STUMP » Articles » Chicago Update: Is It Rauner's Fault? » 23 October 2016, 18:49

Sorry for the light posting lately — I’ve got three jobs, sort of. I was prepping the midterm for my actuarial computing class, I did an Excel webinar, and I just had an almost-200-page report published at my main job.

So, copy/paste time!

IT’S RAUNER’S FAULT CHICAGO’S CREDIT IS CRAP

Don’t blame me, that’s what Chris Kennedy says:

The cost of Rauner’s loose bankruptcy talk
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The Chicago Public Schools provides a great example. In January, Rauner knew that the CPS was working on a bond offering of several hundred million dollars. In the midst of that sensitive time for the markets, Rauner announced legislation that would allow CPS to file for bankruptcy. Rauner’s announcement caused investors to withdraw. His words heightened the perception that buying CPS bonds was risky, and this forced CPS to delay the bond deal. When it was finally able to conclude the deal, CPS — and the taxpayers who fund it — had to pay more for interest and received less money.

Rauner’s words cost CPS money that could have gone into the classroom, and he forced Chicago taxpayers to pay more to borrow less.

Since the deal was finalized in February, Rauner has stopped trumpeting that CPS should pursue bankruptcy. Without Rauner’s reckless rhetoric making bond buyers jittery, the value of a CPS bond has increased. As we recently learned, two Wall Street banks made $110 million in profits this year alone off of this CPS bond sale — again, even more money that could have and should have gone into the classroom.

That nasty, nasty Rauner. Pointing out that Chicago might be a bad credit risk.

Hey, let’s look at Chicago’s excellent financial behavior!

• Rauner says don’t kick the can, Chicago
• Mayor Rahm says ‘You’re not my dad, Rauner!’, continues to kick that can
• Big boosts of taxes on Chicagoans to pay for promises… that don’t cover the promises
• Various bitching about said taxes, while CPS continues to borrow operating expenses
• Huh, somebody made a pretty penny rather quickly off of CPS borrowing…and others are profiting more slowly. If their promises are fulfilled.
• Nobody quite knows how much the Chicago Teachers deal will cost (more below)

Yes, I can see how one may prefer the explanation that Rauner is to blame.

As opposed to the bond market reflecting the reality that Chicago is a poor credit risk. Especially when issuing private placement bonds for operating costs (though they say it’s capital projects… maintenance costs are just operating expenses.)

GOOD NEWS EVERYBODY! FEWER KIDS IN THE SYSTEM!

You know how every time a school system is deep in debt that somebody screams “WON’T SOMEBODY THINK OF THE CHILDREN?!”

Luckily, there’s fewer and fewer children to think of in the Chicago school system:

Chicago Public Schools enrollment 11,000 less than prior year

Chicago Public Schools’ enrollment dropped by nearly 11,000 students compared with last year, a difference largely driven by a lower number of children in district-operated elementary schools and prekindergarten programs, according to the district.

The district said 381,349 students were in class on the 20th day of the school year. That number includes all schools that operate under the CPS umbrella, including privately run charter schools and alternative learning programs.

So let’s think on this for a little bit. This includes the ever-teacher-union-hated charter schools. And yet enrollment has dropped. 11,000 out of 381,349…almost a 3% drop from 2015-2016 to 2016-2017 school year. To be sure, 3% isn’t all that huge as a one-time hit. But let me remind you:

Yeah, it’s continuing a decreasing trend, and it’s worse than prior years.

When you assume there will be an increasing budget base, on a student-per-capita basis, and that doesn’t happen…. and when you have a huge hole to fill for past service rendered:

This particular pattern is unlikely to get much better due to the history of contributions:

But sure, it’s Rauner’s fault. Sounds like a productive accusation.

CHICAGO TEACHERS DEAL HAS LOTS OF EXTRA COSTS

Enjoy whatever the Cubs are doing now, because I foresee nothing but pain, Chicagoans.

That teacher deal had a bunch of hidden costs:

So, what’s not to like about Emanuel’s Really, Really Big Week? The hidden costs that the mayor conveniently didn’t mention.

After imposing more than $1.1 billion in new taxes last year, Emanuel apparently has decided not to push the limits of the public’s patience any further. His negotiators largely caved to the Chicago Teachers Union, particularly on the mayor’s previous insistence that teachers contribute more to their pensions. Sources involved in the negotiations tell Crain’s political columnist Greg Hinz that CPS teacher costs over the four years covered in the tentative contract will rise 3.7 percent—twice the 1.75 percent hike proposed in the deal teachers rejected early this year.

Meanwhile, Emanuel’s $3.72 billion budget proposal draws down $175 million in cash from the city’s tax-increment financing kitty, a far bigger diversion than the mayor has allowed in recent years. That drawdown represents almost 40 percent of the $460 million the city is taking in from all TIF districts this year.

Emanuel is dipping into the same TIF honeypot that his predecessor, Richard M. Daley, liked to raid when he needed fast dough. The trouble is, TIF funds exist for a reason: to finance needed infrastructure and neighborhood improvements. And yet, time and again, TIF proceeds are treated like a convenient mayoral rainy-day fund, a place to look for extra money when tougher choices prove politically unpalatable.

With that TIF money in hand, Emanuel’s CPS team didn’t have to really squeeze teachers. And with that TIF money in hand, Emanuel didn’t have to force Chicagoans to face facts: Our government still costs more than it brings in.

The mayor may have rehabilitated his re-election prospects, but Chicago’s financial rehabilitation remains very much incomplete.

That’s a weak ending. It’s not so much as incomplete, as Chicago is going further into the hole.

It doesn’t help that Chicago plans to bribe teachers to retire:

CPS may pay $50M to entice older teachers to retire in June

Chicago Public Schools could spend about $50 million to entice its oldest, most expensive teachers to retire at the end of next year, the Chicago Sun-Times has found.

That’s if — and it’s still a big if — at least 1,500 teachers agree to accept a one-time bonus of $1,500 per year of service for an average 22 years on the job, as they’ve been offered in the agreement that barely fended off a strike by the Chicago Teachers Union. And that’s about three times the number of teachers who retired at the end of the last tumultuous school year, according to their pension fund.

Similarly, classroom aides can collect $750 per year if at least 600 of them who’ve worked for 10 years also decide to retire. That’s at least $4.5 million more.

The cash-strapped district, still depending on the state for $215 million of its current budget, says it’ll pay the bonuses for staffers retiring in June 2017 by December 2017.

That’s how the perks save money for the school system: The lump-sum payments of an average $33,000 per teacher come out of the 2017-18 budget, after the expensive teachers are gone.

Like that trick about charging this cost to next year’s budget?

That’s such a clever trick.

That Chicago seems to use every year…. push off a current cost to the next budget year.

But it’s Rauner’s fault that bond buyers require more money upfront.

HOW WILL CHICAGO PAY FOR THESE DEALS?

First, they’re going to raid a fund that’s intended for capital improvements:

Chicago Schools’ Labor Deal Boosted by TIF Infusion

CHICAGO – Chicago’s tax-increment financing program is in the spotlight after the city said it would release a bigger-than-planned chunk of surplus TIF revenues to help Chicago Public Schools pay for a new teachers’ contract.

Mayor Rahm Emanuel unveiled a proposed 2017 budget Tuesday that declares a $175 million TIF surplus.

Based on the distribution formula, the city will receive about $40.5 million while about $88 million will flow to the financially distressed school district.

CPS had only built $32 million of TIF money into its fiscal 2017 budget, expecting the city to declare a more modest $60 million surplus.

The remainder will go to other area taxing bodies. CPS received $103 million in fiscal 2016.

Word began to circulate of the expected action in the early morning hours of Tuesday shortly after CPS and the Chicago Teachers’ Union reached a tentative agreement on a new four-year contract that averted a strike set to begin Tuesday.

The city has annually freed up surplus TIF revenue but it has resisted political pressure by limiting the amount with the annual releases varied in size.

…..
They also have spurred questions over whether or not the revenue represents a non-recurring revenue stream that can’t be counted annually to cover an annual operating expense, a position Emanuel seemed to previously back in statements.

That position has now changed.

“I don’t see TIF surplus at this stage as a one-time revenue,” city budget director Alexandra Holt said when asked about the issue during a meeting with Crain’s Chicago Business’ editorial board. “I see it as an ongoing revenue.”

…..
“TIF is a one- or two-year fix,” Emanuel’s floor leader, Alderman Patrick O’Connor, said on WTTW’s Chicago Tonight program. “We’ve done it this year so we can keep the schools open…but what we need to do is find a permanent solution.”

Check it:

Yeah, that looks solid. Will really plug those billion-dollar holes.

CPS deal with CTU would cost about $8.9 billion over 4 years:

The cost of the proposed teachers’ contract with the city’s public school system amounts to about $8.9 billion over four years — a deal that would cost taxpayers at least $100 million more than the one teachers rejected in January, the Chicago Sun-Times has learned.

“I would say this deal has about $100 million more in it,” said Robert Bloch, a longtime attorney for the Chicago Teachers Union who was at the bargaining table late Monday when a strike was averted minutes before a midnight deadline.

The additional cost of the four-year contract proposal compared to the previous offer might even go beyond that, Bloch noted, saying the Chicago Public Schools’ “finances are so opaque, it’s hard to know exactly what they’re spending, what the cost is.

“There’s not full agreement on the cost of certain elements of the contract, which makes it hard,” Bloch elaborated. CPS estimated that salary increases for teacher experience and education would cost $30 million a year, but the union considers it a wash “as people move up the ladder and fall off.”

Despite a demand from the Civic Federation government watchdog group to disclose and break down the deal’s cost, CPS officials and Mayor Rahm Emanuel’s administration are refusing to spell that out for Chicago taxpayers, who have already have been hit with $1.2 billion of new taxes to solve pension crises plaguing city pension funds, as well as the fund that covers school retirees.

Questioned by the Sun-Times about the potential for the new contract to cost more than the one the teachers rejected in January, a mayoral confidant confirmed there would be an increase but contextualized it as relatively small given that the four-year deal would cost about $8.9 billion — or about $2.2 billion a year.

Top mayoral aides have feared that putting a price tag on the agreement could negatively affect next week’s vote by the Chicago Teachers Union House of Delegates.

Ya think?

Well, the teachers union approved of the deal.

The question remains if Chicago can really pay for it. Maybe they can get away with one year’s worth of accounting tricks.

But blaming Rauner for Chicago’s profligacy is not going to make money appear magically.

And it’s not necessarily only a Chicago problem:

Berg: Why the next teachers strike could be at your school

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For most workers, retirement savings come from three sources: You save money. Your employer matches your savings. And you earn money on those savings in the form of investment returns — pretty simple.

But that’s not how it works in nearly two-thirds of Illinois’ school districts.

Illinois Policy Institute analyses of hundreds of contracts across the state reveal a common and unaffordable perk: Most school districts “pick up” some or all of the pension contribution teachers are supposed to pay.

Chicago teachers contribute just 2 percent of their salaries toward their pensions. They’re supposed to contribute 9 percent. This practice has cost taxpayers $1.2 billion over the last decade.

…..
In fact, CPS is the only school district in Illinois paying the employer share. Leaders often say that’s unfair. And they’re right, but for the wrong reasons.

The state should not be paying for these benefits in any school district. Why should Illinoisans across the state be paying for Chicago politicians’ bad deals? Or those of any other local leader?

…..
Nearly 500 districts would see a net savings by ending teacher pension pickups and starting to pay the employer share of pension contributions, according to data from the Illinois State Board of Education.

For all I beat up on Chicago, it’s not just a Chicago problem. It’s pretty Illinois-wide, and the Teachers pension system overwhelms the others… because as much as people jawbone about schools v. prison, states and localities spend far more on schools and specifically teacher than prison guards or even police officers.

Reminder, this is what the (non-Chicago) Illinois Teachers Retirement System unfunded liability looks like:

That green bar is the part due to undercontributions… for over 20 years.

Another reminder: Rauner became governor of Illinois in January 2015 and wasn’t an Illinois politician before then.

But sure, it’s all his fault. Keep telling yourself that. I’m sure it will fix everything.

Compilation of Chicago posts.