June 23--After years of masking over a looming financial catastrophe, the Chicago Public Schools system has produced a report that says ... CPS has spent years masking over a looming financial catastrophe.
Sober recognition is small consolation. Actually, it's no consolation.
The value in the stark report prepared for CPS by Ernst Young is that the firm has great credibility. The report, released over the last few days, underscores that this is not a manufactured financial crisis. It is real; it is happening now.
CPS has gone through year after year of denial, of "hoping and hoping ... that something would turn up," as departing Chicago Board of Education member Henry Bienen put it.
Nothing turned up.
In the words of the analysts at Ernst Young: "Although the magnitude of annual projected deficits through FY 20 is concerning, the anticipated immediate and medium term liquidity shortfalls are even more critical.
That's accountant-speak for: The long-term is bleak, but the short-term is even worse.
CPS is projected to run out of cash as early as this summer, the report says. To pay more than $600 million owed the teachers pension fund by June 30, cut payroll checks and cover other operating costs, the district would have to drain its checking account, exhaust its line of credit and burn cash set aside to pay other debts.
Next year's budget, starting July 1, is the same story: A $1.1 billion gap driven by a huge, required pension payment. At its current pace, pension and debt service will gobble an ever-larger share of money that could be used for classrooms.
The report's upshot: Even with huge tax increases, more state aid, increased state funding of teacher pensions, salary and benefit concessions from CTU and $150 million more in other budget cuts, CPS would still face an annual $350 million shortfall in its nearly $6 billion budget over the next several years.
"We recognize this is a crisis, and a somewhat different order of magnitude of what has happened in the past," Chicago Teachers Union Vice President Jesse Sharkey said. That's good to hear.
The union is willing to help lobby lawmakers for more aid, Sharkey said.
But the state is broke. A significant part of the answer to saving the schools has to come from the negotiations on a new teachers contract. For instance, CPS pays for most of the contributions that teachers are supposed to make toward their own pension plan. That is, CPS pays its share and most of the teachers' share.
The report says that "CPS teachers are well remunerated compared to their peers in other large US/Midwest school districts." On average, the report says, CPS teachers got a 5 percent bump in salary in fiscal 2015 over the prior year, even though revenue was flat to declining.
Chicago property owners face a likely ask for higher taxes for schools -- just as Mayor Rahm Emanuel and Cook County Board President Toni Preckwinkle eye property and sales taxes as possible sources to fix their pension-driven fiscal problems.
This is a dangerous high-wire act: A crippled public school system will drive people out of the city. But tax hikes built on tax hikes built on tax hikes will drive them out too.
There's worrisome talk about new borrowing schemes and pension payment delays.
Look at what the Chicago City Council did last week. It borrowed $1.1 billion. Some of that money will pay interest on old debt. Some of it will be used to provide back pay on a union contract -- a basic operating cost.
Some of it will pay for legal settlements. Some of it will pay for old loans, and some of it will go to the city's parking meter company. Some of it will pay for costs related to Moody's Investors Service lowering the city's debt rating to junk.
Moody's has slapped junk status on CPS debt too.
So, grim as a resolution will be, it would be irresponsible to keep pushing these problems into the future.
The future's now, and it is bleak.
CPS faces a massive restructuring. No one would relish a bankruptcy declaration; the repercussions would be difficult to predict. But the Illinois General Assembly needs to pass legislation to allow that, just in case.
Parents need to know now that schools will open in the fall. They need confidence.
The stakes couldn't be higher. And hope isn't a strategy.
