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Reality check: closing schools, saving money?

For month after month, Chicagoans have been told that CPS has to close schools because it has a $1 billion deficit.

How will people react after the massive disruption of wholesale school closings, when the district’s financial problems remain unchanged?

And that’s before Mayor Emanuel starts handing out new contracts to charter schools.

CPS says they’ll save something like a billion dollars over the next decade by closing 54 schools.  There’s reason to be skeptical.

According to the district, they’ll be saving $43 million a year in operating costs and an average of $56 million yearly in capital costs by closing the schools.  The operating savings come from laying off administrators and staff, according to the Sun-Times, which called it a conservative estimate, since it doesn’t include teachers who will lose their jobs.

Debt service

But that was before Catalyst and WBEZ revealed that the savings from school closings calculated by CPS did not take into account debt service for a new bond issue covering spending related to school closings.

CPS is planning to spend $233 million in upfront operating and capital costs for receiving schools, including building upgrades, air conditioning, security, iPads and learning gardens — “investments” to make closings more palatable, and a token gesture toward longstanding complaints that neighborhood schools are under-resourced.

About two-thirds of a new $329 million bond revenue will go to cover those costs, according to Catalyst; debt service will be $25 million a year for 30 years.

The $43 million in operating savings will more than cover debt service costs, CPS tells Catalyst.  But it doesn’t leave very much in the way of savings.

It’s worth noting the recent study that found that districts across the country consistently overestimated savings and underestimated the costs of closings.  CPS’s budget forecasting record does not make it a likely candidate to be an exception.  (Neither does Mayor Emanuel’s.)

Where CPS is clearly — perhaps intentionally — overestimating savings is in its claim of $560 million in avoided capital costs over the next ten years.

Capital savings?

A funny thing happened on the way to CPS’s 2012 capital needs assessments:  the district added a huge wish list for each school.

Previous assessments dealt with basic structural needs.  The new assessments include air conditioning, new or upgraded science and computer labs and art rooms for each school — without regard to actual space availability in individual schools — playground construction or repairs where needed, and building accessibility.

(This doesn’t mean CPS has altered its policy and is making AC and libraries standard features at neighborhood schools, however.  The only place AC or libraries are being added are in receiving schools that currently lack them.)

The capital needs assessments shot up — and so did the projected savings from closing schools.  People noticed.

Blocks Together noted that for ten West Humboldt Park elementary schools — five of which are now slated for closing — capital needs assessments doubled and in some cases more than tripled.  What that means is that CPS can claim more “savings” from school closings.

The East Village Association noted that the capital needs assessment for Otis Elementary went up from $5.7 million in 2010 to $11.9 million in 2012; for Peabody, which CPS wants to close into Otis, they went up from $3.3 million in 2010 to $11.5 million in 2012.

Even Emanuel’s City Council leader, Alderman Patrick O’Connor (40th), noticed.  As DNAinfo reports, O’Connor “said the $16.3 million CPS said is needed to update and maintain [Trumbull Elementary] is ‘significantly higher than you would actually spend if in fact you were going to keep that school open.’”

“‘Clearly if you wanted to make it top-of-the-line, $16 million would be a nice investment,” O’Connor said. “But if you just wish to maintain the building to keep it open, you’re more in the area of [$4 million to $5 million].”

So a half-billion in savings from capital spending — in a district that has traditionally spent little on neighborhood school buildings and lavished spending on selective enrollment and charter schools?  Don’t believe the hype.

Real money

In any case, if you want to talk about the school district’s financial distress, school closings won’t have much impact.

The $43 million in operating savings CPS claims amounts to 1 percent of the district’s operating budget — and that’s before subtracting debt service costs.  The whole framing of the issue in terms of the scary big deficit seems to have been pure misdirection.

Much more significant factors include debt service — rising by $100 million this year to $475 million in annual costs — and a loss of about $100 million in state aid since 2011, expected to drop to $140 million.

And pension costs. With a previous deferral of pension obligations coming due, CPS’s annual pension payments, which are $200 million this year, are set to shoot up to $600 million next year.

Now we’re talking real money.

How this will be addressed is anyone’s guess at this point.  Springfield could work out another postponement of CPS’s pension obligations.  Or there are various state and local revenue sources that could be tapped, if the political will is there, according to Kurt Hilgendorf of CTU.

Current negotiations over pension “reform” in Springfield have focused on plans that include cutting benefits, an approach that will certainly bring a drawn-out court challenge, since the state’s constitution explicitly prohibits cutting benefits.

A responsible approach would involve negotiating with unions — whose members certainly want to see their pension funds remain solvent (indeed, unions seem willing to consider higher employee contributions) — and coming up with new revenue.

All of these problems — the deficits, the pension crises, everything — flow from the state’s disfunctional revenue system, an upside-down, regressive tax structure which fails to capture revenue at the top, where it’s growing, and instead aims squarely at the middle and bottom, where people are steadily losing ground.

For some reason, all the billionaire reformers and all their politician friends prefer ordering cuts to fixing the state’s revenue system.  Some argue, not without plausibility, that they welcome fiscal crisis as an excuse to push privatization.

So when Mayor Emanuel asks what alternatives his opponents have, or Barbara Byrd-Bennett asks where they were ten years ago, it’s more than insulting, it’s ignorant.

Because for well over a decade — back when Byrd-Bennett was closing schools in Cleveland and Emanuel was raking in his own millions as an investment banker — the activists and organizations now opposing school closings have been pushing for progressive tax reform and real TIF reform.

But instead of rallying people to begin talking about a realistic solution, one that goes to the roots of these problems — instead of even attempting to move beyond talking points to a grown-up conversation over budget problems or the pension crisis — Emanuel has chosen a path that has produced sharp division and conflict.  And it doesn’t begin to address the district’s serious financial problems.

 

Related:

What could go wrong?

Better schools?

 

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Category: CPS, school closings, school funding, state budget

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One Response

  1. Valerie F. Leonard says:

    Thanks for yet another great article, Curtis! It should also be noted that the book value for all CPS buildings is $4.7 billion. When you add the total capital costs presented in the utilization spreadsheets, the total is $7.2 billion, a number that can’t be traced to any audited statement, official statement or capital budget. In fact, CPS only planned to make a total of about $813 million over the next 5 years. They don’t have the bonding capacity to make all the improvements they claim need to happen. As I read the article, another thought came to mind. These inflated capital costs serve more than one purpose. Clearly, one purpose is to make it appear that the maintenance needs of the buildings are greater than they are, to justify the divestment. Another purpose, as stated in the article, is to make it appear that there are greater savings to be realized than are actually possible. A third reason could be, to justify the excessive capital expenditures that will be made right before they sell off the public assets at bargain basement prices to their friends and supporters, including investors, charter school operators and campaign contributors to the Mayor. After all, by law, CPS cannot provide capital funds to charters.

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