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* I used an online loan calculator this morning to run these numbers…
According to a city spokeswoman, $665 million in [CPS] bonds maturing in 2044 were sold at a price of 8.5 percent, and $60 million in 2026 maturity securities at 7.75 percent.
The interest cost of borrowing that $665 million would be a tad under $1.081 billion, while the cost of borrowing that $60 million would be $26.41 million.
These are approximate numbers because I don’t have the exact number of months.
But still…
Whew.
posted by Rich Miller
Thursday, Feb 4, 16 @ 8:54 am
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Ooof. That’s almost as bad as my student loan debt.
Comment by Boooooooo Thursday, Feb 4, 16 @ 9:12 am
It’s hard to feel empathy when a) this has been a long time coming and b) this is what the general public feels when borrowing money under less-than-ideal circumstances.
My first mortgage loan was 6.75% APR. Our first family car loan was 9% APR. We dealt with the numbers and managed to survive. It wasn’t fun, though.
Comment by Team Sleep Thursday, Feb 4, 16 @ 9:14 am
Waiting out the gov is an expensive proposition. Unfortunately necessary.
Comment by Ducky LaMoore Thursday, Feb 4, 16 @ 9:16 am
That’s a lot of juice. Not surprising, given the legacy of the decades of the Daley band-aid approach to finance, on all levels.
I’ve often wondered what the Chicago Public School system would look like if any of the powers-that-be — mayors, governors, legislative leaders, business leaders, edit board members, etc. — all actually had some skin in the game, literally, AKA children in the schools (I know, Gov. Rauner, but that’s a different story).
During my lifetime, I’ve always gotten the impression that the Grand Poobahs viewed CPS as an unfortunate fact of life, something to be endured in as small doses as possible, rather than a civic institution that needed to be built and kept strong.
That’s why it bounces from crisis-to-crisis, for decades, with band-aids applied here and there.
If, over the years, the Big Dogs’ kids went K-12 at CPS, I doubt that would be the case.
Comment by wordslinger Thursday, Feb 4, 16 @ 9:20 am
Mark Brown (in today’s column) admits he’s not even sure bankruptcy might not be the best option.
This money is going somewhere: either to the banks and teachers, or to the taxpayers and school system (I want to say “i.e., the kids,” but alas it’s not quite that simple). You can’t talk about how horrible the toxic swaps and high interest loans are without at least –considering– whether it might be worth hurting CTU members’ pocketbooks in order to get rid of them.
Comment by lake county democrat Thursday, Feb 4, 16 @ 9:24 am
Although the Gov’s comments may have played a role in creating a higher interest rate, CPS was going to pay a steep price with or without Gov Rauner’s comments.
Rather than playing the role of ostrich, as many other may other Governors may have, Gov Rauner has chosen to push for a CPS bankruptcy and Emergency Manager. Kudos to Rauner for candor, but now that he has further exposed and elevated the financial crisis it would be nice if he answered a few questions like:
1. How will the CPS Emergency Manager be transparent and accountable to the parents and taxpayers of Chicago? Flint’s EM moved on to become the EM of the Detroit Public Schools (and he just resigned from DPS).
2. What role will Charter Schools play in the “turnaround” of CPS? What role will neighborhood schools play in the “turnaround” of CPS?
3. Do you or any of your large donors have any financial ties to Charter Schools?
4. What cuts will you make to CPS and how will it impact class sizes?
5. How will you improve graduation rates?
6. Will the EM add selective enrollment schools?
7. Will taxes go up if an EM takes over?
Now that Gov Rauner has dragged this financial ghoul into the daylight, I think the voters are more than ready for a frank and open policy discussion on the best way to fix CPS’s financial mess. Currently, there is no plan by anyone other than survive until the summer and no one really knows anyone’s financial motivations for caring about the children in CPS. I hope we can lay all the cards on the table this month.
Comment by Flintstones Thursday, Feb 4, 16 @ 9:24 am
(And yes, that’s an oversimplification - bankruptcy wouldn’t entirely discharge debts (or CTU benefits) but it would unburden CPS and taxpayers of a lot of them).
Comment by lake county democrat Thursday, Feb 4, 16 @ 9:26 am
Unfortunately these numbers are actually not the whole story. And the whole story is far far worse. They actually only raised $84/100 on the bond sale because investors are pricing in a high risk of bankruptcy and getting a haircut. They actually only raised a net $535M off of $725M in face value. No matter what anyone says, they need a billion dollars a year more in funding or cuts, and the market is speaking loudly that it sees bankrupcty as imminent eventually. $84 dollar price at new issue is unheard of and only occurs in distressed situations where risk of bankruptcy is being priced in. For anyone who says that’s nonsense, the question is what other solution fixed the problem? They have $1.2Bn a year in pension debt and bond debt payments (excluding normal cost), a 50% average haircut would be $600M a year, 60% of the solution they need. Show me another way to get there, and a $1Bn tax increase on top of the state, city and county is not a real answer.
Comment by anonymous Thursday, Feb 4, 16 @ 9:26 am
Anon 9:26, do you have a source for the numbers you posted? Not questioning your veracity, but I would like to have it for future reference.
Thanks, AA
Comment by Arthur Andersen Thursday, Feb 4, 16 @ 9:45 am
===I think the voters are more than ready for a frank and open policy discussion on the best way to fix CPS’s financial mess.===
A recent Chicago Tribune poll showed Chicago voters backed the CTU 3:1 over Emanuel when it comes to solving problems at the CPS.
http://www.chicagotribune.com/ct-tribune-poll-results-rahm-emanuel-on-education-20160203-photogallery.html
The CPS needs either a major cut in expenses, mainly more personal cuts, or a major increase in taxes, probably in the form of property tax increase. Based on the Tribune poll, I would say that if either course of action was proposed by Emanuel there would be a significant lack of public support.
Comment by Hit or Miss Thursday, Feb 4, 16 @ 9:47 am
The governor and his peeps toss around “bankruptcy” like it’s some snake-oil elixir for all that ails you. I’m not sure how they got there.
I know the governor profited greatly from abusing the Bankruptcy Code in private life, but muni bankruptcy is a different story.
You can’t just milk towns and school districts dry, run up debt, stuff your pockets with money and then just walk away.
These are going concerns with tax-raising powers. They’re treated differently than bust-out private companies.
From recent muni bankruptcies, the ones who get whacked the hardest are speculative bond investors, not contracted employees or those drawing deferred compensation in the form of pensions.
Judges have recognized that bond speculators made choices in their investments and could have cashed out at any time prior to bankruptcy. Pensioneers do not have that option.
Comment by wordslinger Thursday, Feb 4, 16 @ 9:51 am
AA: source data is Bond Buyer article published yesteday which lists the prices, coupons and yields, Price was $83.939/100. That it’s just simple math. Their bond offering statement (final OS) printed before closing next week will also contain the information. Also the “pricing wire” released yesterday as well would have it. Wordslinger– the key bankruptcies to look at are Jefferson County and Detroit where similar to CPS undue leverage were driving force. In JEFFCO the pensions were fully funded, in Detroit not so much. The haircuts for pensions were significant but uneccesary and Detroit it in the best shape it has been in a generation post bankrupcty. Chapter 9 recognizes that municipal babkruptcy does not disolve and organization as public mandates must remain, but does discharge a portion of the unfunded liabilities, and in CPS that is unfunded pension liabilities and bonds. I would expect a haircut on both, and the market yesterday said as much clearly.
Comment by anonymous Thursday, Feb 4, 16 @ 10:12 am
Thanks, anon!
Comment by Arthur Andersen Thursday, Feb 4, 16 @ 10:24 am
I wish those 8.5% at .89 were available at the local bank in principal breakdowns of $500.
Most Illinoisans can’t run with Bruce and the big dogs, even though they somehow managed to vote for him — even Donna More gave Bruce $2,000.
And she wants the Dem voters in the primary.
Comment by Kasich Walker, Jr. Thursday, Feb 4, 16 @ 10:25 am
Nice job Capt Fax — The Rauner scare got the 1%ers at least an extra 100 basis points (that’s 1% for the rubes the G dropper is always talkin’ to) so the $uperStars should be dancin’ around the lobster boil in Jamaica this weekend as they watch the Super Bowl. Wonder if anyone is reportin’ how hard it was to sell this offerin’
YIPEE
Comment by Annonin' Thursday, Feb 4, 16 @ 10:28 am
If CPS gets anymore money than they should have to follow the same bond guidelines as other municipal school districts in Illinois. Bond sales are for capital projects only, no debt issuance for operations. Don’t fund today’s salaries with tomorrow’s money.
Comment by NixonHead Thursday, Feb 4, 16 @ 10:43 am
Just wonderin’ … Who are the “winners” and the “losers” with 8.5% bond rates?
Comment by forwhatitsworth Thursday, Feb 4, 16 @ 10:45 am
Extrapolation. What baffles me is that we are already hearing that Illinois will be losing an electoral vote. What nobody dares to try and calculate, is the effect that life expectancies have on pension debt. This bond deal is so short sighted that I can’t even get worked up about it. Old blue dog is taking wagers, let’s say a Stag, CPS is cut loose by 2017. I’ll send a check to Rich.
Comment by Blue dog dem Thursday, Feb 4, 16 @ 10:52 am
Puerto Rico wins because they’re still in 1st place for the worst municipal bond interest rates. CPS is gaining ground on them though. It’s like watching two financially illiterate sloths duking it out for worst place. This is awesome.
Comment by NixonHead Thursday, Feb 4, 16 @ 10:56 am
Wordslinger - but the muni’s still get to dump debt. Yes, absolutely, the teachers would be hurt badly in a CPS bankruptcy, and not just the pushback they arguably deserve (a la the recently rejected budget). But the alternative is a hideous burden to taxpayers, who will have to pay for the high interest and toxic swaps, and the students who would face otherwise deeper program cuts. Here’s another thing that gets missed: a state bailout is going to have a regressive effect because of our state flat tax system. So either Chicago property owners are going to get double-walloped but-for a bailout, or we’re asking the poor and middle class to disproportionately bear the costs of preserving those teacher pensions/contracts and bank toxic swap.
I’m not saying it’s a no-brainer, but no progressive should be dismissing it out of hand. Again, when you have Mark Brown agnostic about it, that’s really saying something.
Comment by lake county democrat Thursday, Feb 4, 16 @ 11:16 am
That’s a BEFORE tax effective yield of 11-12% for investors. Wow!
Comment by Downstate Thursday, Feb 4, 16 @ 11:41 am
- NixonHead - Thursday, Feb 4, 16 @ 10:43 am:
If CPS gets anymore money than they should have to follow the same bond guidelines as other municipal school districts in Illinois. Bond sales are for capital projects only, no debt issuance for operations. Don’t fund today’s salaries with tomorrow’s money.
CPS would have defaulted on debt without this. In otherwords, CPS is insolvent.
Comment by Tone Thursday, Feb 4, 16 @ 12:23 pm
The mortgage analogy doesn’t work well here because the first principal payment on the 2044 bonds doesn’t occur until 2032. And the rate CPS pays to bondholders is 7% rather than 8.5%. The total interest number still ends up being pretty close to $1.1 billion, but that’s a coincidence. (The 8.5% yield is a reflection of the fact that an investor paid CPS ~$840 but will be receiving 7% interest payments on $1,000 and will receive $1,000 at maturity.)
Comment by Anonymous Thursday, Feb 4, 16 @ 2:03 pm
Years and years, no decades, of financial mismanagement by the Democrats, is no taking valuable taxpayer money to pay debt rather than help the children. Of course, the Democrats will continue to be elected by the voters of Chicago. A real case of insanity.
Comment by Apocalypse Thursday, Feb 4, 16 @ 2:57 pm
Now taking valuable
Comment by Apocalypse Thursday, Feb 4, 16 @ 3:06 pm
Again - I wonder if Rauner’s interference in the days before the bond sale (in which his salacious rhetoric caused Wall Street to panic) led to a worse deal for CPS and a better deal for those who profited off the bond sale….
And more importantly did Rauner or any of his allies/friends profit from this.
Where are those investigative journalists???
Comment by A. Nonymous Thursday, Feb 4, 16 @ 11:32 pm
@ Blue Dog Dem -
Illinois has been losing electoral votes not because our population is shrinking but because our population is not growing as quickly as other states.
Comment by A. Nonymous Thursday, Feb 4, 16 @ 11:34 pm