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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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  • JR

    But have they tried taxing the rich? At confiscatory rates? Above a certain random level? why is anyone surprised that union parasites destroyed yet another host? How many times must it occur before we stop being surprised by it?

    • (((kingschitz)))

      Ah, but there’s one option left when a government controlled by the rich seeks to protect its patrons: tax you and me. Especially if the career criminal HRC wins, we’re going to be told that “It Takes a Village” of middle class taxpayers, who will then be fleeced to bail out Chiraqe’s teachers.

    • MarkM

      In 2016, Chicago property taxes are expected to increase by roughly 13% on average. That is primarily a fix for the police/fire pensions with very little additional money for the schools. The schools have been running a budget deficit forever and have been borrowing at increasingly steep rates (8%+) but are capped so that they cannot pay more than 9% unless interest rates go up across the board. One weird thing is much of that borrowing required approvals of tax increases in advance — so if the funding commitments are not met, the taxes will go up even further automatically.

      And yes, they are enacting all sorts of additional taxes – including on Netflix, on cloud computing services, on electronic cigarettes and the liquids that fuel them; an increase in the vehicle boot removal fee to $100 from $60; and a $400 increase, to $500, in the maximum fine for businesses that do not shovel snow in the public way. It is getting expensive to do business in the City of Chicago.

  • Beauceron

    I think most of the blue states are fairly confident the US will bail them out– so there’s nothing to worry about.

    • Johnathan Swift Jr.

      But who bails out the U.S., as eventually you run out of other peiople’s money?

      • Ofer Imanuel

        print baby, print

  • Robert What?

    The states, cities and unions are not concerned because they believe they’ll be able to tax their way out of these problems. Of course, that idea falls to the ground when all the productive taxpayers leave.

    • Johnathan Swift Jr.

      It is a slow process, but eventually one suspects that these cities have to be hollowed out from the inside as the middle class leaves for red states, for greener pastures, leaving only the rich and the dependent class. But at some point, there has to be a shortage of middle class businesses and employees, making things uncomfortable even for the rich. Or, when the budgets implode as interest payments on the debt and pension payments eat up more and more of the budget, leaving a shortage for services, then the dependent class begins to revolt.

      • Chris Prestridge

        We, the Red States, do NOT want them, period. These middle class people that are fleeing helped to create this monstrosity by voting the same way decade after decade. They simply move to a Red State, declare that we are uneducated hicks that need to be enlightened and the proceed to destroy everything that makes up the reasons they moved down here for in the first place. Make them stay; make them suffer what they created! We Red States have but one thing to say to these people – F&$K OFF!!

        • mikekelley10

          We are not only getting the middle class outflow, we are getting the ghetto/welfare bums, too, and it’s an Obama policy:

          –It’s difficult to say what’s more striking about President Obama’s Affirmatively Furthering Fair Housing (AFFH) regulation: its breathtaking radicalism, the refusal of the press to cover it, or its potential political ramifications. The danger AFFH poses to Democrats explains why the press barely mentions it. This lack of curiosity, in turn, explains why the revolutionary nature of the rule has not been properly understood. Ultimately, the regulation amounts to back-door annexation, a way of turning America’s suburbs into tributaries of nearby cities.–

  • Wild Bill Kinda

    You can bet the union bosses won’t be taking a pay cut.

  • catorenasci

    While blue model decay is more advanced in Chicago than any other American city, … umm did you forget Detroit?

    Chicago knew what it wanted in terms of governance, and is getting it good and hard. Not one cent of the taxpayers’ money for Chicago.

    • VictorErimita

      Exactly. They love their Democrats. They love their gangsters. But I repeat myself.

  • Daniel Nylen

    I never had understood, regardless of case law, how one elected legislature could bound and spend money for future legislatures outside of the processes for bonds (normally approved by the voters)? Contract law should obligate the money placed in the pension plan, but not future contributions which are for future work. I’m waiting for this corrupt pension pyramid scheme to blow up and a court to hold that the affected pension plan is restricted to what funds already exist in the system and not what future voters, taxpayers can pay except for payment for current work and retirement. At least this would be self-correcting– the employees and unions would care if their pensions were underfunded. As we currently have it, the debt load seems to big for a municipality or state to handle in addition to maintaining services…

  • Bob Parkman

    Chicago spends $13,764 per student, per year.

    Two thoughts:

    1. A voucher for $13,764, or cash deposited into an educational savings account would go much further in achieving better outcomes if it could be spent as parents wish, given the Catholic schools in Chicago spend $7,577 on each student. And, no, the teachers aren’t free nuns. Anything not spent could be used for college or vocational education.

    2. You could probably pay students to attend school, throw in a free lunch and still have money left over to equal what the Catholic schools spend per year. The math: ($5/hr x 6 hours/day + $5 lunch/day) x 185 days/year = $6,475/student/year. Leaving $7,289/student/year for teachers, books and facilities. Attendance would be mandatory to collect. The students could spend this as they or their parents wish or it could be placed in a college fund

    And with either of these two plans any money left over not used for primary, secondary or college/vocational education could be used later in life for continuing education with money left over for retirement.

    Think of that. $5,550 ($5/hr x 6 hrs/day x 185 days) per year in a college fund. After 13 years (K-12) with no increase per day at at a low 3% investment return, it could amount to close to $100,000 for college and could largely eliminate a need for state funding of college and vocational training. It could amount to even more at a low 3% increase in student pay per year.

  • s_c_f

    You might consider this a disaster. But these problems are never-ending and are never solved, they just continue to decay. This is like the country of Venezuela, no matter how bad things may get, they continue to get worse and never get solved. Outside the world of government and the public sector, problems are solved rather quickly – the 2008 financial crisis was resolved in a year. The pension crisis in Chicago has been a problem for 10 years or more. The solvency of social security has been a problem for 10 years or more. Government-caused problems are never solved quickly and can cause damage for a generation.

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