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Another 'Manufactured Crisis'... Historical amnesia leads to hysterical reporting as Chicago Public Schools faces the demand to pay the pension payment by June 30...

George N. Schmidt - June 08, 2015

To read the headlines and most of the "news" stories covering the fact that by month's end, the Chicago Board of Education is supposed to pay a large amount of money to the Chicago Teachers Pension Fund (CTPF), many readers might think that this whole thing is a surprise, or at least a problem of recent origin. But an examination of the history of the Board of Education's manipulation of the media regarding its pension obligations shows otherwise. For more than a decade, the leaders of public education and politics in Chicago have deliberately lied about the situation in their budget in order to focus undue attention exclusively on the pensions of teachers (the CTPF) and to a lesser extent the other people who work for CPS.

Beth Swanson has been in the news several times in 2015, although she has refused to speak directly with reporters and instead has chosen to speak through her attorney. In 2015, Swanson was working as Mayor Rahm Emanuel's liaison with Chicago Public Schools, a job she had begun in 2011 when Emanuel created his novel schools governance "team." But eight years ago, Swanson was the "Budget Director" for Chicago Public Schools. On June 5, 2007, she presented the proposed budget for the 2007-2008 school year at three public hearings (above). At the time (see chart below), CPS officials began creating the manufactured crisis facing the schools because, they said, the pension costs were too high. From 2007 through June 2015, the officials of CPS, under six "Chief Executive Officers" -- Arne Duncan, Ron Huberman, Terry Mazany, Jean-Claude Brizard, Barbara Byrd Bennett, and (currently) Jesse Ruiz -- regularly proclaimed that the pensions were the problem, not revenues, not a tax system that favors the rich, and certainly not CPS budget priorities that created the largest, most expensive, and most dysfunctional bureaucracy in the history of the city's public education system. Substance photo by George N. Schmidt. As to the "crisis"? At few times in recent history has the ruling class been more consistent in creating what more than 20 years ago was dubbed "The Manufactured Crisis" in a book still worth studying.

But with facts few and hyperventilations increasing by the day, at least some people have to examine the pension payment problems created by Chicago's rulers and then demand that years and years of irresponsible rhetoric end. If a child were doing what the Board has been doing, that child would be disciplined. It's a temper tantrum. So warn the child once to stop, and then move to stop it.

But that's not how the game has been played in Chicago for the past decade, as the leaders of the city and the schools (one and the same, since "mayoral control" has evolved into this kind of dictatorship) have been playing a game of "Chickie" with the public and the unions, a game at which they have succeeded, as the news reports on June 8, 2015, the day I write this, demonstrate.

Begin with the hysteria in the headlines: THE PENSION CRISIS.

The CRISIS, they've been screaming, maybe not in all caps.

Above, one of the pages from the Power Point presentation given during the three public hearings on the Chicago Board of Education's proposed FY 2008 budget. The claim that CPS would face ruinuous pension costs by 2011 was a drumbeat, with most of the press ignoring the fussy details of a $5 billion budget or relying on the "He said -- She said" versions of reality that pass for news reporting in the 21st Century. Photograph of the pension page of the budget presentation by Substance reporter George N. Schmidt.But actually, the people who run Chicago and Chicago's schools -- City Hall and the members and top executives of the Board of Education -- have created the crisis by insisting that their own incompetence and corruption be ignored, while public frenzy be whipped up against public worker unions and pensions. Yet the city's ruling class continues to proclaim the success of the "mayoral control model" and corporate versions of "school reform" despite the massive historical record that shows the opposite.

While the editorial writers and some reporters in Chicago still talk about the mayoral control model and the so-called "business model" of public school governance makes sense, an actual look at Chicago's schools shows the opposite to be true. CPS is a mess by design, and the designers are the mayor, those the mayor has appointed to run the city's schools, and the ideologues of austerity behind the scenes, including many of the city's wealthiest people. Take just one example of the created chaos at the nation's third largest school system: To management. Supposedly, stable management and executive leadership lead to better (what they call) "outcomes." Whether this be true or false, the fact is that over the past eight years, America's third largest public school system has had six -- SIX -- chief executives:

FACT: From 2007 through June 2015 Chicago's public schools have tried to exist under six "Chief Executive Officers" -- Arne Duncan (through January 2009, when he became the nation's top "educator" as U.S. Secretary of Education), Ron Huberman (2009 - 2010), Terry Mazany (2010 - 2011), Jean-Claude Brizard (2011 - 2012), Barbara Byrd Bennett (November 2012 - June 2015), and (currently) Jesse Ruiz (2015). All of them regularly proclaimed that the pensions were the problem. Not revenues. Not a tax system that favors the rich, and certainly not the churning leadership that makes it almost comic as close observers have to ask "Who's on first?" running CPS.

The Chicago Sun-Times of June 8, 2015, is just one example:

Under the front page headline 'CUPS' MATH PROBLEM' the Chicago Sun-Times has proclaimed a number of 'facts' that have not been proven, many of which are simply not true and all of which are now being reported out of historical context.

The story reads:

The Chicago Public Schools are staring down the barrel of impossible choices with its cash reserves depleted, the Springfield budget stalemate dragging on and three weeks to go before a $634 million teacher pension payment is due.

Although the pension payment was built into a school budget balanced by an accounting sleight of hand, CPS is now facing a liquidity crisis that would make the payment difficult to make.

When the CPS bond rating dropped to junk status, the district was forced to renegotiate $220 million in outstanding swap agreements and pay penalties and higher interest rates on a massive refinancing.

That made a cash crunch that was bad enough � with a $1.1 billion budget shortfall � infinitely worse.

�How they meet payroll and make the pension payment at the same time is the magic question. That�s what they�re trying to figure out,� said a mayoral confidant, who asked not to be named.

Civic Federation President Laurence Msall said CPS has only three options, all of them lousy.

� Cut the budget enough to make the full pension payment, even if that means layoffs and program cuts.

� Miss a pension payment required by state law for the first time in history and risk a union lawsuit and another bond rating drop that could deprive the school system of its ability to borrow money.

� Or seek an emergency fix from the Illinois General Assembly � even as the broader power struggle between Republican Gov. Bruce Rauner and Democratic legislative leaders drags on � including a wildly unpopular request to lift the property tax cap so CPS can help itself./li>

�If the stalemate isn�t resolved and CPS doesn�t have the liquidity to make the pension contribution, they will be faced either with enormous cuts in staffing and changes to school budgets or the possibility of violating the law and not making the contribution,� Msall said.

�That would be uncharted territory. Unlike police and fire pension funds, the teachers pension fund does not have the ability to intercept state school aid if a pension payment is missed.�

Msall said CPS could make a partial payment but that would likely trigger an adverse reaction from Wall Street. The system could also try and borrow enough money to make a full payment, but the �enormity� of the financial crisis and the uncertainty of help from Springfield could make borrowing difficult or cost-prohibitive, he said.

Illinois House Majority Leader Barbara Flynn Currie, D-Chicago, underscored the point about the Springfield uncertainty.

Mayor Rahm Emanuel has long demanded an end to the �dual taxation� that forces Chicago taxpayers to pay for the pensions of city teachers and for teachers outside the city.

But until the stalemate over Rauner�s demand for pro-business, anti-union reforms is resolved, Flynn Currie said the mayor is on his own.

�It�s a terrible, terrible problem. But, I don�t see light at the end of the tunnel if the end of the tunnel is Springfield. I don�t see the General Assembly saying, �Open Sesame, Chicago. You can have more state aid,� � Flynn Currie said.

�We passed a bill to address the police and fire pension problem and it didn�t get any Republican votes. The governor wouldn�t sign it. Should the Legislature send him a [teacher pension] bill, would he sign it? I don�t think he would.�

The governor�s office did not respond to questions about the impending teacher pension payment or what, if anything, Rauner was prepared to do to help Chicago if the larger budget stalemate is not resolved by June 30.

Emanuel met privately last week with Rauner, who has repeatedly raised the possibility of CPS declaring bankruptcy. The mayor�s office refused to say what the two old friends and former business associates discussed.

CPS Chief Financial Officer Ginger Ostro did not return repeated phone calls. District spokesman Bill McCaffrey declined to answer questions about CPS� finances.

�The district has never missed a pension payment. Nobody thinks it�s a good idea to start doing that. There are consequences to that. The goal is to figure out a way to make that payment,� said another Emanuel confidant.

�Maybe they can recalibrate the state education formula to recognize districts with high concentrations of poor students. There�s also no education budget yet for the entire state,� the second confidant added. �At some point, there will be a breaking point. Those schools need to know what their budgets are. Hopefully in the next couple of weeks, the pressure will start to mount� outside Chicago.

Whether the heat gets turned up outside Chicago, one thing is certain: a Chicago Teachers Union that went on strike in 2012 and has threatened to walk out again this year expects the $634 million pension payment to be made on time.

�There is no option. The Illinois Supreme Court said these are vested benefits. They must make the payment. Under the Illinois Constitution they must honor the law,� said CTU spokeswoman Stephanie Gadlin.

�The larger question is what will they do after they make the payment? CPS is broke on purpose. Will they run to Springfield and ask for a state take over of their finances so they can impose their will on the district? That won�t be good for educators, administrators or the students.�

In dropping the CPS pension crisis in Springfield�s lap, Emanuel has pointed to a series of �pension holidays� authorized during the 22-year reign of his predecessor and political mentor, former Mayor Richard M. Daley.

Emanuel has noted that, between 1995 and 2004, CPS made no payments at all to the teachers pension fund and made reduced payments from 2009 until he took office.

�I�m not laying this at Springfield�s doorstep, but you could read it that way,� the mayor told the Civic Federation last month.

Ald. Will Burns (4th), is a former state representative now chairing the City Council�s Education Committee.

�We�ve got [three weeks] to go to come up with a comprehensive solution. If this was June 29, this could be a very difficult conversation. But I�ve seen things move very quickly when the leaders come to an agreement,� Burns said.

�The preference would be to come up with a comprehensive solution. But if push comes to shove, CPS will figure out a way to make the payment. My understanding is it�s in the budget. The resources are there.�

State Rep. William Davis, D-Hazel Crest, chairman of the House Appropriations Committee on Elementary and Secondary Education, predicted that CPS would, at the very least, make a partial payment and continue to work with the General Assembly on a long-term pension fix that includes new revenue.

�Maybe they can afford half the payment,� he said.

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