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Blue Model Blues
The Tragic Mismanagement of Chicago’s Public Schools

Chicago’s public school system is on the verge of facing financial insolvency, and it’s not because selfish taxpayers have been starving it of revenue—both the Windy City and the state of Illinois have significantly higher than average tax rates. Much of the school district’s acute fiscal distress can be chalked up to mismanagement, plain and simple—short-sighted decisions by blinkered public officials who chose to mortgage the school system’s future against pension benefits for current retirees. Crain’s Chicago Business reports that CPS is finally drowning under the weight of interest on debt it has accumulated over the last decade:

CPS has papered over its annual shortfalls by borrowing vast sums from bond markets. As a result, CPS bonds are now rated as “junk” and the district has to pay a huge premium to get anyone to buy them (three times the rate for benchmark government bonds).

What’s more, by failing to make the necessary pension contributions, CPS has borrowed even larger amounts from its current and former teachers through the pension fund—today the district owes the fund billions upon billions. CPS owes bondholders and the pension fund more than $38,000 for every student, up from less than $10,000 in 2001.

This kind of financial mismanagement is not unique to Chicago—a recent study found that debt accumulated by teacher pension funds is costing teachers nearly $7,000 per year in salary—but it appears to be especially acute there. If state legislators and district superintendents had managed their resources with an eye to the future, they would have tens of thousands of dollars more to hire better teachers, experiment with new educational programs, and otherwise invest in the well-being of their students. Instead, they have saddled themselves with debt that will be virtually impossible to pay off without severe cutbacks to the city’s underperforming schools.

Meanwhile, the Illinois Supreme Court has ruled that it is unconstitutional to adjust the retirement benefits of Chicago public employees, making it even more difficult for the district to avert financial catastrophe. Chicago’s sclerotic public institutions are failing, and its children will pay the price.

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  • Fat_Man

    News at 11:00.

  • Andrew Allison

    Government of the people by the unions for the unions.

  • Blackbeard

    Where this road leads, eventually, is to a federal bailout and it won’t stop with Chicago. There are plenty of other blue cities and states that have made and are making the same foolish financial decisions. And then, ultimately, who will bail out the Feds?

    • rpabate

      If that’s the case, maybe it wasn’t such a foolish decision. I suspect this will happen elsewhere or everywhere. Eventually, it will all come tumbling down, but that’s for someone else to deal with. Demographic trends and technology are stacking up to making the future not particularly bright for those not in the Baby Boom generation. By the time they have finished plundering the public coffers, there will not be much left for future generations.

    • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

      Bailed with what? It is not Chicago. With very few exceptions the pension funds have always presumed an 8% return and for fifteen years or more have gotten 3%.

  • Anthony

    Bond Holders rarely come up short! “The men the American people admire most extravagantly are the most daring liars; the men they detest the most violently are those who try to tell them the truth….”

  • Pete

    The hogs (education establishment) at the K-12 public school trough have been feasting on the taxpayers for decades and decades.

  • Bucky Barkingham

    So long as the union retirees are taken care of that’s all that matters, because it keeps union dues flowing to the politicians.

  • Bob Parkman

    Rahm is mad because the governor won’t let him kick the can down the road until he leaves office and jets out of the city and state never to return. He was hoping to be Hillary’s VP, but that opportunity was squandered, not by this, but by hiding multi-million dollar settlements for police misconduct until after he was safely re-elected.

  • Fifty Ville

    Like the nurses unions who think dollars for health care come from a neverending cornucopia, the members of the teachers union need to indulge in an economics class as part of the requirements for a teaching credential.

  • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

    So cute! Somebody seems to think the ‘schools’ are run for the benefit of the children.

  • mhjhnsn

    The Chicago Teachers Pension Fund’s benefits are not notably generous, at least by the standards of other public teacher pensions. What is noteworthy is that the Chicago Public Schools did not properly fund those pensions, starting about 15 years ago. That let an enormous debt accumulate, nominally over $10Bn, and it is that debt, not the cost of new benefits being accrued, which is the problem. It costs about 3-4 times as much to service the debt, as to pay for new benefits being earned each year… think, $500M+, versus about $150-200M. That $500M is the killer.

    At this point, bankruptcy is probably the only solution, but Illinois’ politics are so dysfunctional no one can see clear to how to do it.

    • Charlotte Aines

      That’s a lie. They are extremely generous.

      • mhjhnsn

        I do this for a living, in Chicago, and I have a well-informed opinion. As public teacher’s pensions go, CTPF is in the mid-range for benefits. Compared to most private sector plans it is generous for those hired before 2011 whem a new Tier kicked in, but the teachers don’t get social security.

        • Charlotte Aines

          The Illinois teacher pension is extremely generous. social security is peanuts compared to this pension. Social security has had no increase the last few years. Il teacher’s pension gets an automatic 3% increase every year. As for pre 2011, the pension plan is already bankrupt even with the new tier.

          • mhjhnsn

            Fine. I work on pension reform for the City of Chicago and assure you that the history and facts here are very complicated. I have never heard of you professionally and if you had anything to do with pension reform in Chicago, I would have. You cite info from one source and give me a link that doesn’t even work.

            Yes, the new Tier 2 didn’t come close to fixing the Fund’s finances–I didn’t say it did. But it did cut the benefits substantially compared to people on the old tier, which was my point. That’s what happens with adding a new tier, it doesn’t do anything about the debt you already have, it just makes it grow a little slower in the future–which may be just and fine and worthwhile, but it doesn’t solve the problem.

            If all you have is Social Security, you better have saved a bunch–that’s true. Even the government doesn’t call Social a ‘pension’, it’s a ‘retirement benefit’, and it is expected that people will also have a pension or a 401(k) or some sort of nest egg in addition.

            I am not defending the old benefit levels for Chicago Teachers, I merely point out that all the actuaries who are involved are of the opinion that if the Schools had paid the proper annual amounts, which would have been about 10-12% of payroll, not outrageous compared to Social at 6.20% which as you say, doesn’t give you much, the Fund would not be in bad shape. Think Social with its 6.20% employer share (OASDI) plus maybe a 4-5% 401(k) match… The new Tier 2 is MUCH cheaper.

          • Charlotte Aines

            I have no problem with the link. If you are so knowledgeable about Illinois pensions I would assume you would know about champion news. You could also just google pension taxpayer mugging, but I’m sure you knew that with all your professional credentials.

          • mhjhnsn

            Well, the link worked when I tried it this time, but REALLY, a propaganda piece from 2012?

            Hey, you’re the one who called me a liar, I’ve tried to be civil.

            Have a good life.

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