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Pension candidate Jay Rehak on the campaign trail at Steinmetz High School

George N. Schmidt - October 19, 2009

One of the two CORE candidates for trustee on the board of the Chicago Teachers Pension Fund (CTPF), Whitney Young High School teacher Jay Rehak, spoke to teachers at Steinmtez High School on October 15 as part of his campaign. The pension election for teacher trustees is October 30 in all Chicago public schools and in all charter schools where teachers are members of the pension fund. In an unprecedented event, the treasurer of the Chicago Public Schools David Bryant (above right, holding microphone) came to the second of three budget hearings at Marshall High School on August 18, 2009. The reason Bryant spoke at the hearings (which were public but not covered by any reporters except Substance) was that on the previous evening, at Amundsen High School, Whitney Young High School teacher Jay Rehak (above left with hand on chin) had asked the Board of Education's budget director how much money CPS had lost by investing in risky derivatives in previous years (see second photo with this article, below). Rehak had cited the Board's own audited financial report (called the 'Comprehensive Annual Financial Report', or CAFR) to raise the question at the previous night's hearing at Amundsen High School. Bryant's explanation was incomplete. One month following the annual CPS budget hearings, a U.S. bankruptcy court judge in New York ruled on September 15, 2009 that CPS had lost at least $1.2 million by becoming a 'counter party' in derivatives with Lehman Brothers investment bank, which went bankrupt on September 15, 2008. The bankruptcy court ruling has been reported at substancenews.net and in The Wall Street Journal but ignored in the Chicago corporate media. Rehak and his partner running for CTPF trustees are suggesting that teachers and pension trustees devote more time to learning about how these complex systems work, since relying exclusively on the experts has provided a very expensive lesson. In the foreground in the photo above is Al Ramirez, who does videography for Substance and CORE. Substance caption and photo by George N. Schmidt. According to teachers who were there, Rehak came to Steinmetz in response to an invitation from the school's Chicago Teachers Union delegate Bernice Eshoo.

Rehak spoke about the pension situation in general and about why he has been endorsed by CORE (Caucus of Rank and File Educators) along with Lois Ashford in the October 30 election. All of the teachers who attended the seven a.m. meeting were well versed in pension issues, according to Rehak and according to teachers from Steinmetz. A number of teachers, including the pension representative at Steinmetz, pressed Rehak on the issue of derivatives as a part of the Chicago Teachers Pension Fund (CTPF), and the idea that the CTPF needs to balance its huge portfolio in such a way to maximize profits while minimizing substantial risks to the fund. Rehak has already alerted teachers to the problem of CPS investing in the most risky investments in August. The risks the CTPF has taken and the reasons for them have been covered at meetings of the pension trustees since the stock market dropped following the September 15, 2008, bankruptcy of the Lehman Brothers investment bank and the related multi-billion dollar bailouts of Fannie Mae, Freddie Mac, and the massively tangled AIG insurance corporation.

Rehak has been reporting the need for more close monitoring of the activities regarding the pension fund, both on the investment side and in the political arena. Whitney Young High School teacher Jay Rehak (above) took a great deal of time out from his summer vacation in 2009 to study the CPS budget and begin reviewing the Chicago Teachers Pension Fund (CTPF) before declaring that he was a candidate for pension trustee. Above, Rehak is seen reading from the Chicago Board of Education's Comprehensive Annual Financial Report (CAFR) for fiscal 2008, the fiscal year extending from July 1, 2007 through June 30, 2008. By studying the CAFR with CORE's budget study team, Rehak discovered in a footnote that CPS had been investing in derivatives, despite the risky nature of those investments and some possible legal barriers to such investments by public schools in Illinois. When Rehak raised the question about derivatives investments at the August 17, 2009 budget hearings at Amundsen High School (above), CPS budget director Christina Herzog stated that she was not familiar with the question but would be sure to have it answered the following night. The following night, CPS treasurer David Bryant (see photo at the top of this article) showed up for the late summer budget hearing at Marshall High School and gave a partial explanation of how CPS came to be investing in derivatives. Although CPS investments are not directly related to the massive Chicago Teachers Pension Fund, Rehak points out that when CPS claims that a 'deficit' requires it to shortchange its obligations to the CTPF, everyone has to demand that CPS explain its own financial policies and how it gets a 'deficit' that it still has repeatedly claimed by constantly failed to explain to the public. Substance caption and photo by George N. Schmidt. In August, Rehak was the first to expose the fact that the Chicago Board of Education had engaged in investments in derivatives. First in testimony at the Board of Education's budget hearings at Amundsen High School on August 17, and the following day in a dialogue with CPS Treasurer David Bryant at the budget hearing at Marshall High School on August 18. In his remarks at Steinmetz, Rehak noted that since the incumbent trustees whom he and Lois Ashford oppose took office in 2006, the Pension Fund has sunk from nearly $12 billion in assets to slightly more than $8 billion. Rehak also noted the intensified efforts by the Board of Education to reduce its pension obligations. He pointed out that the Board of Education’s recent attempt to cap legally required payments to the CTPF at 10 percent of its obligation through legislation (Senate Bill SB 2011) is something he warned about in January 2009 when he spoke at the Board of Education.

At that time, Rehak noted that the new Chief Executive Officer (CEO) of Chicago Public Schools, Ron Huberman’s had a track record at the Chicago Transit Authority (CTA). At CTA, with the collaboration of the the leaders of the transit authority unions, Huberman's creation of a two tiered pension system effectively lowered the pensions of new CTA employees and froze those of veteran employees. Such a system pits younger workers against older workers and eventually leads to a kind of civil war within the unions representing the workers. Huberman is proud of his work at CTA, although recent press reports are indicating his career has been more controversial than some of his supporters would have the public believe.

Rehak called SB 2011 a virtual “Pension Holiday”, and called on members as well as Trustees of the Pension Fund to respond with an effective, collective “no” to such proposals. "The Board of Education is obligated to pay 301 million dollars into the Pension this year," Rehak said. "SB 2011 would allow the Board to put in only 30.1 million. Next year, the Board of Education’s projected obligation to the Pension is $489 million. A 10 percent cap on that sum would allow the Board to underfund the Pension by over 700 million dollars. These underpayments cause successively larger budget problems each year..."

Along with Lois Ashford, Jay Rehak is the CORE (Caucus of Rank and file Educators) candidate for Pension Trustee in the upcoming October 30th Pension Fund Election. Both candidates are endorsed by the CTU House of Delegates. Rehak and his CORE partner Lois Ashford were endorsed by the October 7 meeting of the Chicago Teachers Union House of Delegates. The House of Delegates decided to endorse all six union members who are on the ballot, allowing members to decide for themselves which to vote for. Already the Marilyn Stewart's United Progressive Caucus (UPC) has done a mailing to all active duty teachers who are eligible to vote on October 30. CORE is expected to have a mailing out to all voters before the election. Retired teachers are electing trustees by mail ballot in a separate election. For further coverage of the derivatives question in substancenews.net, see:

-- 'CPS did lose money in derivatives deal with Lehman Brothers... Did CPS officials lie to public about risky investment losses?' by George N. Schmidt [http://www.substancenews. net/articles.php? page=858& section=Article].

-- For more by Jay Rehak on Ron Huberman's plans for the Chicago Teachers Pension Fund, see 'Huberman's plan for teacher pension fund is dishonest' by Jay Rehak [http://www. substancenews. net/articles.php? page=849& section=Article]. This article consists of the remarks Rehak made during a press conference at the Chicago Board of Education before the Board's August 2009 meeting.

-- Ongoing coverage of the investment scandal involving CPS investments in derivatives includes recent stories regarding the CPS exposure in the Lehman Brothers bankruptcy case. For example, see 'Were CPS derivative deals through Lehman Brothers illegal under Illinois law and Chicago Board of Education policy? It certainly looks that way!' by John Kugler. [http://www. substance news.net/articles. php?page=849 §ion=Article.].

Materials including the Chicago Board of Education's legal filings in the Lehman Brothers bankruptcy case and the decision against CPS on September 15, 2009, are also available in The Wall Street Journal (Story on Page C1, September 17, 2009). 

Final edited version of this article posted at www.substancenews.net October 19, 2009, 6:00 a.m. CDT. If you choose to reproduce this article in whole or in part, or any of the graphical material included with it, please give full credit to SubstanceNews as follows: Copyright © 2009 Substance, Inc., www.substancenews.net. Please provide Substance with a copy of any reproductions of this material and we will let you know our terms — or you can take out a subscription to Substance (see red button to the right) and make a donation. We are asking all of our readers to either subscribe to the print edition of Substance (a bargain at $16 per year) or make a donation. Both options are available on the right side of our Home Page. For further information, feel free to call us at our office at 773-725-7502.

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