Deficit of up to $900 million claimed
In a last-minute press conference, Ron Huberman CEO of the Chicago Public Schools is projecting almost $1 billion budget deficit for the fiscal year 2011. During the news conference at CPS headquarters Mr. Huberman alluded to increased classroom size, teacher layoffs, furlough days and problems with funding the teacher pension fund. An interesting fact that came out of the news conference was that the pension fund investments were tied to the economy, and that since the economy declined it somehow has also impacted the pension funds.
Huberman stated that “Declines in pension fund investments, the same that have occurred throughout the U.S. economy, have significantly impacted its valuation.”
This is one of first times that CPS officials are admitting municipal investments and assets were tied to the broader market economy and quite possibly risky and/or illegal investments on Wall Street.
Even though Mr. Huberman talked of salary freezes and “tight hiring restrictions,” he never mentioned or was asked by media reporters about the new office Performance Management and the close to 50 new employees that Huberman is hired since he became CEO. Most of the new hires have no educational background, certification or experience but are patronage hires from other City of Chicago departments: such as, Barbara Lumpkin - $154,000-a-year former chief procurement officer for Mayor Daley; "Chief Performance Management Officer" (Sarah Kremsner) and "Chief Operations Officer" (Pat Taylor), both Kremsner and Taylor are in newly created positions paying more than $140,000 per year they worked with Huberman at the CTA; Melissa Megliola, the officer of Autonomous Management and Performance Schools, is getting a 20 percent raise over her previous $125,500 salary; in addition to these hires, Mr. Huberman created the new position of Chief Area Officer, at a salary of $151,000 per year which resulted in raises of as much as 43 percent for some administrators. In total, the salaries of the new 21 area officers, plus a new AMPS officer, will be $3.3 million per year all added during last years financial crisis.
It should be noted that none of these appointments required any educational credentials, in fact the new CAO positions explicitly left out the requirement of a Type 75 administrative certificate to allow political appointments to the newly created position. It is still under question whether someone without an Illinois Administrative credential can legally supervise school administrators and control and direct policy for student instruction. In addition to increased hiring by Huberman, CPS has increased the privatization of schools and in deals with private contracts has entered into multi-year leases for $1 per year for school buildings in prime real estate locations. There was no mention of the Board's reserve funds that total hundreds of millions of dollars and in past years split into two reserve funds because of it's size.
In looking back exactly a year to this date, on February 26, 2009 during a City Council Committee on Education and Child Development, Huberman then said the next biggest financial problem for CPS is funding the teacher pensions. “If we don’t do something about the ballooning and expensive, and I do have to say ballooning, pension fund payments, it will rob every school of resources,” Huberman said. He said there needs to be a meaningful pension strategy. He proudly told the council how he helped restructures the CTA pension and helped CTA stay afloat financially. As history has showed that the CTA is also now in deep financial trouble and how Huberman who in 2007 Huberman candidly discussed the CTA 2007 Contingency Plan for becoming a fiscally sound and healthy transit agency. Back in 2007, as now in 2010, Mr. Huberman's presentation walked members through the various options and the agency’s final recommendation of a combination of administrative cuts, service reduction, fare increases, and capital transfer to fill temporarily the $100 million deficit. None of Huberman’s CTA plans worked and have added to the financial problems now experienced by the CTA and has resulted in massive service cuts despite increased ridership.
Below is the News Release by Monique Bond, February 25, 2010:
Chicago Public Schools Officials Brace for FY 2011 $900 Million Shortfall
After imposing a series of budget cuts and tough cost-containment actions that closed a $475 million budget deficit in fiscal 2010, Chicago Public Schools face an FY 2011 shortfall that could run as high as $900 million, officials announced today.
CPS Chief Executive Officer Ron Huberman today issued the early warning that the nation’s third-largest school system will face further difficult budget decisions, and additional job cuts, in the near future. The 2011 fiscal year begins July 1.
The magnitude of the projected deficit could force officials to, as a last resort, review money-saving solutions they have previously avoided, such as increasing class size and teacher layoffs, Huberman said at a press conference at which he was joined by Chief Education Officer Barbara Eason-Watkins, Chief Financial Officer Diana Ferguson and Chief Human Capital Officer Alicia Winckler.
“This year we put everything on the table with the exception of classroom resources and programs that center on student safety,” Huberman said. “In FY 2011, we may not have that luxury?
“Our financial situation mirrors that of public agencies all over the country. Revenues are down, costs are up, and sufficient relief has not been forthcoming. We have worked hard to live within our means but our options are beginning to narrow, and we may be forced to look for savings in places that will have an impact on students.”
Huberman detailed projections that identified increased teacher compensation, local revenue shortfalls and pension contributions as being the key drivers of the expected deficit. He also noted that the uncertainty over state revenues makes an accurate prediction of the deficit even more problematic.
Almost half of the projected 2011 deficit is directly tied to contractual teacher pay raises ($169 million) and the District’s hefty increase in pension contribution ($279 million), he said.
Sixty-nine percent of the District’s FY 2010 budget covers salaries and benefits, and 94 percent of salaries are for unionized employees, Huberman pointed out.
The pension issue also remains central to CPS’s ability to cope with its operating deficit, Huberman said. “From fiscal 2009 to 2011, our pension contributions are due to increase by 190 percent. And, under current circumstances, pension increases are due to continue. These kinds of increases cannot be sustained.”
Declines in pension fund investments, the same that have occurred throughout the U.S. economy, have significantly impacted its valuation, he said.
The pension problem is compounded by the fact that while pension costs to CPS continue to rise, the state’s contribution to the pension fund was cut by half — from $65 million to $33 million — in FY 2010.
“Let me be clear CPS is committed to meeting its pension obligation but the $3 billion decline in value of the pension fund — and the current requirement that CPS reach a 90 percent funding level by 2045 — are placing an enormous strain on our daily operating budget,” he said.
The state’s own mounting financial difficulties could also further drive the deficit, Huberman said. “The state is more than four months behind in payments to CPS for this fiscal year. That’s over $200 million in critical state aid payments,” he said.
“As you know, Illinois currently ranks 49th out of 50 states in state funding for education. We need additional revenue, and the only way we can significantly increase our revenue is for Springfield to provide more year-to-year funding for our schools,” Huberman said.
“Unfortunately that has not happened. We cannot balance this year’s budget through non-classroom cuts and management improvements alone. Increasing fixed costs and a lack of action in Springfield continue to be a challenge in 2010 with magnified challenges in FY 2011 looming.”
“Despite our best good-faith efforts — which should have been evident to all during the current fiscal year — we simply cannot maintain the status quo with contracts that were negotiated in better times,” Huberman said. “No one could have predicted the depth of the economic downturn and the devastating effect it has had on revenues. Yet that is the reality we all must confront.”
During the current fiscal year, CPS slashed some $100 million in Central Office and other administrative costs to allow for a heightened focus on funding schools. Some 536 Central Office and citywide jobs were eliminated. An additional $61 million will be cut from the FY 2010 budget to replenish a depleted reserve fund. This will result in an additional 500 Central Office and citywide staff reductions, an additional three weeks unpaid holiday-regularly scheduled work days and Central Office shutdown days for all non-union Central Office and citywide staff, and still-to-be determined programmatic and service cuts.
Wages for many Central Office employees are frozen for the current fiscal year, tight hiring restrictions are in place and non-union workers took a number of 2009 holidays — such as Thanksgiving and Christmas — as unpaid days off.
“We are clear in our charge to protect teaching and learning, and this is reflected in the actions we have taken to date,” Huberman said. “But we are entering the next stage of this budget crisis — a stage where we must put everything on the table.”
Preliminary projections indicate savings in such areas as transportation, sports and after-school programs, summer school, food service and all-day kindergarten would still leave CPS with a substantial 2011 deficit.
Even various scenarios on increasing class sizes with a commensurate reduction in the teaching force would not close the gap, Huberman said. For example, increasing class size to 31 would save $40 million with a resultant layoff of up to 600 teachers.
“These are difficult paths to pursue, but we have few choices,” Huberman said. “The severity of this crisis should by now be obvious to all. Managing our way through it will require sacrifice from all stakeholders. We will be working closely with our union partners to identify savings opportunities.
Chicago Public Schools is the nation’s third-largest school system. It serves approximately 408,000 students in more than 670 schools.
