Long Building, Chicago Schools' Fiscal Crisis Reaches Boiling Point
"It's time to end this radically discriminatory funding system that violates the civil rights of our children. It is racial discrimination in its purest form."
That is not a statement out of Little Rock, Ark., circa 1957. It's from Chicago, 2016. And the speaker is Forrest Claypool, the CEO of the Chicago school district, who has been making similar points repeatedly in recent public appearances, attempting to shame Illinois lawmakers into providing millions more in school funding for the nation's third-largest district.
It's a political tactic, an unsubtle one, and increasingly, a desperate one. Having begged for state aid and borrowed millions at untenable rates, the district is rapidly approaching fiscal insolvency.
The state's declining investment in K-12 education, coupled with deficits from the city's mounting pension liabilities and debt service, have put Chicago's schools more than $6 billion in long-term structural debt. Last year, the school board approved a budget with a $480 million hole in it, hoping state lawmakers in Springfield would come to the rescue. They didn't.
By the end of the school year, in late June, the Chicago school district will have just $24 million in cash—enough to support two days of operations. Without a fresh infusion, next year's budget will include devastating cuts of thousands of positions. It has already started preparing principals for the possibility that their budgets could be cut by more than 20 percent without state aid.
Perhaps the biggest tragedy of all: The slow-moving debacle, decades in the making, was also foreseeable to some extent, observers say.
A permanent resolution to the district's crisis poses enormous political challenges, given the triangulation among the state, city, and the Chicago Teachers Union, which has threatened a strike over the city's cost-cutting proposals.
Parents, students, and teachers have been caught in the middle of the competing agendas, their reactions vacillating between sadness, anger, and resignation. But the predominant emotion is fear.
"They are afraid," the Rev. Dr. Walter P. Turner, III, said of his congregation in the city's South Shore neighborhood. He's one of some 200 ministers who gathered here recently at a West Side community center to address the district's funding problems.
"They are afraid of the financial instability," he said. "They are afraid schools aren't going to open on time."
Chicago's situation echoes the education finance woes of Detroit, Philadelphia, and other urban areas. But as a flagship urban district with some 392,000 students, most of them students of color, Chicago is in a class of its own.
Its financial situation is unique even in Illinois, where political wrangling has delayed a new budget for nearly a year. Schools in Chicago are now increasingly relying on goodwill to raise money for everything from toilet paper to instrument repairs.
"This school has no sports program. There is no volleyball, there is no basketball, there is no football, there is no soccer. That's something I've never seen in CPS," said Andrea Parker, a teacher at Fulton Elementary, on the city's South Side. "I feel very scared because we serve low-income students. They already have a disadvantage of competing with white counterparts or middle-class counterparts in terms of getting scholarships for college."
Nearly all parties agree that the fundamental problem is Illinois' lopsided school finance system, which today provides only about a quarter of total spending to schools, leaving the rest dependent on highly variable local property taxes.
Chicago actually receives proportionally more state funding than the average district in the state. But as school finance scholars hasten to point out, that funding nowhere near makes up for the city's dramatically lower property values compared with those of wealthier, whiter suburbs. It's also the only district in Illinois that's taxed twice for teacher pensions—for its own, and for the separate statewide system that supports all other teachers.
Due in part to legacy liabilities, payments to the Chicago Teachers’ Pension Fund have been rising, eating up more of the district’s operating budget. In fiscal 2016, the pension and long-term debt servicing accounted for 19 percent of the district’s total budget, or nearly $3,100 per student.
Cost-adjusted figures on spending from the Education Week Research Center, dating from 2013, show that Chicago spent about $11,600 per student. The Evanston district, just north of the city, spent about $15,800, while some suburban districts, like Maine Township in Park Ridge, Ill., spent as much as $18,800.
"In terms of a statewide formula, it kind of only runs if you put gas in it," said Bruce Baker, a professor of education at Rutgers University in New Jersey.
While state financing may be the main driver of the current crisis, however, two decades of disastrous financial decisions by the district's many leaders have also played a critical role.
In 1995, under a sort of gentlemen's agreement struck between city and state, Chicago was permitted to divert a tax levy earmarked for teacher pensions into its coffers, and to temporarily reduce its annual pension payments.
At the time, the Chicago Teachers Retirement Fund was more than 100 percent funded, so the thinking was that the district could use the so-called "pension holidays" to free up funding for programming. But the deal was also fundamentally unsound, critics say—a bit like using savings from a credit-card balance transfer to open a new line of credit.
Especially after 2000, City Hall plied the cash into contracts, school construction and renovation, and the opening of dozens of charters, largely without a long-term plan for sustaining the costs.
"In retrospect, you could say it might have been good for the students and education in the short term, but it violates all the fundamentals of pension finance," said Charles Burbridge, a former chief financial officer of the district and now the executive director of the retirement fund.
Skyrocketing financial markets in the 1990s masked the buildup of potentially huge teacher-pension legacy liabilities. Then came the fiscal crises of 2001 and 2008. By 2004, the system had fallen below the 90-percent-funded mark, triggering larger and larger annual payments.
Rather than take action then, city and state officials doubled down. In 2010, they agreed to another three-year pension holiday. By the time that ended in 2014, the city's pension obligation had tripled to more than a tenth of the budget.
The district's accelerating financial woes have in turn meant lower credit ratings and more and more borrowing, including some via risky financial transactions that, according to some analyses, worsened the district's debt problems. Other cost-saving measures, such as the closing of 50 schools, did not save cash, but did much to upset parents.
By February of this year, the district had to sell $725 million in bonds at a yield of 8.5 percent—an incredibly high rate for a municipal bond—simply to keep schools' doors open.
Even with the benefit of hindsight, the district's former leaders are hesitant to outline what they could have done differently.
Many blamed the state, noting that the 1995 legislation establishing mayoral control of the school district also pledged more state support for pensions, but did not contain a sufficient enforcement mechanism. State payments to Chicago's teacher-pension system have dwindled to less than $15 million annually.
Obliquely, some suggest that, under Mayor Richard M. Daley's watch from 1989 to 2011, the city simply spent too much. A 2006 teacher contract, for instance, paid out annual 4 percent raises for four years even as the pension system fell further into the red. (A fifth increase was canceled under Daley's successor, Mayor Rahm Emanuel.)
"There was a pattern of labor agreements at that time across the city that had that characteristic," said David Vitale, at the time an adviser to Chicago schools CEO Arne Duncan and later the school board president between 2011 and 2015. "I don't think it was CPS alone."
Paul Vallas, who was the district's CEO from 1995 to 2001, put it more bluntly: "Don't kid yourself. Everything comes from City Hall."
Even the CTU acknowledges that the relationship between its former leaders and the Daley administration was cozy and not necessarily focused on sound fiscal practices.
"There's probably a point to be made there, that as long as the mayor is promising to fund contracts, you look the other way," Jackson Potter, the CTU's staff director, said of the pension holidays.
That expedient approach, though, also alienated some teachers and helped give way in 2010 to the rise of the union's current leader, Karen Lewis, who pledged a harder tack.
Some former administrators have remained silent about how their decisions may have contributed to the district's current financial problems. They include Duncan and Ron Huberman, Duncan's successor. Duncan, until recently the U.S. secretary of education, did not return several requests for comment. Huberman declined an interview request.
Even so, many of the ministers who gathered at a community center on the city's West Side last month to call on state lawmakers for school funding are not interested in assigning blame.
Their pews are filled with teachers, school counselors, parents, and students; taking sides would be too divisive. And the crisis is too urgent and the stakes too high to be distracted by fingerpointing, they say.
"I really don't care who is at fault, my biggest thing is finding a solution—finding a solution for our children, finding a solution for our future, finding a solution for our communities," said Angelina Zayas, a pastor and the executive director of Grace and Peace Community Center.
The ministers' gathering was powerful, beginning and ending with prayers, rich with the cadences of African-American church services. One pastor quoted the book of Nehemiah, 4:13: "Fight for your sons, fight for your daughters."
The Chicago Teachers Union wants the district to back some of its proposals for raising more revenue, including:
- Releasing tax-increment financing, or TIF. TIF is an economic-development tool created to establish special funding for targeted areas in the city for 23-year periods. During that time, much tax revenue created by property value increases is swept into the TIF district and used for development, rather than collected by taxing bodies. Critics, including the teachers’ union, argue that the TIF has siphoned off funds that otherwise would have gone to schools. The Chicago district says that considerable TIF money has been spent on school construction.
- Restoring or introducing ride-sharing-service taxes, hotel taxes, and personal-property-lease taxes, among others.
- Suing banks that offered the district risky financial products.
The district seeks a four-year pact, while the union wants a two-year deal.
Technically, teachers are supposed to pay 9 percent of their salaries into pensions. But under a 1981 labor agreement, teachers put in just 2 percent, while the district covers the rest. The district wants teachers to pay the full share; the union says that would amount to a 7 percent pay cut.
Salaries and Benefits
The district has offered an 8.75 pay increase over four years, plus the restoration of “step and lane” premiums, which were canceled in 2015 when the contract expired. The union counters that ending the pension pickup and raising health-care contributions would reduce salaries by the end of a four-year contract.
The most recent district offer contains retirement incentives for teachers. The union says it won’t agree to policies that shrink the teaching force. To help guard against member losses, it wants the new contract to enforce maximum class sizes.
When his turn came to speak, Claypool underscored the crisis' racial subtext, at one point holding up a framed copy of a 1954 New York Times front page featuring the U.S. Supreme Court's decision in Brown v. Board of Education.
The district's efforts to build support among the black community's religious leaders comes as one sign that it recognizes the need for more allies, if belatedly.
Even under Democratic governors, the disparities continued. The district did push during the recent tenures of Govs. Rod Blagojevich and Pat Quinn, both Democrats, for a more equitable funding formula and pension parity, Vitale contends, but not as publicly or effectively as it might have done.
Now, any fixes to state funding must be approved by Gov. Bruce Rauner, a Republican, who has bluntly called for a district bankruptcy and a state takeover rather than a so-called "bailout."
Some downstate and suburban lawmakers also flinch at the idea of a funding fix, especially Republicans and those representing suburban districts that would stand to receive less in state funding under a school finance rewrite.
While the conflict between the city and state looms large, there's also a third major player in this crisis: the Chicago Teachers Union. Its vision for who should bear the pain while a state fix is negotiated differs markedly from the city's.
Claypool wants teachers to help make a dent by paying more into their pensions. The union counters that the city has failed to tap available revenue-raising avenues, such as releasing local development dollars and establishing a swath of new taxes.
"None of those things are preferable to progressive revenue solutions, ... but you make the bed you sleep in," the union's Potter said. "We've been saying these things all along, and mum was the word. They'd rather try and lower the cost curve and cut pensions and impose mass layoffs and mass school closings."
Union Digs In
Negotiations over a teacher contract, expired for nearly a year now, seem to have stalled. The union's "big bargaining committee"—an appointed panel of educators from its various divisions—in February rejected the city's latest contract offer before it was put to the rank and file, citing a lack of trust that the district would keep up its end of the bargain. It also scotched an independent fact-finder's report in April that took the district's offer as its starting point.
The CTU maintains the offer had fundamental flaws by not guarding against more lost positions. But there are political considerations shaping the union's response, too.
"Karen is under a lot of pressure to make a deal, but if she's going to make it, she's buying CPS' reality about the financial mess," said Jim Vail, a union delegate and former big bargaining-committee member.
Both the district and union have individually lobbied in Springfield for fixes to the state's funding formula. Yet Claypool and Lewis have not joined forces to make the case to state lawmakers Springfield together.
In December, teachers overwhelmingly approved a strike vote, though the union now says a strike by the end of the school year is unlikely. Nearly all teachers support the union, though that support is hardly a blank check.
Alejandra Marquez, a 2nd grade teacher at R.H. Lee Elementary School, thinks the CTU should stand firm on its demand for class-size limits. But she also sees room for compromises—like gradually increasing teachers' share of the pension cost—in areas that continue to be sticking points for the city and union.
"What bothers me the most is that they do not have our children's best interests at heart," Marquez said about the district. "I think if that were the case, they would listen to the educators, and I don't feel that they do. Honestly, I don't feel CTU listens to us most of the time, either."
During the seven-day strike in 2012, public opinion largely favored the union. And a recent New York Times and Kaiser Family Foundation poll found that more than half of residents currently support the decision to strike, a figure that increases to 75 percent among African-American parents. But even strong CTU supporters think that the union could do more to engage parents, acknowledging that the longer a strike goes on, the more tenuous their support could become.
"It wasn't like a lot of them were on the picket lines with us [in 2012]," said Parker, the Fulton Elementary teacher who is also a district supervisor for the union. "I think a lot of them are indifferent [to the union]; they want their kids in school."
An Uncertain Future
As of now, legislation addressing the state's financing system sponsored by Sen. Andy Manar, a Democrat, has passed the Senate. It would provide around $375 million for the district via changes to the state aid formula and pension help.
That would go part of the way to getting Chicago on steadier ground. But even if it comes through, Claypool says the city will insist on some sacrifice from teachers.
The CTU's proposals, meanwhile, are largely in the hands of the City Council and its aldermen. A few have attracted interest, but for the most part, the council isn't biting. The city also has its own pension-liability problems, said Patrick O'Connor, an alderman and a floor leader on the council, and has to be cognizant of the impact of raising taxes given that the majority of Chicago taxpayers have no direct relationship to the school system.
"The entire state looks or appears to be in free fall. It's not just education. ... And so the idea is that the governor is going to have to make some decisions to address the state's problems," O'Connor said. "If we come up with a patchwork solution for this year, we essentially take ourselves off the agenda, and I think that's a huge mistake."
All of which leaves these questions unanswered: Between city and state, who will blink first? And will a teachers' strike, if it comes to pass, shake out more funding for schools from either party or cause Rauner to push harder for district bankruptcy or curbs on public-sector unions?
Here on Chicago's West Side, the ministers concluded their meeting by urging their congregations to call elected officials and demand more school funding. In the meantime, they are focused on planning for a strike, preparing school programs, child care services, and extracurricular activities to provide safe havens for children.
And they are praying for an end to the crisis.
Vol. 35, Issue 31, Pages 1, 16-19Published in Print: May 18, 2016, as Chicago Fiscal Crisis Reaches Boiling Point