School Teachers and Union Unfairly Blamed for Financial Mess in Chicago Public Schools

Here are just some of the details of the financial morass in the Chicago Public Schools.

Back in 2003, David Vitale, a banker and then-CEO Arne Duncan’s recently appointed Chief Financial Officer, convinced the mayoral-appointed school board to begin using risky borrowing strategies.  The Chicago Tribune explains the results of a huge investigation it conducted in 2014: “Vitale, then the chief administrative officer at CPS, and other officials pushed forward with an extraordinary gamble.  From 2003 through 2007, the district issued $1 billion worth of auction-rate securities, nearly all of it paired with complex derivative contracts called interest-rate swaps, in a bid to lower borrowing costs.  No other school district in the country came close to CPS in relying so heavily on this exotic financial product. In fact, market data show the district issued more auction-rate bonds than most cities, more than the state of California… It involved issuing bonds at floating rates and entering into related interest rate swaps that could lessen the impact of cost fluctuations… By 2008 the district was carrying $1.8 billion in bonds that were subject to fluctuating rates, accounting for more than 40 percent of the district’s outstanding debt.”  Then, of course, came the 2008 financial collapse.  The Tribune updates the situation as of November 2014: “Over the life of the bonds, which won’t be fully paid off until 2034, the school district stands to spend $100 million making up the difference, according to the Tribune’s analysis. The extra costs add to the district’s crushing deb burden; last year, the school system’s debt payment was $338 million.”

Fast forward to 2016.  Facing crushing debt, the Chicago school district has unsuccessfully sought increased funding from Springfield, where Illinois’ new governor Bruce Rauner keeps threatening to take over Chicago Public Schools and force the district into bankruptcy, though Republican Rauner continues to be blocked by a super-majority Democratic legislature.

Last week, Chicago Public Schools borrowed again, selling $725 million in bonds to try to make it through this school year.  But with its bonds reduced by several rating agencies to junk status, the school district was forced to scale back its intended borrowing to $725 million from $875 million and forced to offer an 8.5 percent interest rate to buyers, rather than the 7.75 percent interest rate that would have been possible only weeks ago.  According to the Sun Times, Mayor Rahm Emanuel blames the diminished borrowing climate on Rauner’s threat to take over the system and force it into bankruptcy.

Chicago’s school district and its teachers’ union have been engaged in contract negotiations after the current contract expired last June.  Last week, the school district offered the teachers a contract, and the union rejected the offer.  The school district responded by blaming the teachers and announcing mid-year cuts of $100 million.  Later, Catalyst-Chicago explains, the district reduced the threatened cuts to $75 million.

Where will the cost reductions come from?  According to Catalyst, “CPS… announced that after 30 days have passed, the district would stop paying the so-called ‘pension pickup’ for teachers—a longstanding agreement in which CPS pays 7 percent of the 9 percent union members are required to pay into their pensions.  The district estimates this will save $65 million by the end of the school year.” According to Catalyst-Chicago, the district will also reduce immediately the funds awarded to schools on a per-student basis by 4.3 percent and also eliminate some programs funded through the federal Title I program. While the district has already begun cutting central office administrators and while the mayor and Forrest Claypool, the current CEO of Chicago Public Schools, claim they will protect cuts that will directly affect the classroom, it is clear that cuts will affect each school.

But the reason for the union’s rejection of the recent contract offer is more complicated.  Sarah Karp, long a highly regarded reporter at Catalyst-Chicago and now reporting for Chicago’s Better Government Association, explains: “(T)teachers were offered a pay raise, but there was a big catch: CPS educators would essentially be paying for the salary increase by sacrificing the most experienced members of their teaching force. An early-retirement buyout program was the linchpin of the Board of Education’s since-rejected offer—and it’s one of the main reasons why Chicago Teachers Union representatives voted down the deal, according to union officials. The board was offering $1,500 per year of service to teachers of retirement age and $750 to support staff to leave…. If at least 1,500 teachers and 700 other staffers took advantage of the buyout offer, the contract would stand…. But if not enough employees signed up for early retirement, then CPS could reopen the contract….” Karp interviews Robert Bruno, a professor of labor relations at the University of Illinois, who defends the union’s rejection of the contract because “taking a deal that would allow the district to crack back open the contract would be a huge risk for the union.”

There is also the matter of which teachers would be affected by such a buyout and the implications of their distribution across particular neighborhoods and schools. Karp quotes CTU President Karen Lewis: “No. 1 it would have pushed out 2,200 of our seasoned, experienced educators, disproportionately impacting African American and Latino educators.” Karp elaborates:  “Fifty-four percent of teachers with more than 20 years experience are black or Latino, whereas only 22 percent of new teachers are…. New teachers make about $48,000 a year, while those with 20 years or more experience make an average of $88,000.”  Karp reports that, according to Jim Cavallero, a special education teacher at Chicago Academy High School, a majority of the teachers qualifying for the buy-out work in schools on Chicago’s south and west sides in schools that serve black and Latino students.  Cavallero explains: “It would be problematic if these schools—many with poor students—were left with mostly new and inexperienced teachers. ‘Schools need a balance of experienced teachers and new ones… We cannot allow these teachers to be pushed out when they are needed most.'”

Although Chicago Public Schools blames the union for its members’ refusal to accept the proffered contract and failure to accept shared sacrifice, teachers view the financial crisis very differently.  Chicago Teachers Union Vice President Jesse Sharkey is reported by Progress Illinois to have “said the issue boils down to the school district needing new revenue. ‘Unpaid debt on pensions and unpaid debt on bondholders and charter schools are the three drivers’ of the district’s financial issues…  You’re not gonna solve that by cutting frontline educators.'”  Last week the teachers union launched a formal protest of banks’ taking advantage of the school district during the years’ of toxic interest rate swaps by closing the Chicago Teachers Union’s account at Bank of America and moving $726,000 to Amalgamated Bank, which never peddled risky financing practices to the school district in the years leading up to the 2008 collapse.

The Chicago Teachers Union has voted to strike if necessary, though teachers explain that a strike is definitely not something they want.  There is a financial crisis in the Chicago Public Schools, and also a lot of politics and a lot of blame.  What is clear is that there is no easy solution and that as usual in such situations, the teachers and the children will continue to try to conduct school in conditions that are far from ideal.

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One thought on “School Teachers and Union Unfairly Blamed for Financial Mess in Chicago Public Schools

  1. Pingback: Teachers Union Prevails at Supreme Court; Tomorrow CTU Will Show Why Unions Matter | janresseger

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