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'The Million Dollar Man'... Testimony on budget lies at CPS from the October 26, 2011 Board of Education meeting

George N. Schmidt - October 27, 2011

On October 26, 2011, I signed up to testify at the Chicago Board of Education as part of our continuing public testimony on how CPS officials lied about the "fiscal crisis" they claimed they had on June 15, 2011, when the new Board of Education voted not to pay the four percent raises owed during the fifth year of the contract to all of the workers represented by the eight unions representing those who work in Chicago's public schools. Earlier, CTU and CORE activist Kurt Hilgendorf had testified on what we might call the "macro level" on how CPS officials manipulate their budget projects to assure a "deficit" so that they can claim something like the fiscal emergency of June 15. On October 26, I was focusing on two small pieces at the "Micro" level: The cost of outside lawyers (with a focus on just one of them) and what we have been calling the "Cop Costs" — the decision by CPS to pay the City of Chicago nearly $100 million more than CPS had to to cover what CPS claimed was additional costs for police services in the city's high schools.

Substance reporter George N. Schmidt speaking to the members of the Chicago Board of Education at the Board's October 26, 2011 meeting. Substance photo by David Vance.When you sign up to testify at a Board meeting, you are asked to give the topic of your testimony. The topic I wrote down — "The Million Dollar Guy" — came from the fact that in both 2010 and 2011 CPS had voted to pay the law firm of Franczek Radelet $1 million (in all of 2010) and $1.12 million (so far in 2011) for outside legal services. This was in addition to the money CPS is spending on the 74 people working in the school system's Law Department, which occupies the entire seventh floor of CPS headquarters. Substance had earlier reported on the Franczek Radelet story on our October Home Page, but the material we provided to the seven members of the Board of Education on October 26 was more detailed.

Below are the prepared remarks I presented to the Board of Education members during my briefer remarks at the end of public participation on October 26. Members of the CTU School Finance and Taxation Committee and the CORE/Substance budget study group are planning to testify at every Board of Education meeting to continue to build up the case before the public about the Board's routine "deficit" lies. The first one is on the outside firm of Franczek Radelet (not the only outside firm being paid to do legal work for the Board of Education, but the one that has been paid the largest amount during recent years). The second is about the Board's voluntary increase in the amount of money is wanted to pay the City of Chicago this year for what we call the "Cop Costs."

FIRST. THE PREPARED TESTIMONY ABOUT THE COSTS OF THE OUTSIDE LAW FIRM OF FRANCZEK RADELET (This was given to the Board of Education members on October 26, but not read because it would not have been possible to read it all during the two-minute time limit).

The Million Dollar Man at CPS: James Franczek, outside lawyer... By George N. Schmidt

It was someone in Hollywood back in the days of Ginger Rogers and Fred Astaire who said you can never be too rich or too thin. That was before Biafra, Somalia and lots of other stuff, I think. But if one thing is clear studying the budgets and spendings of CPS over the past quarter century, which I’ve been doing both professionally and as a kind of hobby, one of the mottos of CPS is “You can never claim too big a deficit, or pay for too many lawyers.”

Less than six weeks after the Chicago Board of Education (at its Emergency Meeting of June 15, 2011) proclaimed to the world that it was facing a "fiscal emergency" (and what it called an "unprecedented deficit" of what it said was $712 million), the members of the Board voted without discussion or debate to approve Board Report 11-0727-AR2 (Attorney's Report 2) agreeing to pay an additional $600,000 to the outside law firm of Franczek Radelete. On March 23, the Board had also voted to pay a huge amount ($512,000) to the same firm, bringing the total for 2011 to more than $1 million, at the time the Board claimed it was in a "fiscal emergency." Substance graphic from the Board's Agenda of Action for the July 27, 2011 meeting, available on line at www.cps.edu (Board of Education, Actions).Or maybe, if we were echoing some patriotic slogan, you are saying “Millions for lawyers, but not a cent for teachers…” (or, fill in the blanks: librarians, nurses, school security assistants, etc., etc.). Once again, without blinking, CPS is increasing its spending this year on lawyers, while, on the one hand, saying it’s broke — even more than broke, facing a “fiscal emergency”, etc., etc., etc. — and on the other hand expanding the number of lawyers both working at CPS and hired from outside CPS to do legal work for CPS.

Good morning. My name is George N. Schmidt. I am a reporter for substancenews.net, a blacklisted retired Chicago teacher (28 award winning years in inner city high school classrooms across Chicago), the parent of two children currently in Chicago’s public schools and one successful graduate (Class of 2007, Whitney Young High School) of CPS. More to the point today, I have been studying the CPS budgets since the financial crisis that began in November 1979. That was the fiscal emergency where the solution was worked out by a couple of guys, both now deceased, named Jay Pritzker and Jerome Van Gorkom (much of it in secret, we should add, for historical accuracy). So here we are, back again in reruns of sorts. But first, some additional qualifications. I worked as a paid consultant on the Budget Transition Team for CPS in 1988 (rewriting the $2.5 billion budget for FY 1989) and have reviewed and studied every CPS budget since then. I have testified at most CPS budget hearings since the beginning of the 21st Century, and reported on them when I wasn’t testifying. I am currently a consultant for the Chicago Teachers Union and co-chairman of the union’s School Finance and Taxation Committee. Oh, and I am a 1969 graduate of the University of Chicago (English and Humanities, the College) and attended DePaul College of Law before deciding that my first love was teaching and public education. Anything else? I’d love to go on if you want to hear more. Not this morning? Fine. Let’s just agree that I have more experience than virtually all those of you who are currently on the school board (with maybe one exception) and virtually all of you in the top executive positions making $150,000 or more per year paid by our school system.

I am here to begin dismantling your claim that CPS faced what you called a “fiscal crisis” in June 2011 of such a magnitude that you have to break one of the major contracts that you had legally entered into, the labor contract with the Chicago Teachers Union and the other seven unions representing Chicago public school workers.

Over the next several months, and in the coming year, my colleagues and I will demonstrate how you manipulated the numbers, inflated claims of expenses, understated revenues, and in other ways presented the public with false information in the process of breaking your promise to the majority of those who work in the city’s public schools. One of those whose contracts you violated by your vote of June 15 is my wife, a north side high school teacher. She introduced herself to you last month on the subject of testing.

Today you will receive the facts about several things you have done. This one I’m calling your “Million Dollar Man.”

You didn’t know you were paying someone a million dollars a year? You lack curiosity, apparently. Both last year (2010) and this year (2011) the Chicago Board of Education has voted to pay the law firm of Franczek Radelet a million dollars or more. I could go back, but that should be enough for one morning. That’s according to your own records, which are attached hereto. Two years (and they aren’t yet over) and more than two million for one law firm outside of the enormous CPS Law Department, which fills the 7th floor here and is the largest in CPS history, both in the number of lawyers you have working for CPS, the staff supporting those lawyers, and the number of dollars being paid to all those lawyers and legal workers. Like I suggested: You can never be too thin or have too many lawyers. Especially if you are going to make it policy to break the law at every turn and continue trying to get away with it.

The facts about Franczek Radelet are attached. All of them are your own Board Reports, so don’t blame me, ask yourself: If you need to spend all this money on outside lawyers, why do you also need to spend all that money on inside lawyers? Maybe you could arrange for Occupy Chicago to do a tour of the seventh floor here, with a tour book listing everyone you would pass and how much each is being paid this year.

Sure.

THE SECOND PIECE OF FINANCIAL INFORMATION PROVIDED TO THE BOARD OF EDUCATION CONCERNED THE DECISION OF THE BOARD TO INCREASE ITS PAYMENT TO THE CITY OF CHICAGO FOR POLICE SERVICES IN THE SCHOOLS FROM $8 MILLION FOR THE 2011 - 2012 SCHOOL YEAR TO $104 MILLION, THEREBY SUBSIDIZING THE CITY OF CHICAGO BUDGET AND CREATING AN ADDITIONAL HOLE OF NEARLY $100 MILLION IN THE BUDGET FOR THE CITY'S SCHOOLS.

Testimony at the Chicago Board of Education, October 26, 2011: CPS broke its own contract with the City of Chicago, eventually agreed to pay $94 million more for Chicago police services in some schools this school year, and has refused to explain why it has done so

By George N. Schmidt

Can you imagine a homeowner waking up one morning and saying to himself, his wife, and his family, “My mortgage payment is too low. I’m going to call the bank this morning and tell them I won’t accept anything less than that I begin paying them triple or quadruple the current amount.” Everyone would agree that the person who did that was either crazy, or in some sort of unsavory or even unnatural intimate relationship with the bankers he was calling.

I submit that this Board of Education is that homeowner. The bank in this case is the City of Chicago, which recently you agreed to pay $94 million than you were legally obliged to pay for one bit of services at a time when you were claiming to be facing a fiscal crisis.

Good morning. My name is George N. Schmidt. I am a reporter for substancenews.net, a retired Chicago teacher, the parent of two children currently in Chicago’s public schools and one successful graduate (Class of 2007, Whitney Young High School) of CPS.

I have been studying the CPS budgets since the financial crisis that began in November 1979. I worked as a paid consultant on the Budget Transition Team for CPS in 1988 (rewriting the $2.5 billion budget for FY 1989) and have reviewed and studied every CPS budget since then. I am currently a consultant for the Chicago Teachers Union and co-chairman of the union’s School Finance and Taxation Committee. Oh, and I am a 1969 graduate of the University of Chicago (English and Humanities, the College) and attended DePaul College of Law before deciding that my first love was teaching and public education. Anything else? Not this morning.

I am here to begin dismantling your claim that CPS faced what you called a “fiscal crisis” in June 2011 of such a magnitude that you have to break one of the major contracts that you had legally entered into, the labor contract with the Chicago Teachers Union and the other seven unions representing Chicago public school workers.

Over the next several months, and in the coming year, my colleagues and I will demonstrate how you manipulated the numbers, inflated claims of expenses, understated revenues, and in other ways presented the public with false information in the process of breaking your promise to the majority of those who work in the city’s public schools. One of those whose contract you violated by your vote of June 15 is my wife, a north side high school teacher. She introduced herself to you last month on the subject of testing.

Today you will receive the facts about several things you have done. First, what we are calling the “Cop Costs.”

In the Power Point presentation on the budget “deficit” by newly appointed “Chicago Administrative Officer” Tim Cawley on June 15, 2011, the Chicago Board of Education was told that CPS was required to pay $70 million during FY 2011 (July 1, 2011 through June 30, 2012) for Chicago police services in the schools. (Power Point, Page 5, “Changes in Expenditures (FY12 vs. FY11)”, fifth bullet point. That bullet point reads: “Reimburse CPD for In-School Support… $70 M.” That was not true. At the time Mr. Cawley provided you with that information, CPS was obliged only to pay $8 million for those services for FY 2012, as the public record showed.

Let me repeat. There was nothing in the public record of the Chicago Board of Education to justify any expenditure of that huge size — $70 million — for Chicago Police services during Fiscal 2012 — or any fiscal year for that matter. Mr. Cawley simply asserted that “fact” in the course of his narration, and you didn’t ask any questions about it. He did not provide any justification for this large claim, and none of the Board members bothered to ask him. He merely stated that CPS has police in the schools, and that we pay the City of Chicago — the CPD — for that service. One of the things Mr. Cawley failed to mention (and you, the Board members, failed to ask about) was the fact that for the entire 21st Century, until Mayor Rahm Emanuel appointed the new Board in May and June 2011, the annual costs to CPS for these police services had been $8 million. Again: Eight million dollars. That is a far cry from $70 million, yet on June 15 you accepted the claim that the figure was $70 million and based part of your claim of “fiscal emergency” on that “fact.”

A review of all of the Board Reports on the public record (the “Action Agendas” of the Board) since 2002 shows that the annual price was $8 million. Each year, CPS contracted with the City of Chicago — via an “Intergovernmental Agreement” — to locate police in certain schools (most of the high schools; some others) at a usual annual cost of $8 million. Every couple of years, the Board Report came up, and each time the price was unchanged: until 2011.

Most of the years in question, the cost to CPS is $8 million. There is one Report dealing with an Intergovernmental Agreement on Police Services between the City of Chicago and the Chicago Board of Education. The largest one-time amount to be paid by CPS to CPD is $12.8 million (noted to be for an 18-month period, January 1, 2009 through June 30, 2010).

So, as of Mr Cawley’s June 15, 2011, Power Point presentation, which was part of the CPS case that it could not fund the contractual raises for unionized workers, a CPS official was inflating the cost by $62 million. But you didn’t stop there. In July, you agreed to pay even more, upping the amount you are sending to the City of Chicago from the premium of $62 million I note above to a total of $94 million!

Let’s review the actual record once again. The most recent Board action — prior to June 2011 — on the “Cop Costs” came in February 2010. According to Board Report 10-0224-PR16, the amount supposed to be paid for FY 2011 was $8 million.

The amount due for FY 2012 (the period supposedly reflected in Mr. Cawley’s Power Point) should have also been $8 million. But as of your June 15, 2011 vote, CPS was agreeing to pay an additional $62 million for services it had already contracted with Chicago to receive. So you were breaking one contract that was favorable to CPS (the $8 million) and raising your costs by a huge amount, while claiming you were broke.

But it became more significant. At its July 27, 2011 meeting, the Board increased that amount to $102,800,000 — which meant that the Board was going to be paying an increase in police costs almost equal to what it would have actually cost the Board to fund the raises due to all of the unionized workers you voted to stiff on June 15, 2011.

Attached are the relevant Power Point (6/15/11) slides distributed by CPS officials during the June 15, 2011 Board meeting. The main narration for the Power Point was done by the newly appointed “Chief Administrative Officer”, former Motorola and AUSL executive Tim Cawley. Mr. Cawley’s narration was supplemented by “Treasurer” Melanie Shaker (with CPS since August 2010, when she was hired from Fitch Ratings) and “Chief Human Capital Officer” Alicia Winckler (with CPS since December 2009 when she was hired by CPS from Sears Holdings). In a way, it’s not surprising that these people got some of the facts wrong, since none of them has been around long enough to know much about CPS.

Also included here is the most recent Board Report (prior to June 2011) authorizing the Intergovernmental Agreement (“Ratify Entering into an Agreement with Chicago Police Department for School Patrol Service,” Board Report 10-0224-PR16, dated February 24, 2010, available at ).

Also included are a couple of other Board Reports, each authorizing the payment of amounts for these services. Board records since the beginning of the 21st Century show that CPS had an ongoing agreement to pay $8 million to Chicago — until the Brizard administration took over in June 2011. By July 2011, CPS, on its own initiative and without discussion or debate, increased that burden on the education budget by $94 million. At no time was there discussion or debate among Board members or public explanation by Brizard or his staff.

Left out of this discussion is why CPS is paying for the services of the Chicago Police Department when such services are supposed to be in the normal course of duties. What more “public” work should the public’s police department be doing than working to enforce the laws in the city’s public schools?

Limitations of this report. I do not, as of today, have a copy of the Intergovernmental Agreement referenced by CPS in Board Report 10-0224-PR16, so I don’t know if it has been amended to reflect the claims made on June 15, 2011 by Mr. Cawley or the subsequent vote you took in July 2011 to raise the amount even more. We also do not have a complete record of all the payments made by CPS to CPD during the time since February 2010, when the Board Report which should have governed FY 2012 in this area was approved. What I present to you here today reflects the best analysis I can do based on public records available from CPS.

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