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