By: Ted Dabrowski and John Klingner
Illinoisans had plenty of reasons to be skeptical of last year’s state bailout of the Chicago Public Schools: the district’s leadership has been serially corrupt; the funding formulas have favored CPS for decades; the district is already morally and fiscally bankrupt; more money for CPS is never tied to improved educational outcomes; the Chicago Teachers Union and Mayor Rahm Emanuel dug their own hole…, etc. The list goes on.
But for many residents, the biggest fear was being played the fool once again. They knew CPS officials wouldn’t do the right things if taxpayers across the state simply gave the district more money.
They were right. CPS took the new money, about $450 million, and did nothing to tighten its belt, clean house or get its books in order.
Instead, the school district plans to do just the opposite. It wants to spend nearly 20 percent more than it did last year. It plans to increase its number of school administrators handsomely. And the district wants to increase its debt by as much as $1 billion – on top of the massive debts it already has. All as student enrollment declines!
It’s incredible – or predictable, depending on your view – that a school district so deep in debt and so far into junk-rated status, isn’t working its way out of its mess, especially when the legislature forced state taxpayers to bail it out. Instead, Mayor Rahm Emanuel and his team are adding to the mess. Here’s what the CPS budget says they are going to do:
Increase overall spending by nearly 20 percent.
Rather than consolidate operations and bring costs in line with what Chicago taxpayers can afford, officials are spending more than ever.
Last year total spending for the district was $6.4 billion. That includes general operations, debt service and capital projects. In 2019, total appropriations will increase to $7.6 billion, or nearly $1.2 billion more. That’s a jump of nearly 20 percent in one year – financed by state dollars, higher property taxes and more borrowing.
The driver of the increase is CPS’ planned capital expenses of $850 million. That spending is part of CPS’ announced $1 billion-plus building plan, much of which is going to new schools.
It’s nonsensical. The district can’t afford the upkeep on the buildings it already has and its student enrollment is shrinking. In 2000, CPS had 435,000 students. By 2017, enrollment numbered just 371,000. That’s a 15 percent drop.
Add 13 percent more school administrators
CPS plans to add even more school administrators to an already unworkable bureaucracy. According to the Civic Federation’s analysis of headcounts, over 124 FTE school administrators alone are being added this year.
That’s 13 percent more expensive administrators – and more pension costs – even as enrollment shrinks. By comparison, the number of teachers will grow by just 1.2 percent.
Add up to another billion of dollars in debt
Despite all the extra state dollars flowing its way, the district is going to borrow up to a billion in new money this year.
CPS is going to directly borrow at least $750 million. Add in some additional smaller borrowings and that could add up to nearly a billion in new, unaffordable debts.
Going to get worse
All of the above matters because things will only get worse in the near future. CPS financials look okay in the short term only because of the recent state support. But counting on the state for anything is beyond foolish. The state has its own $130 billion shortfall, billions in unpaid bills and is just one notch from becoming junk rated.
In addition, the district has yet to be honest about what it really owes in pensions. Once it truly accounts for the promises it’s made, CPS’ debts will be billions higher. The district’s pension fund still assumes a 7.75 percent rate of return on investment. A more conservative assumption would nearly double the district’s $11 billion pension shortfall.
To make things worse, the Chicago teacher pension demographics are looking more and more like a Ponzi scheme. The district is at a point where it will soon have more people taking out money from the pension plan than putting in.
And pension costs are only going to rise further. After years of deliberately shorting contributions to pay higher salaries, pensions are going to cost CPS $784 million this year. By 2022, that annual cost will be nearly $900 million a year, an amount that still grossly understates what is truly due.
Financial, and moral, bankruptcy
In the near future, expect Emanuel and his school administration to pitch to bond investors just how well school finances are doing after the recent tax increases and increased state support. His goal is to borrow more than $2 billion in new money and refinancing that the CPS board recently authorized, as reported by the Bond Buyer.
But there is so much wrong with CPS – and so much uncertainty. Pension costs, falling enrollments, increased dependence on an unreliable state, an at-risk tax base, and unknown amounts in potential sexual abuse claims. And most importantly, as we’ve said before, CPS fails at its most core function – educating its students.
It all adds up to more than just a financial bankruptcy at CPS. The coverups, the maltreatment of students, irresponsible spending and opaque finances are all part of a broader moral bankruptcy in Chicago Public Schools.
And thanks to the new finance formula and higher taxes, all Illinoisans are paying for that bankruptcy more than ever.
Read more of the authors’ work on CPS:
- Chicago leaders’ hypocritical stance on school choice
- City, Chicago Public School finances “improve,” just in time for elections
- CPS pensions: From retirement security to political slush fund
- New education funding plan repeats Chicago Public Schools bailout history
- 11 things you need to know about Chicago teacher pensions