Blue Civil War
Chicago Schools Plunge Further into the Abyss

The weight of decades of unfunded pension promises made to Chicago’s teachers’ unions is coming crashing down on the city’s public schools, which are subsisting on junk-bond debt even as students flee the district. Bloomberg reports:

Chicago, the nation’s biggest junk-rated city, has raised taxes and moved to shore up its debt-ridden pension system, but for its schools, the triage still has a ways to go. […]

The Chicago Board of Education is facing a potential strike by its teachers, which could further strain its coffers. The third-largest U.S. school district’s budget counts on state aid and union concessions that may not come. And this week, Moody’s Investors Service cut its rating deeper into junk, citing its “precarious liquidity” and reliance on borrowed money, as preliminary data showed an enrollment drop of almost 14,000 students — a loss that may cut into its funding.

The chronic financial strains may lead investors to demand higher interest rates from the debt-dependent district. With $6.8 billion of general-obligation debt, it’s already paying yields of as much as 9 percent, according to Moody’s. More than 10 percent of this year’s $5.4 billion budget is eaten up by principal and interest costs.

While blue model decay is more advanced in Chicago than any other American city, the problems underlying the crisis in the school district—recalcitrant public sector unions, pliant lawmakers, fiscal incompetence, and an acute drought of ideas—are weighing on municipal governments from coast to coast.

In the short run, we are likely to see more pension-induced crises of governance in big blue cities and states. In the long run, this dynamic has the potential to create tectonic political shifts. Democrats in places like Chicago have historically been able to depend on both the unionized producers of government services (strike-happy teachers unions demanding ever-more generous pension contributions) as well as the people who depend most on high-quality service (the parents of low-income students in Chicago public schools). As the cost of bureaucracy continues to increase and the quality continues to deteriorate, the interests of these two constituencies will increasingly diverge. The Blue Civil War has the potential to scramble our political coalitions in big and unpredictable ways.

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