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By: Mark Glennon*

How could Chicago Public Schools get a fresh restart, fix its pension crisis, cut its debt, void bad contracts and end the teacher’s strike?

The same way Michigan did for Detroit schools. It’s called “reconstitution” and it’s a regular process in the private sector, often called “oldco/newco.” It would have all the benefits of a bankruptcy reorganization, though a formal bankruptcy might not even be needed.

It would go something like this:

– Create a new entity, or perhaps several of them, to run the schools.
– Redirect to the new entity taxes and other funding now going to CPS. Transfer needed assets to the new system. Put the old CPS in a Chapter 9 bankruptcy, if necessary.
– Freeze the Chicago Teachers’ Pension Fund and, instead, begin funding a new, affordable retirement plan.
– Terminate all CPS employees and rehire the good ones on terms affordable for the city.

 

We wrote about the option for CPS in 2015. The Wall Street Journal wrote later about its application in Detroit’s schools and its potential for Chicago: “The district would avoid declaring bankruptcy by using an ‘oldco/newco’ model similar to GM’s. School operations would be transferred to a new debt-free district.”

The Detroit Free Press reported the opening of that city’s new school district in July 2016. We also wrote here about why the option is actually better suited for Chicago than it was for Detroit.

GM did the same thing in its bankruptcy. The GM you know today is actually a new company formed in 2009 to take over assets of the old, insolvent GM.

Reconstituting CPS would require state legislation as well as the city’s cooperation. That legislation could also include changes to the collective bargaining process to ensure there’s no repeat of the Chicago Teachers Union’s impossible demands. Currently, those laws are stacked in favor of CTU and are out of line with other states, especially our neighboring states, as we described here.

To nobody’s surprise, Illinois politicians have never considered the option for Chicago. And with lawmakers still in denial about the scope of our crisis, it’s right to be cynical about the chance of them reconstituting CPS now.

But maybe, just maybe, they will start to consider how history will record their failure to act. Mayor Lightfoot has no good options for dealing with the city’s financial plight, and may not have any bad options either. CTU seems resolute, impassioned with their role as the vanguard of a radical agenda that goes far beyond schools. “Bargaining for the common good” is what they call it – they anointed themselves to bargain for the working class across the country.

Faced with that, why shouldn’t Lightfoot ask Springfield for legislation to reconstitute CPS? Chances are she would be ignored, but at least she would be remembered as the first Chicago politician to suggest a serious step to head off or at least mitigate the meltdown that’s ahead.

*Mark Glennon is founder of Wirepoints.

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DrDog

I believe there is a little issue of the bondholders collateral, which happens to be the buildings, etc. Highly unlikely NewSchool would start with a debt free existence. It would be breaking the contract for the bonds.

Mark Matthews

I appraise real estate in the Chicago area. The market is going down. Only affordable, entry level properties are holding their value. I sold everything and rent.

debtsor

What price point is defined as entry level affordable. Thanks

Poor Taxpayer

Get a U Haul and get out of Illinois. Solve the problem for good. Raise your quality of life.
Much better schools almost everywhere you go to. The Greed of cops, teachers and firemen has destroyed Illinois for good. Toast a goner, DOA. Best choice of my life was to leave Illinois. Now have great weather and low, low taxes. Illinois Suxs.

DANNI SMITH

affordable housing for teachers is S0000 FOR THE KIDDOS. I say PATCO CPS. Then we will see what a teacher is worth-my guess, $35,000 per year, no other scales. No raise for any master’s-online or otherwise-only based on classroom performance. But still, it is kinda interesting watching them self-destruct. Proves that CPU are really, really dumb people. AFFORDABLE HOUSING????? cABRINI gREEN, LADIES.

HG

It will only happen when CPS defaults on its debt. The bond trustee would notify the Cook County Treasurer that the disbursement account for the benefit of bond holders has not been funded and that CPS portion of property taxes must be directed to the trustee.

Once that happens and CPS can’t make payroll, then I can see the City and State getting involved. But until then, status quo.

Astonished

Public schools obey the Iron Law of monopoly; eventually they take in infinite resources and yield *nothing* of value. We live in a strange time, characterized by one institution after another being literally destroyed from within by the very people who depend on it for their living. What is “The News” if its practitioners are caught red-handed faking it over and over? What is a national government that is so mired in gravity-defying illogic that the borders of the nation itself aren’t defended? What is a school if the entire premise on which education rests is nothing but a Cargo… Read more »

dannismith

THE PARASITE IS KILLING THE HOST. The host is rasping the death throes. And that I.Q. thing is real. It’s nature, not nurture. Small brained, is small brained. Then add to this that the nurturing is deficient in fatherless homes, crackhead mammas, siblings from many sperm donors, and ya get what you get.

Whats the solution Nazi?

Youre false racist narratives solve nothing but exposing you for what you are… if anything you my friend have a moral defect in your brain and in the future we will deal with you…

Go make your own Ethno state already and stop with your psuedo science bs.

debtsor

Wow, a stupid racist comment from an anonymous poster, and you call him an ethnostate nazi? And then you threaten to put him in camps and kill him? “if anything you my friend have a moral defect in your brain and in the future we will deal with you” Not sure if you’re trolling, or if you’re just a member of the intolerant left.

Rick

This would only work if a CPS existed as a real city department. Right now the CPS is really just another name for a conglomeration of unions representing custodians, teachers, etc. We all like to think CPS is some form of public office in the government, but it’s not. The unions own it, run it and finance it albeit they finance it via “owning” those in office. CPS is not in the jurisdiction of the government in reality, maybe some lawyers think CPS is is a city department under the control of government to be run sustainably and efficiently. That’s… Read more »

State Pension Millionaires

Illinois politicians do not give a darn about suburban, non-public union “mid-west nice” taxpayers, unless those taxpayers start to use their influence and resources to get the Chicago masses to act up (fire incumbents and hire change agents). Hopefully those Chicago masses will realize that many of their/our problems are the result of massive ongoing legislative corruption and unparalleled legislative malfeasance. Otherwise it looks bleak.

…remember, a promise is not a promise, in the absence of honest dealing…

Tom Paine's Ghost

CPS reconstitution will eventually happen but it won’t happen until virtually all other options have been tried and several years after CPS first failing to make payroll. Reconstitution requires Illinois legislature approval and Illinois Democrats are completely owned subsidiaries of public sector unions like SEIU, AFSCME and CTU. Massive public sector union contributions to Illinois Democrats is the party’s financial lifeblood. That money plus election time boots-on-the-ground leave Democrat politicians completely enslaved to the public sector union thieves. Plainly, without public sector unions Illinois Democrats would not exist. So after missing payroll CPS will seek a state bailout. Madigan will… Read more »

nixit

Lead remediation might bankrupt CPS before CTU does. although it will be close.

Anon

This is a good plan (maybe the only plan) but the reality is that no sweeping change like this is feasible without a very real financial crisis as the catalyst. When CPS can’t make payroll, then a plan like this will actually be on the table. Otherwise expect the problem to fester.

Bob Out of Here

According to a report I read a few years ago, their finances were so bad they had to take out short term loans just to make payroll. Don’t know if that’s still the case, but damn.

JK

Stop bleeding us, give them more than they want and get us to the promised land (bankruptcy) quicker. IL Gov is a mafia from top to bottom. No legislature or court in this state will agree to these terms. In the end, the result is the same, a bankrupt, dead state. Puerto Rico was the test lab and IL pols think they can squeeze the Feds for a bailout. Not going to happen without federal oversight, and the Feds learned a lot in PR.
This is why they want Trump out so badly, he’s exposing the kleptocracy.

Peter T Burchard

Y’all are brilliant. Wirepoints demonstrates that there are a variety of approaches available to decision makers. However, those involved in radical public policy have always considered themselves immune from “…how history will record their failure to act.” They believe they are above the fray – superior to what the rest of us love about our state and country.

How would the current unfunded pension liabilities be handled for this?

Illinois Entrepreneur

I love your thinking here. It’s a sensible, creative and productive idea. Which is why Illinois and Chicago will have nothing to do with it. As I look at the news about CTU and the strike, and the Park District getting what they want; and then the police and fire coming up next, I realize that Lightfoot will be a one-term mayor. She is going to try and play the middle — placating public sector unions and progressives, while doing essentially nothing to reform the massive financial problems that Chicago faces. We’ve already heard the “there will be some sacrifices… Read more »

DantheMan

Sadly, I have to agree. I also think that no matter what Lightfoot does, she is a one term. It all will start to implode on her watch, and she will be blamed.

MikeH

Also makes me wonder how many more one term mayors the city has to look forward to after her.