STUMP » Articles » Deal or No Deal: Wrangling in Chicago » 15 July 2015, 06:01

Where Stu & MP spout off about everything.

Deal or No Deal: Wrangling in Chicago  

by

15 July 2015, 06:01

While we’re waiting to see if the Greece deal really takes (see yesterday’s post as to why I’m skeptical), let’s come back to the States and see what’s up in our own country.

BORROWING FROM THE PENSIONS: NO GO

Thank goodness.

In a prior post I meantioned Chicago asked the teachers pension if it could kick back a little of the contribution they just made to the fund.

Thank goodness, that deal is off. (Or it was, as of last Friday… I wouldn’t be surprised if it comes up again.)

Wait, how big of a favor were they asking?

CHICAGO – The Chicago Public Schools and the Chicago Teachers’ Pension Fund have ended discussions on a school district proposal to borrow $500 million from the pension to avoid additional layoffs and classroom cuts.

In a joint statement, the school district and pension fund officials announced Friday the end of discussions on a proposed fiscal year 2016 pension payment schedule, which was part of the borrowing deal. Officials didn’t say why talks about the borrowing fell apart or whether they might resume in the future.

The district recently paid a $634 million pension bill that officials said it couldn’t afford. As a result, the nation’s third-largest school district plans 1,400 layoffs, scaled-back maintenance and reduced transportation.

So they supposedly made a $634 million contribution, and asked for $500 million of it back?

They were asking for almost 80% of their contribution back. That’s not a itty-bitty favor.

But that’s one “clever idea” shot down… where’s the next idea?

BUDGET, BUDGET, WHO’S GOT THE BUDGET

On Monday a proposed budget for the Chicago Public Schools was released:

Chicago’s neighborhood public schools could suffer $60 million in cuts while charters and contract schools may gain $30 million, under school budgets released Monday.

Some of the largest cuts will be borne by neighborhood high schools on the city’s South and West sides.

And even more cuts may still come, since those budgets are based on a hulking assumption that Springfield lawmakers will enact pension reform to save Chicago Public Schools $500 million.

…..
Per-pupil funding levels remain the same as last year — meaning CPS has not budgeted for any teacher raises. The district will pay $4,697 for each child from kindergarten to third grade, $4,390 for fourth to eighth grade, and $5,444 for high schoolers.

…..
Assuming that Springfield will come through with $500 million in relief from teacher pension payments might seem like a giant political gamble. But Mayor Rahm Emanuel noted Monday that Gov. Bruce Rauner’s catch-all pension bill includes a commitment to correct what Emanuel calls a “structural inequity” that has forced Chicago taxpayers to pay twice — once for their own retired teachers and again for teachers outside Chicago.

So let’s see if I have this straight.

The budget itself is partly a hokey-pokey of relatively minor cuts with a huge assumption that the $500 million they weren’t allowed to borrow from the pension to come from the state. Or something.

COMPARING BUDGET NUMBERS

Yes, I said the net $30 million cut I see above is a minor cut.

Let’s go to the budget numbers.

So let’s see what they’re crowing about:

We have taken steps to address the deficit: we have made every effort to keep cuts away from the classroom by identifying ways to cut spending from central office, administration and operations. With the additional $55 million in cuts we will make in FY15, CPS has cut $740 million cumulatively since FY11 in these areas to ensure that every dollar possible is helping improve outcomes in the classroom.

$55 million in cuts? That’s not matching the +$30M for charters and -$60M for neighborhood schools I see above. What else are they paying for?

But is that $740 million big or small? And is it real?

To get convenient comparable numbers, I went to the interactive budget.

ARGH PIE CHARTS. THEY SUCK.

Phew, one can switch to tables (and I did.)

So if the schools themselves have a $4.8 billion budget, a $30 million net cut is….

0.6%

Not even a 1% cut.

But they claimed a $55 million cut for the whole budget, out of the $5.8 billion budget.

Do I have to tell you that this gigantic cut is….

0.9%

Seriously. This is weak. The “cuts”, such as they are, seem mostly tied to a decreasing student population, given the per-pupil rate is essentially the same. Not that it’s easy to see a 0.6% cut on a per-pupil basis.

BEWARE CONTEXTLESS NUMBERS

Now I’m putting my nerd hat on to tell you that if you are given a number in a news story without any context, to be extremely suspicious.

I am especially suspicious when I see budget cut numbers put out in a void without telling you that while, yes, $30 million does sound like a huge cut to an individual, but to a $5 billion dollar system, it’s nothing.

I get extremely suspicious when I have to dig and dig and dig to find a number to compare to that should have been the first thing reported.

I work with numbers a lot and order-of-magnitude concerns are primary for me. If the correction is beyond the significant figures for what I’m calculating, I don’t mess with it.

Once, when trying to close the books for a quarter, I had to tell a direct report that I didn’t want to hear about any corrections less than $1 million (she was trying to point out $10K variances) — less than that wasn’t significant for our book of business when needing to make required quarterly reports. She didn’t realize that, but that’s what I was there for.

If you want to learn more about significant figures, check here. But that’s enough nerdery for now.

REPORTERS YOU ARE ON NOTICE

If my 80% funding myth crusade ends, my next one will be on contextless numbers.

Straighten up, y’all.

WHAT’S NEXT FOR CHICAGO?

Thing is, this budget assumes so much on other things. For example, it assumes that there’s this $500 million they’re getting from the state… somehow.

Chicago Public Schools on Monday unveiled school spending plans that rely on a half-billion dollars more than the district has on hand — an approach the head of the city’s principals association compared to writing a bad check.

To make the individual school budgets work, CPS is banking on help from Springfield, which has so far been uncooperative. Without that, the district said it will have to resort to “unsustainable borrowing and additional cuts” midway through the coming school year.

This post is getting a bit long, so will deal with the Illinois budget-wrangling later.

But where is that $500 million supposed to come from?

Borrowing from the pension fund.

The preliminary budgets distributed to school principals for the coming school year assume state lawmakers will free CPS from having to make $500 million of a $700 million pension payment due June 30, 2016, either by giving the district more money or by allowing CPS to delay the payment until 2017 or later.

CPS had tried to persuade the Chicago Teachers’ Pension Fund to agree to an extension until 2017. The pension fund rejected the idea Friday.

I think we all understand from the hokey-pokey they just tried with essentially the same $500 million that it doesn’t really matter if they borrow by putting in the money first and then taking it back, or if they just don’t put it in in the first place.

Good for the pension fund to tell Rahm to take a hike on this. They’ve got to stop with these budget tricks, because it’s not fixing anything.

And they have got to realize that if the pension fund does not get its required contributions, the pensions are more vulnerable to getting cut.

OTHER SHOE TO DROP

But here’s another problem. They’re also assuming a specific court case will not go against them.

We are awaiting a ruling.

The City of Chicago will have to wait two more weeks before Cook County Circuit Court Judge Rita Novak delivers a ruling on whether pension legislation supported by Mayor Rahm Emanuel is constitutional.

This is the law that Emanuel says will save the city’s pension funds—the Municipal Employees Fund and the Laborers Fund. If found to be constitutional, the law would raise both employee and employer contributions and reduce automatic increases—similar to cost-of-living adjustments—for the two funds.

In December 2014, several employees filed suit against those two funds and the city.

Notice of the delay comes after lawyers representing city workers, as well as the city and the employee pension funds, made their cases to Novak on Thursday morning. At the hearing, she said she will issue a ruling on the constitutionality of the legislation on Friday, July 24.

This is an easy one for me.

Chicago will lose.

To show why:

Until Illinois has its constitution amended, they are stuck with these old (and not-so-old) promises.

But while we await the inevitable, check out this proposal from Mark Glennon.

The Detroit Public School District, like Chicago’s, is struggling for its financial life. Michigan Governor Rick Snyder earlier this year proposed a plan roughly comparable to the restructuring of General Motors that created a “new GM” to replace the old one, which allowed the new one to shed unaffordable debts and contracts.

Under the plan proposed for Detroit schools, the “old school district” would be left in place to liquidate certain debt obligations of the Detroit Public Schools. A new Detroit school district would be created that would assume the educational duties. Some tax revenue would continue to fund the old entity but most new revenue would go to the new one, which would have a fresh start, a clean balance sheet and improved control.

Sound familiar? It’s exactly the approach we wrote about in some detail last month for Chicago Public Schools, just using different language. “Reconstitution” is the label we used. Folks familiar with financial reorganizations will also recognize it as a common approach in the private sector. It’s perfectly fair and effective if done properly. In Chicago’s case, there might not be any need to fund the old school district at all. While the attraction of the approach may be obvious, getting it done depends on getting the numbers right and successful negotiation with stakeholders. In the case of public sector entities, political will to do it also has to be there.

Well, we shall see.

That smacks a little too much of the “one clever trick” — going bankrupt without going bankrupt. I think there needs a formal, official bankruptcy approach.

But it does seem a lot more honest than barely making any cuts and magicking $500 million from nowhere.

Compilation of Chicago posts.


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