CPS finances are really lousy
Tuesday, Aug 22, 2017 - Posted by Rich Miller
* Greg Hinz looks at CPS finances…
While CPS enrollment has dropped roughly 10 percent between 2007 and projections for this upcoming year, total annual spending increased by a third over that same span, to a projected $6.48 billion.
In the same period, the total number of CPS employees is down 20 percent, with the steepest drop in the central office rather than in the classroom. But in a real-life version of whack-a-mole, central office staffing has a tendency to pop back up after each periodic purge. Meanwhile, the district’s general obligation debt has soared to $7.7 billion from $4.1 billion, with interest rates as high as 9 percent.
After a staggeringly ill-timed pension holiday late in the tenure of then-Mayor Richard M. Daley, CPS is finally putting aside closer to what it’s supposed to for employee retirement, with annual contributions skyrocketing to a projected $719 million in fiscal 2018 from $169 million in 2007. That’s the biggest reason that overall spending is increasing. But the damage has already been done: The ratio of assets to liabilities in its retirement fund is at a pathetic 52.5 percent. […]
According to Civic Federation President Laurence Msall, the district needs a long-term plan to achieve a truly balanced budget, a plan that involves more than waiting for Godot, er, Springfield. “Over time, your expenses should be dropping if your enrollment is dropping . . . or at least not rising as fast.”
Bobby Otter, director of the budget center, notes that the number of CPS schools (including charters) has risen to 649 from 600 since 2002, even as student population dropped 14.8 percent. That suggests that, contentious as the last round of school closings was, more are needed. Overall, though, he’s in the “more revenue” camp—even after the recent $272 million-a-year property tax hike for teacher pensions—saying deep cuts now would seriously hurt classroom performance.
Inflation has increased 21 percent over that time period, but that doesn’t account for all of the spending growth, obviously. The number of charter schools has really taken off. Also, population shifts have required new schools. Areas that were once filled with people who sent their kids to, for instance, Catholic schools, now have families who can only afford public schools. Also, there’s been a huge demand for North Side schools while the South Side suffered huge population losses.
But, still. Those are some lousy numbers.
More data is here.
- Ghost - Tuesday, Aug 22, 17 @ 3:16 pm:
I recall the kept a school open to appease community demand that has tiny classes and should have closed. some consolidation seems in order. each under populated school comes with expensive administrators like principals, vice principals etc.
- pundemonium - Tuesday, Aug 22, 17 @ 3:17 pm:
—CPS finances are really lousy—
Thats a good reason to put the brakes on giving CPS hundreds of millions of dollars. If the State wants to give them money, it should get some assurance the money will help it get its fiscal house in order.
- cdog - Tuesday, Aug 22, 17 @ 3:20 pm:
I’m so shocked.
- Chicagonk - Tuesday, Aug 22, 17 @ 3:22 pm:
I agree that 52.5 percent funded is pathetic, but sadly that looks healthy compared to TRS’s 37% funded level.
- Chicagonk - Tuesday, Aug 22, 17 @ 3:23 pm:
52.5% funded is practically solvent when compared to TRS funding levels.
- Three-Finger Brown - Tuesday, Aug 22, 17 @ 3:27 pm:
To be fair, the spending growth is skewed by Daley not funding pensions. The baseline number is basically artificial, and the District is now required by law to fund the entire payment.
Also, regarding the growth in schools, CPS has improved in academic achievement during that time. It’s possible that the number of pre-2002 facilities was inadequate, even compared to the lower enrollment number today.
- Chicagonk - Tuesday, Aug 22, 17 @ 3:28 pm:
Apologies for the double post. I thought the first comment got caught in the filter.
- Hamlet's Ghost - Tuesday, Aug 22, 17 @ 3:30 pm:
Inflation combined with “a staggeringly ill-timed pension holiday” is a persuasive explanation for much of the lousy fiscal position CPS finds itself in.
And it’s illogical (if not reprehensible) to argue that Illinois should shortchange Chicago kids today because Mayor Daley shortchanged CPS back in the day.
- Ducky LaMoore - Tuesday, Aug 22, 17 @ 3:30 pm:
I know it stinks, but they really need to be closing and consolidating schools.
- Father Ted - Tuesday, Aug 22, 17 @ 3:53 pm:
How much of the increase could be related to the post-strike contract with CTU? Seems CPS lost several battles- and the war- with that strike.
I’m not asking from any political perspective, I’m legitimately asking the question. It was one of the questions that came to mind when I first read Hinz’s piece.
- City Zen - Tuesday, Aug 22, 17 @ 3:54 pm:
==And it’s illogical (if not reprehensible) to argue that Illinois should shortchange Chicago kids today because Mayor Daley shortchanged CPS back in the day.==
Shortchanged? It’s not like wages were frozen all those years. Daley continued the 7% pension pick-up. Heck, CPS willfully diverted a few pension deposits to pay for operating expenses (raises).
- 37B - Tuesday, Aug 22, 17 @ 3:57 pm:
It looks to me as though the increased pension payment more than covers the amount by which school costs increased over inflation.
The Math:
If $6.48B represents an increase of 30% then costs were originally $4.98B. Subtracting the then $169M pension payment and increasing the resulting number ($4.811B) by the inflation figure of 21% yields $5.8B in overall non-pension costs. Add back the 2018 “staggering” pension payment of $719M and you get $6.517B. It sounds like in the absence of the pension mismanagement CPS beat inflation. Admittedly, this is just a “rude and crude” estimate.
Also, the fact that enrollment decreased means nothing in a vacuum unless we compare it to how other jurisdictions’ cost trended over that same period.
- Roman - Tuesday, Aug 22, 17 @ 4:02 pm:
== with annual contributions skyrocketing to a projected $719 million in fiscal 2018 from $169 million in 2007. ==
That’s the whole ball game right there — forget enrollment figures, the rate of inflation, and teacher’s salaries. The budget crisis is really a pension funding crisis. And remember that before 2007, the contribution some years was $0. (Thanks again, 1995 Chicago School Reform Amendatory Act.)
- PhD - Tuesday, Aug 22, 17 @ 4:03 pm:
Ignore the change in the number of students (large fixed costs). In 2007, CPS spending was about $4.9 billion. Based on inflation of 21% through 2017, the budget should have increased to $5.9 billion. In addition, CPS increased pension payments by about $0.6 billion to address previous decision not to fund pensions, and the interest has increased by about $0.3 billion. So, inflation plus additional interest plus underfunded pension lead to spending of $6.8 billion. So, CPS actually cut $300 million relative to the baseline projection.
- Amalia - Tuesday, Aug 22, 17 @ 4:07 pm:
The CPS certainly suffers from the way they are financed/the state non involvement at the same level as schools elsewhere. I do think that the CPS needs a better way of explaining why schools close. They do have a point, but in the face of screamers who cling to their local school past the point where it should be in operation, the CPS has a very hard job making rationale clear.
- 37B - Tuesday, Aug 22, 17 @ 4:10 pm:
@PhD: “Great minds . . . “
- Sue - Tuesday, Aug 22, 17 @ 4:35 pm:
Yea and Rauner is wrong for objecting to throwing more money into the CPS rathole
- City Zen - Tuesday, Aug 22, 17 @ 5:00 pm:
==forget enrollment figures==
==Ignore the change in the number of students==
So now we’re disregarding 32,000 less students, or a 9% drop in your “customer” base? Yikes. Isn’t ignoring key data elements how we got into this mess?
==In 2007, CPS spending was about $4.9 billion. Based on inflation of 21% through 2017, the budget should have increased to $5.9 billion.==
Based on those inflation numbers, he is the spend per student:
2007 = $11,864/student
2017 = $14,285/student if 2017 enrollment stayed the same as 2007
2017 = $15,485/student based on actual 2017 enrollment
2017 = $17,000/student per Crain’s revenue numbers
- pundemonium - Tuesday, Aug 22, 17 @ 5:06 pm:
—Inflation has increased 21 percent over that time period—
enrollment is down 10%, and employment is down 20% so if we went with inflation it would still be too much.
I do cede the point earlier that someone made about pension payments being made now, but this spending is still outpacing inflation by far…
- Roman - Tuesday, Aug 22, 17 @ 5:24 pm:
- City Zen -
I think you’re missing my point. I’m not making any arguments about funding formulas. I’m just saying the hole in CPS’s budget can be attributed almost entirely to the massive growth in pension contributions. The fact they weren’t making payments (or making payments that represented only a fraction of the ARC) allowed them to cook the books. Now the have to pay the piper.
- PhD - Tuesday, Aug 22, 17 @ 5:41 pm:
==So now we’re disregarding 32,000 less students, or a 9% drop in your “customer” base?==
Yes, to a large extent the drop in population is not going to yield a proportional reduction in expenses due to the large fixed costs associated with education. Consider a school that loses 10% of its students. Do the bus routes change? No, still have to cover the same distances. Does the school eliminate the principal or other adminstrators? No. Does the maintanence budget of the school decrease? No.
The difference between $14,285 per student versus $17,000 per student is about $1 billion in additional pension payments and associated interest from additional borrowing divided by 380,000 students.
- JS Mill - Tuesday, Aug 22, 17 @ 7:57 pm:
@PhD makes some very good points. Fixed capital costs and annual operating costs (energy, maintenance) will not change even with 10% decrease in enrollment unless that comes in a geographically concentrated area. Even the change from south to north population density will not allow for much change. I can say that it took a decade of similar enrollment decreases before we could reduce a significant number of staff but it had no impact on buildings.
That said, the staffing level is meaningful ,especially if you are reducing management which usually comes with higher salaries and benefits. City Zen is not wrong in the assumption that should have lead to some change in the largest expense categories for schools- salaries and benefits. Some reduction should have been realized. CPS accounting has always been suspect, they are not required to do many of the things that every other district in the state does when it comes to fiscal accountability. Pension increases and interest increases are behind most of the increased costs. I can only guess at what really should have been saved by reducing staff.