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.