Rauner likes ‘bankruptcy’ to cure CPS financial woes

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Gov. Bruce Ruaner

Gov. Bruce Rauner

To resolve Chicago Public Schools’ crippling financial problems, Gov. Bruce Rauner on Tuesday suggested a polemic although not quite legal possibility: declare bankruptcy.

“The state has a crisis, the city has a crisis. I’m concerned that [CPS] is going to have to go bankrupt,” he said during a moderated discussion at a Chicago Public Education Fund luncheon. “Bankruptcy code exists to help the organization get out of financial trouble. There’s a reason for the bankruptcy code.”

Then he told the sympathetic audience – which minutes later gave him a standing ovation – that unions are partly to blame for why municipalities and school districts in Illinois can’t file for bankruptcy in order to renegotiate debt.

“Insiders in our system currently have made bankruptcy in government units illegal because some people never want to restructure contracts – contracts brought into place through insider deals,” said Rauner, who also advocated for right-to-work zones.

The governor’s comments were met with wide disapproval among city leaders and the Chicago Teachers Union – a rare instance of agreement between public figures that are often at odds.

Libby Langsdorf, a spokeswoman for Mayor Rahm Emanuel, assured that CPS is not looking into bankruptcy as a way to solve the $1.14 billion budget deficit it faces next year. Instead, she said, the mayor looks forward to discussing with Rauner issues such as statewide spending on education, and state subsidies to the Chicago teachers pension system. CPS is the only Illinois district that doesn’t get subsidies.

“Instead of proposing to solve the state’s fiscal crisis on the backs of local governments, he should be working to ensure that Chicago, the biggest economic driver in the state, gets back on sound footing,” Langsdorf said in a statement.

Meanwhile, Chicago Teachers Union President Karen Lewis called it “irresponsible” for Rauner to even suggest bankruptcy. “Why would he bring this up and suggest it to CPS other than for it to be a way to get around our contract — and we’re in the middle of negotiations?” she asked.

Jackson Potter, also of the CTU, suggested raising taxes on the wealthy or the so-called LaSalle Street tax to generate revenue to help the state generate more revenue to fund schools. “Instead Rauner is putting us on a trajectory of a downward spiral, where it’s going to worry creditors about not getting their money back, make borrowing more expensive and exacerbate their financial crisis for people who are in debt.”

State would have pass bankruptcy law

Ralph Martire, executive director of the Center for Tax and Budget Accountability, says the state Legislature would have to pass a law in order to allow for bankruptcies – an idea that some conservative lawmakers have recently brought up as a way to get out of public employee obligations. And last year the Illinois Municipal Association held a session on the issue called “Finance: Lessons from Detroit and Pension Cases” during its annual conference, the Better Government Association reported.

Even if bankruptcy were an option, Martire says there would be plenty of drawbacks for a school district like CPS: “There would be a huge loss of confidence in the school district and a mass exodus of qualified teachers and staff who do not want collective bargaining through bankruptcy court. And the district’s ability to [issue debt] would be severely limited,” he says. “It would not be a happy place to be.”

In 1979, CPS went virtually bankrupt after dipping into funds that should have been restricted for debt repayment. The Legislature responded by creating an oversight body that sold bonds to keep the system running and impose budget restrictions.  Meanwhile, school staff suffered payless paydays and stiff budget cuts all around.

Few U.S. school districts have ever declared bankruptcy, says Michael Griffith, a school finance consultant with the Education Commission of the States. He says states have to adopt a federal bankruptcy law in order to allow that to happen. Then, a federal judge must determine if a specific government entity qualifies for bankruptcy.

If so, the federal judge becomes responsible for deciding whether the municipality or school district can get out of pension debt by lowering payments to retirees, break contracts or renegotiate collective bargaining agreements. “Lawmakers often don’t like this law because it gives power to a federal judge and takes away power from them,” Griffith says.

More common is that states have provisions that allow them to declare a financial emergency, but that only allows school districts to reopen collective bargaining agreements. Currently that’s not an issue in Chicago considering the teachers’ contract expires at the end of June.

Illinois law does allow the state to take over the financial decisions of school districts that are in trouble — and to provide them some financial assistance. Currently, Proviso in the western suburbs, North Chicago in the far northern suburbs and downstate East St. Louis have state financial oversight panels.

  • Concerned Parent

    Still seems R&R have a cozy relationship. Could it be Rauner pushed this envelope to make CTU think that they need to follow Rahm demands?

  • Duane Turner

    Article didn’t state who was in the room but I’m not surprised the Governor got a standing ovation. If you look at CPEF board (Which he is a member) and staff they are a vast collection of privatization advocates and hustlers (almost no educators) who are likely rubbing their greedy hands at the possibility of CPS declaring bankruptcy. This will open the floodgates to all those various profit schemes at the expense of our children. Playbook is similar to what other governors have done with emergency managers, state takeovers, etc, after austerity or bankruptcy plans are implemented. Rauner is clearly setting the table for something similar IMO. There is extensive history in the US and the world that these interventions don’t restore financial solvency or prosperity, nor do they make education better. If allowed, it will bring a educational holocaust to Chicago that is far worse than what we have now. “Disaster Capitalism” by Naomi Klein is a good place to start for those who care to understand.

    • michael savage

      Yea they are so greedy but what has CPS and CTU provided? NOTHING! Always bitching about how they dont get paid enough, these POS dont contribute a RED CENT to there pension. If they were so great how come the kids are dumber than rocks? Its time to face the facts. Rahm, karen, CPS, you have screwed the children over for the last time. Im sure raunders plan isnt hw greatest bur its probably ten times better than what we have now with the pension beggers.

      • Concerned Parent

        You are not correct. We have the top schools here in CPS.
        Teachers for 90 years have paid for their pensions. Teachers have no contract, no raises and have had to put in more hours more work more requirements for no reimbursement. They pay more for their health insurance, get no medicare f social security. Teachers are leaving CPS and new ones are not coming in. There is a reason for that. Do no blame the teachers for Rahm and Richie and Rauner.

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  • Concerned Parent

    Downstaters and republicans on ILL, better watch out:
    The taxpayer-supported systems,
    with collective assets of nearly $5 billion, are intended to provide public
    safety workers and their families with stable retirement incomes.
    But the
    collective unfunded liability of those pension funds is $3.3 billion, BGA
    Rescuing Illinois research determined. Moreover, dozens of the funds are in
    immediate financial peril.
    “If [Chapter 9] was
    available now I can think of several towns that would do it right now,”
    says municipal attorney Burt Odelson. “Municipalities are having a
    terrible time paying the bills.”

  • Joseph Herzrent

    The District should file for bankruptcy and the teachers pension system(s) should also file for bankruptcy. The bankruptcy of the pension system(s) wouold presumably result in a fair allocation of the funds already set aside. Failing that, the current funds will simply be used up in the next ten years or less to pay for the pensions and health care of those already retired.