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* Bloomberg…
Illinois’s quest to take over Chicago’s schools intensified as Governor Bruce Rauner said the state can block the district from borrowing in the municipal-bond market, a claim the nation’s third-largest school system rejects. […]
The district said the state doesn’t have the power to keep it from borrowing, as Rauner claimed.
“The governor has come up with a number of novel legal theories,” Forrest Claypool, chief executive officer of the district, said in comments aired Monday on Chicago Tonight, a public-television show. “The statute is very clear that the authority he seeks to exercise does not apply to the Chicago public schools.” […]
Rauner’s administration said the statute that the district cited, which established a school finance authority that was dissolved in 2010, no longer applies. “That applied only when the reform board existed, which it no longer does,” said Catherine Kelly, a spokeswoman for Rauner. “CPS can be required to develop a financial plan and would be prohibited from issuing bonds during that period.”
* Backgrounder from the governor’s office, with emphasis in the original…
The Chicago School Finance Authority was enacted to provide financial oversight to CPS, but was legally dissolved by law on June 1, 2010. On that date, CPS was no longer “subject to” the School Finance Authority or Article 34A that established the School Finance Authority. CPS clearly remains subject to Article 34 and as a result, ISBE is now the body that maintains financial oversight over CPS.
Section 1A-8 of the School Code sets out a test for when a school district is in “financial difficulty”. That provision applies to CPS. Section 1A-8 states, in part:
No school district shall be certified by the State Board of Education to be in financial difficulty solely by reason of any of the above circumstances arising as a result of (i) the failure of the county to make any distribution of property tax money due the district at the time such distribution is due or (ii) the failure of this State to make timely payments of general State aid or any of the mandated categoricals; or if the district clearly demonstrates to the satisfaction of the State Board of Education at the time of its determination that such condition no longer exists. If the State Board of Education certifies that a district in a city with 500,000 inhabitants or more is in financial difficulty, the State Board shall so notify the Governor and the Mayor of the city in which the district is located. The State Board of Education may require school districts certified in financial difficulty, except those districts subject to Article 34A, to develop, adopt and submit a financial plan within 45 days after certification of financial difficulty. The financial plan shall be developed according to guidelines presented to the district by the State Board of Education within 14 days of certification. Such guidelines shall address the specific nature of each district’s financial difficulties. Any proposed budget of the district shall be consistent with the financial plan submitted to and approved by the State Board of Education.
A district certified to be in financial difficulty, other than a district subject to Article 34A, shall report to the State Board of Education at such times and in such manner as the State Board may direct, concerning the district’s compliance with each financial plan. The State Board may review the district’s operations, obtain budgetary data and financial statements, require the district to produce reports, and have access to any other information in the possession of the district that it deems relevant. The State Board may issue recommendations or directives within its powers to the district to assist in compliance with the financial plan. The district shall produce such budgetary data, financial statements, reports and other information and comply with such directives. If the State Board of Education determines that a district has failed to comply with its financial plan, the State Board of Education may rescind approval of the plan and appoint a Financial Oversight Panel for the district as provided in Section 1B-4. This action shall be taken only after the district has been given notice and an opportunity to appear before the State Board of Education to discuss its failure to comply with its financial plan.
No bonds, notes, teachers orders, tax anticipation warrants or other evidences of indebtedness shall be issued or sold by a school district or be legally binding upon or enforceable against a local board of education of a district certified to be in financial difficulty unless and until the financial plan required under this Section has been approved by the State Board of Education.
* And this is from CPS…
CPS welcomes the Governor’s request for additional information on the District’s finances, and will share information – much of which is already publicly available – in coming days.
· In fact, in order to sell bonds last month – which CPS did in spite of the Governor’s best efforts – CPS was required to post an extensive disclosure document that provided a true and accurate picture of its current financial situation.
· Multiple provisions in the School Code expressly contain definitions that make it clear that this doesn’t apply to CPS.
o First, CPS is subject to Article 34A in state statute.
§ While Governor Rauner’s office distributed language from Section 1A-8 of the Illinois School Code, his office failed to note that districts subject to 34A are explicitly excluded from the excerpts that they distributed.
§ Section 1A-8 of the School Code explicitly lays out the only actions the state can take in the case of a District in financial difficulty. In Section 1A-8(a), ISBE can collect relevant financial information. In Section 1A-8(b), the statute allows ISBE to make a determination about the districts’ financial conditions. In the case of districts in financial difficulty, in cities with more than 500,000 inhabitants, statute permits IBSE only to notify the Governor and Mayor of the city.
§ ISBE’s ability to take additional actions applies only to districts that are not subject to Article 34A.
o Second, CPS is clearly defined as a district in a City with over 500,000 inhabitants (Article 34).
§ The statutory language the Governor’s office shared references actions to be taken as provided in Section 1B-4, which explicitly concerns only districts in cities with 500,000 or fewer inhabitants.
* OK, much of the debate appears to revolve around statutory language like this…
If the State Board of Education certifies that a district in a city with 500,000 inhabitants or more is in financial difficulty, the State Board shall so notify the Governor and the Mayor of the city in which the district is located. The State Board of Education may require school districts certified in financial difficulty, except those districts subject to Article 34A, to develop, adopt and submit a financial plan within 45 days after certification of financial difficulty.
Article 34 of the state’s School Code deals solely with “Cities Of Over 500,000 Inhabitants - Board Of Education.” Much, but not all, of Article 34A (which created the now defunct state oversight system for CPS) was repealed.
* Just about everything everywhere else in the School Code delineates between school districts in cities over 500,000 and everywhere else. For instance, from the governor’s backgrounder…
the State Board of Education may rescind approval of the plan and appoint a Financial Oversight Panel for the district as provided in Section 1B-4
But, as CPS points out, if you go to 1B-4 the statute clearly gives controlling authority to 1A-8, which brings us back to this…
If the State Board of Education certifies that a district in a city with 500,000 inhabitants or more is in financial difficulty, the State Board shall so notify the Governor and the Mayor of the city in which the district is located. The State Board of Education may require school districts certified in financial difficulty, except those districts subject to Article 34A, to develop, adopt and submit a financial plan within 45 days after certification of financial difficulty.
And, of course, much, but not all of 34A was repealed.
* I think CPS makes a good point. However, this one’s gonna end up with the lawyers and a judge if Rauner decides to push it.
posted by Rich Miller
Wednesday, Feb 24, 16 @ 12:59 pm
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Bruce the Destroyer attacks on a second front. All pretenses dropped.
Comment by walker Wednesday, Feb 24, 16 @ 1:07 pm
This is an old trick used to stop a bond issue. Litigation is drummed up to question the authority of the issuer to borrow. Bonds are only marketable if they accompanied by an unqualified opinion of bond counsel. The opinion will state that there is no litigation pending that questions the issuer’s authority to issue the bonds. If there is litigation pending, even a suit that lacks merit, the opinion cannot be submitted until the litigation is resolved. No opinion = no bond issuance. With appeals, an issuance can be stalled for years.
Comment by Southside Markie Wednesday, Feb 24, 16 @ 1:11 pm
It should be clear that 34A is intended as an ALTERNATIVE to the process laid out in 1A-8, which applies to other districts and NOT to CPS.
But the language in 1A-8 is just ambiguous enough to allow Rauner an opening to cause a lot of trouble, and once something goes to a judge, anything can happen.
The disaster just keeps getting worse.
Comment by Harry Wednesday, Feb 24, 16 @ 1:14 pm
and as we know $uper$tar lawyers are top notch and never lose — hmmmm
Comment by Annonin' Wednesday, Feb 24, 16 @ 1:20 pm
In this case, winning or losing doesn’t matter. It truly is in how you play the game, or better, that you play the game. As long as the litigation is outstanding, including appeals, the bonds aren’t marketable.
Comment by Southside Markie Wednesday, Feb 24, 16 @ 1:27 pm
Case in point why Raunerites are not regular Republicans: For local control only when they agree with the Governor.
Comment by walker Wednesday, Feb 24, 16 @ 1:33 pm
Bonds, schmonds…this has nothing to do with bonds or CPS - this is an adjunct war with the Mayor and an affront to the IEA and CPS Unions. This is merely the vehicle to grease the tank tracks…
Comment by Captain Illini Wednesday, Feb 24, 16 @ 1:33 pm
Is this to filed under “Being part of the solution”, or “part of the problem”? Well, it is a success, at least for a day, if we can keep the news cycle off of the Governor’s inability to present a Financial Plan for Illinois. Let me help out Governor’s Superstars, the Illinois Constitution refers to the plan as a “Budget.”
Comment by Beaner Wednesday, Feb 24, 16 @ 1:40 pm
Good luck on that one Governor.
All one has to do is look at past practice and how the ISBE has decided to exercise financial oversight. This one may end up in court, but if the Governor is smart he will not go there. he will lose. Again.
Comment by JS Mill Wednesday, Feb 24, 16 @ 1:46 pm
Not to complicate matters further, but I’m pretty sure that Article 1B is also now largely inoperable for any new panels.
“Sec. 1B-25. Establishment prohibited. No school district may have a Financial Oversight Panel established pursuant to this Article after Article 1H of this Code is established.”
Doesn’t change the 500,000 threshold though. And it doesn’t change the fact that despite some poor fiscal decisions on the part of CPS, their only option to balance the budget on their own given the magnitude of their deficit is to keep up the terrible practice of issuing debt to pay of their debt, put a property tax increase on the ballot pursuant to PTELL, lay of teachers and/or shut down a ton of charter schools. If the Governor wants CPS to shut down charters to be able to keep the doors open, I think he would be surprised at how many allies he may have, but I suspect that is not what he really wants.
Comment by Juice Wednesday, Feb 24, 16 @ 1:56 pm
The governor should be a public laughing stock for waging this campaign against CPS right now. Hey governor, over a year in office and you can’t even get a simple budget passed, your state is being run by court orders, thousands of citizens left helpless in the streets, colleges closing down, but you’re going to tell somebody else how to manage finances??
Comment by what Wednesday, Feb 24, 16 @ 1:56 pm
Finance is an area where the gov has experience. But what he has done is use his knowledge of finance to tear things apart and sell them at a profit. It looks increasingly as if that’s what he wants to do with CPS.
Comment by Excessively Rabid Wednesday, Feb 24, 16 @ 2:11 pm
CPS is still “subject to Article 34A” as defined by Article 34A. Only some sections of that article have been repealed. Most if it is irrelevant because the SFA was abolished in line with the article, but as the ILCS now stands Chicago is a district subject to Article 34A because it is a district with more than 500,000 inhabitants. As such, the state has no authority under the School Code to block bond issuances.
Nevertheless, the question is academic because, as Claypool himself has conceded, the distressed debt pricing on the last issue basically means that the bond market is closed off until CPS cuts debt or gains new revenue streams.
Comment by Christopher Ball Wednesday, Feb 24, 16 @ 2:24 pm
Gov. Rauner is outraged that CPS borrowed money to pay its bills. He says its irresponsible to borrow to pay operating expenses.
And its true the governor doesn’t borrow money to pay the state’s bills. HE JUST DOESN’T PAY THE STATE’S BILLS!
Comment by Chicago taxpayer Wednesday, Feb 24, 16 @ 2:40 pm
Seriously, WHAT is this mans absolute obsession with Chicago’s schools?
There really is something wrong with him.
Comment by Jack Stephens Wednesday, Feb 24, 16 @ 3:17 pm
Rich, do you know when 34A was repealed?
Comment by Mama Wednesday, Feb 24, 16 @ 3:17 pm
Sigh … I hate seeing my prediction last year come true.
I don’t remember seeing a line item in the proposed budget titled “nuisance lawsuits”.
Comment by RNUG Wednesday, Feb 24, 16 @ 4:05 pm
RNUG, I believe “nuisance lawsuits” are included in the $3.5b play nice or get cut line item. Could be wrong.
Comment by Arthur Andersen Wednesday, Feb 24, 16 @ 5:05 pm
My recollection is that the same 500 thousand provision- the common thread in many laws limiting application to Chicago- is what allows for the separate pension program which CPS now claims is unfair. If CPS is exempt from many Illinois requirements- let CPS pay for its own retirement plan. Like its our fault CPS failed to contribute into the plan for 15 years and then they look for a state bailout. CHUPTSA is what we should call that(sorry for any misspelling)
Comment by Sue Wednesday, Feb 24, 16 @ 6:06 pm
There’s another way out - CPS can keep borrowing money, Chicago can keep losing residents, and eventually, they won’t fall into the “over 500,000 people” category. I know, I know, “drive by”. But on a serious note, look at the long-term trends. To paraphrase from “No Country for Old Men”, “If the rule you followed led you to this, of what use was the rule?” Or, if 12 years of uncontested Democrat rule brought Illinois to where it was a year ago, and if (as is widely belileved here), the last year of Rauner has made it worse, then what hope does Illinois have to ever recover?
Comment by Tom K. Wednesday, Feb 24, 16 @ 10:41 pm
Mama, Article 34A has _not_ been repealed. However, the SFA that it created has been abolished under the terms of the article.
Comment by Christopher Ball Thursday, Feb 25, 16 @ 10:12 am