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Will Illinois take over Chicago's debt-ridden public schools?

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(Read caption) llinois Gov. Bruce Rauner speaks at a news conference at Chicago's Union Station on Wednesday, Jan. 20, 2016, where he announced his support for a proposal by top Illinois Republicans for a state takeover of the financially troubled Chicago Public Schools.

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Republican state legislators in Illinois on Wednesday proposed that the state take over Chicago Public Schools and allow the severely indebted district to declare bankruptcy in order to get its finances in order.

Plagued by financial mismanagement, corruption and years of strife with the Chicago Teachers’ Union, the city’s school district is in the midst of a financial crisis, with a $480 million budget deficit and growing. The budgetary shortfall has already led to heavy borrowing to keep the country’s third largest school district afloat, further threatens the woefully underfunded teacher retirement fund, and could lead to teacher layoffs.

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"We didn't come to this lightly, but the track record of Chicago and its public school system is abysmal," said state Senate Republican leader Christine Radogno, reported the Chicago Tribune.

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The proposed legislation would allow the state to create an independent authority to run Chicago’s public schools, instead of the Chicago Board of Education, until the district sorts out its troubled finances.

Another proposed measure would allow Chicago’s school district to declare bankruptcy, which could release it from pension obligations and void its union contracts.

Leaders of the state’s Democrat-controlled legislature vehemently oppose the plan, and have promised that “the Republican takeover plan is dead on arrival at the Capitol,” reports the Tribune.

"It's mean-spirited and evidence of their total lack of knowledge of the real problems facing Chicago Public Schools,” said Senate president John Cullerton, according to the Tribune.

“The unfair treatment of pension systems by the state is the immediate cause of CPS' financial problem," he said.

Chicago’s residential property taxes cover teacher pension costs, unlike in other districts, where teacher pensions are covered by the state. The city’s school district instead gets more state money for other education expenses.

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For the past 20 years, first under Mayor Richard Daley and then under current Mayor Rahm Emanuel, lax financial regulations have allowed the city to divert teacher retirement fund contributions to other expenses, putting Chicago millions of dollars behind on its pension obligations.

This, coupled with debt from unbridled borrowing, now makes up about 20 percent of Chicago Public Schools' budget, four times the percentage in 1996, reported the Tribune in August.

“CPS has no more rabbits to pull out of a hat, and could run out of cash this summer,” wrote the editors of The Chicago Sun-Times in June.

The editors pointed to a report by accounting and consulting firm Ernst & Young that projected annual deficits of $1 billion for Chicago’s school system going forward, culminating in 2020 with an accumulated deficit of $5.4 billion. That’s almost the district's annual operating budget, the editors pointed out.

If the state takeover proposal passes, this will not be the first time Chicago’s schools fall under state control.

The district faced severe financial problems and regular teacher strikes back in the 1980s. In 1987, explains WBEZ, then-US Secretary of Education William Bennett called Chicago schools “the worst” in the nation. Banks at that point had refused to lend the district money.

So the state took emergency control of the district for 15 years, from 1980 to 1995, and then returned the responsibility back to the mayor, who at the time was Mr. Daley.

But the state relaxed the rules governing school spending, reports the Tribune, which led to the current financial crisis, as “Daley quickly sought permission from Springfield to divert district pension dollars to other uses and saw the school system take its first partial pension holiday,” the Tribune reported.