How CPS creates its 'Magic Number' claiming whatever 'deficit' they place into the Tribune's headlines... 'Open the books' is a poor slogan when many union and public leaders have stopped analysis of the expenses and revenues of CPS... the importance of credibility and the CAFR...

During the June 9 rally and march by the Chicago Teachers Union and its allies, there was a regular cry of "Open the books!" The slogan was repeated as if somehow a magical version of what is commonly called "transparency" would show something that wasn't already known. But a lot if already known, and the history of the past 20 years shows that every CPS claim of a massive "deficit" has been a lie. Why that lie should suddenly be true this year is still a mystery that Substance will begin to examine this week and throughout the summer.

The annual budget hearings on the proposed 2008 - 2009 CPS budget were hosted by CPS at three locations during the summer of 2008. The presentations were made by Beth Swanson (above right), who at the time was CPS budget director. During the final years of the time Arne Duncan was still "Chief Executive Officer" of CPS, CPS officials, including Swanson, began focusing attention on their talking point that teacher pensions were what would cause budget troubles for CPS. The public had been provided with a Proposed Budget prior to the hearings, and many (including Substance reporters and CTU officials) testified. The claims of a massive "deficit" were, as usual, refuted, and the talking point about the pension "crisis" -- seven years ago! -- were also challenged. Substance photo above by George N. Schmidt (who testified at the hearings). It's not as if a lot hasn't already been known. As a matter of fact, for seven years several CTU leaders, including this reporter, have analyzed the financial records of the Chicago Board of Education, and until recently regularly reporting on the lies that regularly appear when CPS makes its annual claim of a huge "budget deficit."

This year, for the sixth or seventh time since Arne Duncan left Chicago, there is a "magic number" for the "deficit". Some times, the thing is called the "shortfall." But as not time does the Board of Education actually present the public with its budget expectations -- which boils down in a straightforward way to revenues and expenses.

For more than 20 years, the Chicago Board of Education has been lying about the "deficit," counting on the editors of the Chicago Tribune to simply print the claims of CPS officials as if they were verified facts. They never were. After his retirement from CPS, the former Chicago Board of Education Secretary, Thomas Corcoran, told me in detail how the claims were made. He called them the "Magic Numbers."

What Corcoran told me was that in the beginning of the year, CPS officials would decide on the "Magic Number" and then adjust revenues and expenses, in the most simplistic way, to create the "projected deficit." During the mid and late 1990s, the "Magic Number" was $300 million. Anyone who bothers to go back and re-read the front page stories about the annual "budget crisis" at CPS can find them, always the same.

By the early 21st Century, CPS officials decided to go all out, and the Magic Number was upped to ONE BILLION DOLLARS. As another propagandist for another tyranny in another century put it (revisited by The Wire): The bigger the lie, the more they believe it.

The laws and histories are straightforward.

The Board of Education is supposed to hold public hearings on its Proposed Budget every year. Those are supposed to be held during the month prior to the end of the fiscal year. In other words, the hearings are supposed to be held in June -- this month. And even in recent years (see the example from 2006), the Board would hold its budget hearings in June.

The annual budget hearings are the only time the public gets to work with real numbers proposed by the Board. Until three years ago, the Board provided the public with a "Proposed Budget" in book form. People could study the Proposed Budget and then testify about it at the annual hearings. Once CORE grew, CORE members, including Karen Lewis and Jesse Sharkey, who are now president and vice president of the union, testified about the Proposed Budget. That was when the numbers could finally be challenged, or at least taken apart.

But the reality was that each "Proposed Budget" was the same fiction, adjusted a bit, included the same basic lies -- overestimate expenses and underestimate revenues.

But this year, people are talking as if the "books" have never been examined. Instead, what has been happening is that the demands that the budget hearings be held in June has stopped. Board officials have told the public that the hearings can't be held until August, because, supposedly, it is only then that CPS officials would know how much was coming to CPS from Springfield.

That's just part of the nonsense that is taking place today, as marchers march and headlines scream.


June 15, 2015 at 6:04 PM

By: Rod Estvan

what the last CAFR showed

The FY 2014 Comprehensive Annual Financial Report introduction by CPS CEO Ginger Ostro states: “Total operating revenues for FY2014 were $4.937 billion, which were $110 million higher than the prior year of $4.826 billion. Total operating expenditures for FY2014 were $5.450 billion, which were $503 million higher than the prior year of $4.946 billion.” That is about a half a billion dollar operating deficit for the year.

If one goes to the audited section of the CAFR it is hard to find any clear contradictory evidence of Ms. Ostro’s summation of the fiscal situation of CPS. For example on page 34 which has what is called the statement of net position on June 30, 2014 we see that CPS has net position deficit of about $3.9 billion, which is not the same as the estimated current budget year deficit. But to put it simple it is not good.

If one goes to page 40 of the FY 14 CAFR there is a comparison of the general operating budget (called “original”) and the actual budget as it evolved over the school year. Several things are notable, first CPS over projected revenue by about $12.6 million in the original budget, during the course of FY 14 CPS also was able to significantly reduce expenditures as compared to what was budgeted by $142 million (the biggest reduction during the year was for professional and special services of $42 million, CTU represented employee positions were accounted for $18 million in savings, and there were even reductions to budgeted charter school expenditures were reduced by $15.4 million).

If one is to believe McGladery LLP the auditors then there is no real smoking gun here. CPS may over estimate projected expenditures and make some mistakes in relation to revenue projections. But the overall fiscal situation of CPS is bad. Page 49 of the FY 14 CAFR discusses property taxes for CPS and we can see that in FY 2014 the rate was $3.671 per each $100 of equalized assessed valuation (EAV). EAV is supposed to be about 33% of fair market value of the property. This section also discusses in general the property tax cap CPS is faced with that will not allow it to tax sufficiently to meet both its operating expenses and pension liabilities.

As the CAFR does show the budget we will be discussing in August will not be the actual or final budget. They could be significantly different from each other. The CAFR does show that as of the end of FY 14 there was more than enough cash on hand to pay the average monthly non-administrative salary total of about $211.8 million in FY14. But it also shows that between FY13 and 14 the cash balance of CPS declined by $728.5 million, that is not good either (see page 38).

Rod Estvan

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