equity and the financial world. His comments weren’t helpful. … It affected certain things. … If it was intentional, it’s shameful. Only he can answer whether that was the purpose,” Emanuel said, two days after CPS was forced to pay an 8.5 percent interest rate.
One week after abruptly halting a bond issue needed to keep the school doors open through the end of the school year, CPS returned to Wall Street Wednesday — but paid a huge price for the delay.
Instead of borrowing $875 million, the bond issue was scaled back yet again — this time, to $725 million. And instead of the 7.75 percent interest rate offered to buyers of the tax-exempt bonds last week, CPS promised them a higher yield of 8.5 percent.
It followed a tumultuous week that saw the Chicago Teachers Union reject a new four-year contract because it doesn’t trust CPS while Rauner, who shares the union’s view, said the state was getting ready to take over Chicago Public Schools.
The governor branded the borrowing “tragic” and accused his old friend Emanuel of “kicking the can” and costing taxpayers “more in the long run.” Rauner argued that there are only two alternatives for CPS: bankruptcy or “massive” tax increases.
On Friday, the mayor fired back.
“The state under his leadership … is now up to $7 billion in unpaid bills and growing. That’s not exactly who you would turn to for financial stewardship and leadership,” Emanuel said of the governor’s threat to take over Chicago Public Schools.
Emanuel defended the costly borrowing — and the $100 million in budget cuts that helped reassure skittish investors — as essential to keeping the school doors open until the state school aid formula can be rewritten, as state Senate President John Cullerton (D-Chicago) has promised to do with Rauner’s help.
“Given the option of cutting teachers in the classroom, therefore increasing class size, or [borrowing to] get us enough time so we can work with the state to be a partner with Chicago on a solution, [borrowing] was the option chosen because I believe the kids and the teachers in the classroom should not pay a price for the … disparity in the system where our students are at a different level financially from the state. They literally receive less money and less support when you put all of the resources together,” he said.
The cuts that the CTU branded an “act of war” include: 30-day notice of CPS decision to stop making a 7 percent contribution to teacher pension; ordering school administrators to cut $50 million through layoffs and re-shuffling $50 million that goes toward general education funding to schools.
It came after the union’s 40-person bargaining unit unanimously rejected a new four-year contract that would have given teachers small annual pay raises, capped the number of charter schools at 130 and ruled out economic layoffs in exchange for teachers picking up their full, 9 percent pension payments.
CTU President Karen Lewis recommended the contract, but was unable to deliver it because of a “lack of trust in CPS” and, what she called the district’s “weasel language” in previous contract talks.
On Friday, Emanuel made a renewed pitch for the rejected contract.
“The contract we offered deals with righting the financial ship in a way that protects our teachers, makes serious reforms that are important for taxpayers and shows the state that we’re not asking them to do anything that we wouldn’t do,” the mayor said.
Emanuel refused to say whether that was the school system’s last and best offer. He noted that both sides were “back at the table” the very next day — even as angry teachers took to the streets in protest.
In making the case for $480 million in pension help from Springfield already built into the CPS budget, Schools CEO Forrest Claypool has described state funding for Chicago Public Schools as “separate and unequal.” Those are legal code words for an upcoming lawsuit against the state.
On Friday, Emanuel did nothing to discourage that speculation.
“Chicago students make up 20 percent of the student population statewide. Our taxpayers make up 20 percent of the revenue. Yet, we get a little bit shy of 15 percent of the revenue back for education. There are a lot of structural, historical inequities in the system,” Emanuel said.
As for the vote of no confidence in City Colleges Chancellor Cheryl Hyman, Emanuel dismissed it as par for the course. Hyman is spearheading a colleges-to-careers makeover of the system.
“Cheryl has made some tough calls as the chancellor. It’s not going to win her a popularity contest. But, a lot of graduates are going to get a lot of jobs out of it,” he said.