STUMP » Articles » You'll Never Guess What Rahm's Plan to Save Chicago Schools Is! » 26 May 2017, 06:31

Unless you guessed “borrow more”. And perhaps tax more.

I mean, that’s what they’ve always done before. Why do anything different this time?

THE ‘PLAN’, SUCH AS IT IS

Mayor announces $389 million borrowing plan to finish CPS school year, pay pensions

Mayor Rahm Emanuel’s administration announced a $389 million borrowing plan on Friday [May 19] that they say will keep Chicago Public Schools open until the end of the school year and pay teacher pensions.

The Chicago Public School Board is expected to vote on the plan at its May 24 meeting.

In a press release, the mayor’s administration announced that CPS plans to complete a short-term financing of up to $389 million in Grant Anticipation-Notes (GANs). According to the release, the GANs will be secured by the delayed state block grant payments. The release said CPS expects to receive that in the upcoming months.

The mayor’s administration had discussions Friday with aldermen on how the city planned to find enough money to keep Chicago Public Schools open until June 20.

The mayor let his chief financial officer Carole Brown brief the aldermen on his CPS plan.

Despite criticizing his predecessor Mayor Daley for borrowing money, Emanuel said the state has backed him into a corner and he must do something to keep schools open.

….
Some alderman were very blunt about the mayor not being in the briefings to answer questions.

“I’m really frustrated, a lot of other aldermen are frustrated at the fact that the mayor does not sit down and know enough to go through these issues with us, that Claypool is not here. That they’ve blown off several meetings. It’s very irresponsible of the mayor,” Ald. Scott Waguespack, 32nd Ward, said.

Oh, a vote on May 24. Let’s see what happened!

MAY 24 VOTES

Turns out there were a lot of votes on May 24.

The Illinois Legislature: School Funding Bill Clears Procedural Hurdle

Lawmakers of both parties, and even Gov. Bruce Rauner, agree that Illinois doesn’t fund schools in an equitable manner. But with the legislative session scheduled to end on May 31, they still can’t agree on exactly how to fix it.

One plan earned bipartisan approval in a House committee today, clearing a procedural hurdle that positions it for possible speedy passage.

…..
After the meeting, committee chair and fellow Democrat Will Davis said that change would pertain to Chicago Public Schools.

“In my opinion, they just want a bucket of money. And it’s just not possible to do so, and certainly not at the expense of helping students in the rest of the state,” Davis said.

“I appreciate what Chicago is to the state of Illinois economically and otherwise, but you know my job is the entire state of Illinois, it’s not just Chicago.”

Davis, from suburban Homewood, sponsors a very similar school funding bill in the House. The main difference between the two measures: Manar’s includes payment for Chicago Teacher Pensions, and Davis’s doesn’t. Chicago is the only district responsible for its own pensions.​

We will come back to that last sentence at a later time.

The Chicago Teachers Union voted: Chicago Teachers Union Votes “No Confidence” In CPS Boss Claypool

CHICAGO (CBS) — By a 99-1 margin, the Chicago Teachers Union has voted a symbolic “no confidence” in Chicago Public Schools CEO Forrest Claypool.

The overwhelming margin didn’t seem to surprise CTU Vice President Jesse Sharkey, rank-and-file union members, supportive aldermen, and representatives of other unions who gathered outside Mayor Rahm Emanuel’s office on Tuesday to announce the results of the vote.

“If Claypool is going to balance next year’s budget on the backs of school clerks, and with further cuts in teachers, I don’t even know if we’re going to have a school system left to try to fund,” Sharkey said.

That’s nice. You ready for your members to take pension cuts? You’re part of the problem, Sharkey.

Oh, and the Chicago Board of Education voted: Chicago school board OKs borrowing after district makes clear it could run out of money

The Chicago Board of Education unanimously authorized borrowing close to $900 million Wednesday after the district’s finance chief warned of “dire” consequences if the school system didn’t add to the system’s already substantial financial burdens.

Board President Frank Clark asked Chicago Public Schools finance chief Ron DeNard whether failing to approve the loans would leave the district “facing the real likelihood of simply running out of money.”

“Yes,” DeNard replied.

And it will run out of money if it does borrow, too. It just runs out of money in a different way.

Analysis: CPS has overspent budget 15 years straight, by total $6.6 billion

The Chicago Public Schools (CPS) have blown their annual budgets in 15 of the past 15 years by a collective $6.6 billion, amassing debt to continually increase spending on operations while district student enrollment has steadily fallen.

That’s according to an analysis of CPS financial reporting to the State of Illinois by Local Government Information Services (LGIS), which publishes Chicago City Wire.

In 2002, CPS had an average daily attendance of 382,394 and spent $4 billion, or $5.3 billion in today’s dollars.

By 2016, CPS’ attendance had fallen eight percent, to 351,726. But its spending had risen 15 percent, to $6.1 billion, adjusted for inflation.

All told, CPS has received $71.7 billion in taxpayer dollars over the past 15 years.

But eh, what’s another $900 million when you’re that far in the hole?

PUSHBACK

Under fire, Emanuel defends ‘payday loan’ plan to borrow $389M for CPS

Under fire for authorizing a “payday loan,” Mayor Rahm Emanuel on Friday defended his plan to let the Chicago Public Schools borrow $389 million secured by late block grants owed by the state.

“You have a situation…created by the state of Illinois to create a maximum amount of pressure on the public schools, specifically Chicago,” Emanuel said.

“It’s a short-term solution to a short-term problem created consciously, woefully by the governor to create political pressure. That’s how we’re handling it. That’s the most appropriate way to deal with it.”

Aldermen don’t see it that way. They likened it to the skipped pension payments that got CPS into this mess and Emanuel vowed to end.

It’s so easy to vow, isn’t it.

Not so easy to follow through.

There was an earlier plan involving taxes, fwiw:

Emanuel’s CPS rescue plan gets cool reception from aldermen

Chicago aldermen reacted coolly Tuesday to Mayor Rahm Emanuel’s plan to tax downtown businesses, high net-worth individuals or both to dig the Chicago Public Schools out of a $596 million hole without state help.

Ald. Carrie Austin (34th), powerful chairman of the City Council’s Budget Committee, did not mince her words — as usual.

After walking the tax plank three times to solve the city’s $30 billion pension crisis, Austin said she has no interest in going down that lonely road a fourth time.

“Why do we have to do that? Why is it always a strain on us, the city of Chicago? Why? Nobody ever asks that question. You don’t see this going on in any other school district except for Chicago,” Austin said.

That’s not exactly true. But we’ll come back to it later. That said, if you look further in that article (and lower in this blog post), you’ll see the aldermen were full of bright ideas to increase taxes. Turns out, they don’t mind taxes so much as who or what gets taxed.

WAIT, HOW MUCH IS GETTING BORROWED?

So the earlier plan said something around $400 million, and the final authorization was for $900 million.

That’s kind of different.

What’s up with that?

School board members approved adding two loads of debt to the district’s books: An up to $397 million short-term loan backed by delayed state grant payments; and as much as a half-billion dollars in long-term bonds meant to bring more cash into the system and modify the terms of some of the district’s existing bond debts.

…..
City and schools officials have said the state owes CPS $467 million in state block grant payments that are nine months behind schedule because of the long-running Illinois budget impasse.

In a letter sent to CPS this week, Illinois Comptroller Susana Mendoza’s office said it was “committed” to transmitting state aid payments “as soon as cash flow circumstances permit.” But the office said the magnitude of the state budget backlog meant it “could not predict with any certainty the timing of these future non-general state aid payments.”

The district plans to borrow around $389 million against the late grant payments. Officials have said that short-term borrowing against the grants which will likely come at a hefty cost, will allow the district to make much of a $700 million-plus contribution owed the Chicago Teachers’ Pension Fund by June 30.

The half-billion in new bond debt approved by the board would be used in the district’s coming budget year, which begins July 1, to bring cash into the system and modify the terms of some of the district’s bond debts, a district spokeswoman said.

Yeah, we’ll see if they actually “restructure” the debt, or simply add onto the existing amounts.

COMPETING PLANS

The aldermen want a head tax, and other stupid taxes:

CHICAGO (CBS) — Several aldermen, activists, and others have pushed their own plan to bail out the cash-strapped Chicago Public Schools, since Mayor Rahm Emanuel has yet to outline how he plans to keep the district open through the end of the school year.

For a second time since vowing CPS would not end the school year early, the mayor has canceled a briefing for aldermen on how his administration will keep schools open through June 20, despite a $129 million budget shortfall.

“Schools apparently do not have the funding that they need to stay open. The mayor has promised that he has a plan to accomplish that, yet he hasn’t shared with the public, the aldermen, teachers, parents, or students the details of that plan,” he said.

On Tuesday, some aldermen pushed ordinances to use surplus tax increment financing development money and reinstate the city head tax Emanuel eliminated in his first term. The City Council voted to phase out the much-maligned $4-per-employee monthly head tax on companies with 50 or more employees in 2011.

Ramirez-Rosa and 17 other aldermen have backed legislation that would create an even higher $33-per-employee monthly head tax.

Rahm said he would consider the head tax.

But then, Rahm has said a lot of things: Emanuel says he’s ready to do ‘very difficult things’ to save CPS

Mayor Rahm Emanuel said Wednesday he is prepared to do “some very difficult things” to keep the Chicago Public Schools afloat and argued that the nearly bankrupt school system is $596 million in the hole only because state government is Illinois’ “largest deadbeat.”

“I understand that the governor wants to blame [Comptroller] Susana Mendoza, wants to blame the speaker, wants to blame the Senate president, wants to blame me, wants to blame the Supreme Court. I would like him to do his job just like the Chicago Sun-Times editorial said,” Emanuel said.
…..
Earlier this week, Emanuel’s Chief Financial Officer Carole Brown came clean with the magnitude of the problem needed to meet the mayor’s demand to stave off a threatened early closing of Chicago Public Schools.

Brown disclosed that CPS needs $596 million — five times more money than the $129 million gap previously made public — because of a delay in receiving block grants from the state.

Brown also said that absolutely everything is on the table to solve the problem. She even refused to rule out another tax increase — in addition to the $250 million already imposed for teacher pensions and the $45 million for school construction.

But, Brown pointedly noted that would not solve the need for an immediate cash infusion.

…..
Emanuel was asked why he waited so long to reveal the magnitude of the problem to aldermen whose support he needs for a CPS rescue that could put the city’s own shaky finances at risk.

“The bills kept climbing and growing and, in every aspect, they said they were gonna get current with it. … The state of Illinois is the largest deadbeat in the state of Illinois,” the mayor said.

After canceling two closed-door briefings with aldermen, Emanuel shed no new light on the rescue plan. He would only reiterate Brown’s statement that “everything is on the table” and that, even another tax increase or reinstating the employee head tax he proudly eliminated has not been ruled out.

Other possibilities include: a bridge loan from tax-increment-financing (TIF) districts that may never be repaid; another round of borrowing; more cuts of school support staff; delayed payment to CPS vendors, and a request to the Chicago Teachers Pension fund to delay a $721 million payment due on June 30.

A 60-day delay would solve some of the cash-flow issues, since tax revenue typically rolls in by August.

Ald. Howard Brookins (21st) was incensed by the $596 million shortfall and the hide-the-ball strategy at CPS and the mayor’s office.

“I don’t know why they think solving a problem everybody knows they have in the dark is gonna make it better,” Brookins said Wednesday. “My committee and aldermen have no authority over CPS. But they’re gonna look to our committee to solve the problem and it’s a much bigger problem than we thought.”

CPS is in a bind for a second straight year after balancing its budget by counting on state money that had strings attached or didn’t come in on time because of Springfield’s budget standoff.

Squinting above… I don’t see that he proposed any difficult things. At all.

A DEAD COURT CASE

This is reaching back a month, but I didn’t cover it at the time, and now I will:

Decision On Closing Chicago Public Schools Early Rests On April 28 Court Ruling

A Cook County judge said Wednesday he plans to rule April 28 on Chicago Public Schools’ civil rights lawsuit against the state over school funding, a move CPS hopes will clarify whether it can keep schools open until June 21 or whether it will end classes three weeks early.

CPS wants Judge Franklin Valderrama to issue a preliminary injunction against the state, which could have the effect of pushing the state to contribute more money to the city schools. The district is facing a budget hole of more than $100 million. With options for making up the cash dwindling as the end of the school year approaches, CPS has said it hopes to decide by May 1 on the final day of school.

Alternatively, Valderrama could side with the state and dismiss the suit, which alleges that the state is discriminating against Chicago’s mostly minority student population.

…..
In its suit, CPS alleges a “separate and unequal funding system” for public education in Illinois that discriminates against the district’s mostly minority student population.

…..
Unlike previous school funding lawsuits in Illinois and around the country, Chicago’s case focuses mostly on what the state contributes toward teachers’ retirements in CPS versus all other districts. The district argues that CPS gets fewer dollars to pay for its teacher pensions, leaving it with less overall to spend to educate its mostly African American and Latino students.

Broke Chicago Schools Seek Court Help as Pension Bill Looms

Chicago’s debt-ridden schools are running out of options.

The nation’s third-largest school district — whose credit rating has tumbled well into junk — must make a $721 million pension payment by June 30 and officials are scrambling to find the funds. Ending the year early, canceling summer school, and slashing classroom spending are all possible, the Chicago Board of Education said in connection with a lawsuit that’s seeking to wrest more cash from Illinois.

“They’re trying any way they can to try to make the state provide more funding,” said Daniel Solender, head of municipals at Lord Abbett & Co., which manages about $19 billion of debt.

A local judge may make an initial ruling Friday on the schools’ lawsuit against Governor Bruce Rauner and the state board of education, which challenges funding practices that have made the district the only one in Illinois that pays most of its pension costs. The board alleges that the allocation of aid discriminates against Chicago’s 400,000 students, who are predominately African-American and Hispanic.

Escalating pension bills are the crux of the financial squeeze that’s threatening the solvency of the school system. For years it has been draining reserves, shortchanging its pensions and borrowing to pay bills. Its retirement system is short by $9.6 billion, and this year’s required payment will eat up 13 percent of the district’s operating budget.

Chicago covers a far greater share of its teachers’ pension contributions than the rest of Illinois’s schools, which receive more state aid. For the year that started July 1, Chicago’s will spend about $1,891 per student on teacher pensions, while other districts only spend about $86, according to Chicago officials. Illinois kicks in about $32 per Chicago student, while other districts get $2,437, the district said in court documents.

The “disparate pension-funding obligations imposed by the state severely undercut CPS’s ability to educate CPS students,” according to court filings by the school board.

It was worth a shot, right? I mean, disparate impact has been a very popular argument in the courts, though in general with respect to policies, not money.

Well, this is what happened.

State ‘Out Of Touch With Reality,’ Judge Says, But He Dismisses CPS Lawsuit

Earlier Friday, Associate Cook County Circuit Court Judge Franklin Valderrama denied CPS’ motion seeking an injunction against the state and granted the state’s motion to dismiss the suit.

Valderrama said CPS had failed to identify the state’s alleged discriminatory practices and CPS’ complaint was, in effect, a challenge to the state’s pension-funding practices. CPS can refile the suit with an amended complaint within 20 days, he ruled.

You can go to the piece to see the actual ruling itself. The judge said Chicago could refile by today, and I’m unsure if they have or will.

So there had been noises that the schools would close because of the money shortfall.

That’s when Rahm came to the rescue!

Public Schools Will Stay Open Past June 1, Mayor Says After Court Ruling

DOWNTOWN — Mayor Rahm Emanuel asserted Friday that Chicago Public Schools will stay open past June 1, but didn’t offer a plan outlining how.

“You will be in school,” he told students at a hastily called news conference at City Hall. “Kids belong in the classroom.”

The announcement comes after CPS threatened to shut down schools June 1 without more state funding. The last day of school will be June 20, as originally scheduled, Emanuel said.

And that led to the clever plan detailed at the top.

As a side note, supposedly Rahm was pissed at the guy running the Chicago school system for filing this lawsuit.

Separately, Illinois Policy Institute rebutted the claim that Chicago schoolkids are getting shortchanged by state budgets.

THE LITTLE EENSY WEENSY PROBLEM: THE PENSIONS

I wrote about this in December, and I don’t have any data updates yet, so it still holds:

Here is some recent stuff: From May 16 — CPS cancels presentation to pension fund:

Chicago Public Schools has backed out of the public presentation the district planned to give to the Chicago Teachers’ Pension Fund board later this week, a fund spokeswoman said Tuesday, as city and CPS officials continue to meet over a financial rescue plan for the school system.

CPS did not respond to a question on why it canceled the presentation. Last week, Mayor Rahm Emanuel’s top finance officials said CPS has the cash it needs to complete the school year but lacks funds to pay the bulk of a more than $700 million contribution owed the pension fund by June 30.

Chicago Chief Financial Officer Carole Brown acknowledged officials discussed the possibility of withholding hundreds of millions of dollars for the pension contribution as they tested school budget fixes with bond rating agencies to see which would do the least additional harm to the district and city’s low credit ratings.

Fund officials said the district had asked to deliver a presentation Thursday to the pension fund’s board but then followed up with an email to pension fund Executive Director Chuck Burbridge to say district officials would not be attending.

Emanuel’s administration has canceled briefings for aldermen on how the mayor plans to find local cash to fund CPS, and the mayor this week said he wants to see how education funding proposals fare through the rest of the spring legislative session.

A group of top district officials and allies plans to converge on Springfield on Thursday to press lawmakers who have not made substantive progress on a budget or education funding.

The district did not respond to a question about the amount of cash it needs to both close the school year on schedule and make the bulk of the pension contribution.

Officials have said the CPS budget this year is short $129 million — even after the district made late-year spending cuts in the wake of Gov. Bruce Rauner’s veto of $215 million in pension funding.

The district says about $467 million in state aid payments has been held up by the state’s ongoing budget logjam.

Without short-term borrowing or some other rapid cash delivery, officials said the district will fall far short of making the pension contribution. Burbridge and others say that could have negative consequences for the district’s teetering reputation in the financial sector.

At the same time, the state pension code doesn’t specify what course of action the fund could take in the event CPS doesn’t make the full payment. Burbridge has said the fund’s board would have to meet “and determine the appropriate course of action.”

CPS owes the fund roughly $716 million, though the district is expected to pay a little less than $470 million of that tab by the end of June. The rest of the money will be payable after an estimated quarter-billion dollars in revenue from a new property tax devoted to teacher pensions arrives later in the summer.

Yeah, part of the problem is sitting around expecting the state to do something.

It doesn’t look like they’re doing much of anything.

A week before the above: Chicago Will Short Teacher Pensions By $250 Million, Taxpayers To Pick Up Tab

The Chicago Public Schools is about to write the biggest check in the school district’s history. It owes the Chicago Teachers Pension Fund $715.9 million on June 30.

That looming pension payment has been a main driver of the money problems the school district has been grappling with all year. You’ve almost certainly heard about them.

There’s been budget cut after budget cut. There have been threats of ending school early. There was an unsuccessful lawsuit. There’s still a $129 million hole in the budget. And the state is months behind in paying the school district hundreds of millions of dollars.

The rhetoric continues to heat up in a last-minute scramble for money.

One thing is clear: the Chicago Teachers Pension Fund won’t be getting the full $715.9 million owed to it on June 30. CPS plans to subtract $250 million from that total.

That’s because a new property tax levy will send $250 million straight to the pension fund. But the actual cash won’t come in until July or August, when Chicagoans pay their property taxes. So that’s when the pension fund will get its money.

“Are we OK with that? The statute says the payment’s due June 30,” said Chuck Burbridge, director of the Chicago Teachers Pension Fund. “So, I can’t tell you that I’m OK with it. I understand it. To say it’s OK is a little too much.”

He said CPS has tried to persuade the pension fund that delaying receipt of $250 million is actually a very good deal.

“What CPS is saying is, ‘Look — the money is good. It’s gonna go directly to you. Therefore, do not be too upset with us, with the fact that it’s gonna come in after June 30. This will work out. That’s a permanent property tax revenue stream,’” Burbridge said CPS has told him.

With tax money flowing directly into its coffers, the pension fund will get money twice a year, and not on the last day of the fiscal year, the way CPS currently pays. The set-up holds benefits for CPS too, because the district won’t have to raid classrooms as dramatically as it’s had to in the past to pay its pension bills.

In the history of the Public Plans Database, Chicago has NEVER paid a full contribution to the fund.

Ever.

Which is why it’s barely above 50% fundedness.

And though the PPD hasn’t updated the numbers in the database yet, it does have the last actuarial valuation.

Let me hit a few highlights from page 12:

• The “normal cost” is about 14% of payroll – this is the amount to cover pension benefits accrued that year. Employees are supposed to cover 8% of payroll, for about 6% that Chicago is supposed to give
• The share for the amortization of unfunded pension liability (you know, all the stuff accrued from prior years): 34%
• The total unfunded liability is $9.6 billion.

To get an idea of the size of that last number, we can compare it against the CPS budget for FY 2017, about $5.5 billion. Now that’s an income statement amount, not balance sheet. But just to give you an idea.

We can also compare it against total bonds for the system, which is about $7.5 billion (before the new $900 million is added)

Either way you slice it, the pension debt far outweighs the Chicago Public Schools other finances.

As for the “required” contributions (that are never made) — whether you compare the 34% of payroll against the 14% of the normal cost or the 6% of the normal cost covered by Chicago (as opposed to the employees… who are paid by Chicago) – the cost of past benefits accrued but not paid for far outweighs the service currently accrued.

This is partly why Chicago can never cover the full cost of the teachers pensions.

If they had only paid the cost this entire time, even with assumptions of too-high returns and too-high payroll growth assumptions (which they still have), the funded ratios would not have eroded as much in light of experience. And covering the unfunded liabilities would have been less onerous.

WILL YOU PAY OFF MY BONDS?

From May 10: State aid delay further pressures junk-rated Chicago Public Schools

CHICAGO – Delays in state grants are adding to the strains faced by the junk-rated Chicago Public Schools as it seeks – with the city’s help — to close a $129 million deficit, avert an early close to the school year, and meet its $700 million obligation to the teachers’ pension fund.

“This is an extremely complex issue and the solution will be complex as well. CPS and the city continue to review all options and hope to have a final solution in the coming weeks,” said city finance department spokeswoman Molly Poppe.

The warnings from Mayor Rahm Emanuel’s administration and the district over grant payment delays further fuel tensions between the district and Gov. Bruce Rauner’s administration and it has dragged into the mix state Comptroller Susanna Medoza, who manages state bill payments.

The district is working to fully close a $215 million hole in its fiscal 2017 budget caused by Rauner’s veto of pension help.

The district whittled the gap down to $129 million and said it could cut no further without closing schools early in June unless the courts acted. A Cook County Circuit judge recently tossed a district lawsuit against the state on school funding extinguishing hopes of court intervention.

Mayor Rahm Emanuel stood with schools chief Forrest Claypool after the ruling and said students would remain in school until the scheduled end of the year as the city worked with the district on a plan to cover the deficit.

This week [May 10], the city warned that the district’s fiscal pressures have become even worse with CPS still owed $466.5 million as of April $665.2 million in non-general state aid grant funding for fiscal 2017, which ends June 30. Delays have been longstanding throughout the state’s nearly two-year-old budget impasse so it’s unclear why the issue is now being raised and city officials could not say how far behind the state was last year at this time or why it was not raised last year.

In response to questions from reporters on Wednesday [May 10] as to why the city and CPS did not earlier warn that payment delays would impact CPS’ ability to meet its obligations for the fiscal year, Emanuel blamed Rauner for his refusal to adopt a budget that doesn’t include his policy demands and said the governor should stop blaming others. The state is “adding insult to injury to not only be dead last on funding education but then to be behind on your payments so dramatically that you are affecting the ability” for us to keep moving forward academically,” Emanuel said.

Yeah, so the Board of Education may have authorized various bonds, and Rahm may have estimated what the interest cost would be…. but it may turn out the bond market will end up pricing them differently when the bonds are actually issued.

We shall see.

Compilation of Chicago posts.