By: Mark Glennon*
For the Chicago Public School system, it’s not just the near term cash crunch or the $634 million payment to its pension scheduled for the end of this month. CPS is a financial basket case — structurally and fundamentally insolvent. A dose of reality was administered recently by a financial report prepared by Ernst & Young, which has been widely discussed. Among it’s conclusions:
CPS has effectively been running a deficit for the past four years of about $500 million annually, which has been mitigated by non-recurring revenue and deferral of pension payments…. Even with a UAAL pension holiday for another five years, there remains an estimated accumulated deficit of $2.4 billion by FY 2020. [Emphasis added.]
A serious response seems to require wholesale ‘reconstitution’ similar to that done for some individual schools in the past. Keep in mind that school districts are separate entities — their contracts and liabilities do not bind the city, nor would they bind a new, reconstituted entity.
One element of this option that hasn’t really surfaced yet may turnout to be important: liability for claims by previous bond buyers. I am not about to attempt to quantify that, so let’s just say there are those who think it’s out there, and meaningful. Do we want school kids bearing the price? And another benefit, it’s done properly, would be no more Chicago Teacher’s Union.
Now, a few FAQs:
There’s just not enough there to work with. Without massive concessions from all stakeholders — concessions so large that you cannot expect to get them — there’s no reorganization plan here that could work, outside of Chapter 9 or in it. If there are other alternatives, let’s hear them. We haven’t yet.
Wouldn’t this be terribly complicated in light of CPS’ immediate problems? Negotiations over the enabling legislation would be complex.
Yes, but if the will to do it was there, and the process commenced by redirecting pension contributions to operations, there would be enough time.
Isn’t it naive to think that City Hall and a majority of the General Assembly would go for this? Won’t denial, delay, extend and pretend prevail until schools start closing, and probably well afterwards?
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.