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The big idea behind Chicago Newsroom is that we assemble a small group of involved, knowledgeable people around the table and we yak about the week’s local news. Most often we tap journalists, but you’ll also find historians, political activists, academicians and newsmakers in the mix, too.

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CN June 25, 2015

At last night’s CPS meeting, the Board voted to borrow more than a billion dollars to keep the schools operating another year. But about 24 hours earlier pretty much nobody knew this was the plan. How did this happen?

“I don’t know,” says Sun-Times education reporter Lauren FitzPatrick.”In the sense that it was not discussed. It looks like it’s two chunks of borrowing – $200 million, andsome $935 million. But the Board of Education didn’t say a word about it other than to cast a unanimous vote at the end of the meeting to approve both pieces of borrowing.”

“Not even roll-call vote,” adds Sarah Karp, now an investigative reporter with the Better Government Association.

Despite Interim CEO Jesse Ruiz’s vow that he’d run a more transparent operation, there was no public involvement of any kind before the vote for this massive borrowing. “They did discuss a couple of other big items on the agenda,” says Fitzpatrick, “So I was waiting for the money people to come out and talk about the borrowing, but it just never happened.”

Any discussion that did occur at the Board level happened in a back room outside the public view. A day later there still aren’t any more details about the loan – how it will be structured, when it will take effect, or when the first checks will arrive. “There’s no real reason I can see why they would discuss this is executive session,” asserts Karp. “This is not real estate, or personnel…the public would like to know a little more about this. My grandkids are going to be paying for it.”

When we taped our discussion this morning there was optimism in the air that a new one-year placeholder contract was about to be drawn up between CPS and the CTU. But that was dashed a few hours later when the CTU published a statement that talks had broken off.

We asked how this deal would have been different from a one-year contract extension (provided for in the old, expiring contract) that both sides rejected at different times over the past few months.

“From the sound of it, this one-year deal that’s being talked about right now would not have included a pay raise,” explains Catalyst Chicago reporter Melissa Sanchez. “The previous one-year deal would have, if they had extended the contract. What they’re getting at the moment is that CPS has backed off of their desire to stop paying the seven percent of the nine-percent pension pickup. That’s what we’re hearing. So for the union, they’re at a standstill. They’re not losing. And it gives them time to rally their troops.”

Earlier this week, Mayor Emanuel said he had requested from Springfield a 40-day extension on the payment of about $635 million into the Chicago Teachers Pension Fund. But when the bill came before the House it fell well short of passage. It was mysterious. “Clearly CPS thought this was going to happen,’ explains Fitzpatrick, “because Jesse Ruiz, somebody packed him up into a car and he appeared before committees and the full House, and he was there to make his case and turned up in person. I can’t believe that if he thought this wasn’t going to happen, he’d have taken the time to go.”

It was widely believed that all the legislative leaders, the Governor, the Mayor and CPS were on board, and that the union and the pension fund were not in opposition. It seemed relatively non-controversial.

“The idea of the delay is that tax money will be coming in, in August,” says FitzPatrick, “which is not in their pockets now. And if they could have forty days then they would be able to make the full pension payment as opposed to no payment or even a partial payment which was getting batted around for a while.”

So what happened?

“I’ll tell you the gossip I’ve heard, which is unconfirmed, that  the Republicans were about to be able to take credit for solving the CPS problem. So if the deal, which was supposed to be a done deal, got pushed off, here comes Mike Madigan to the rescue a week later – and he gets to save the day, instead of the Republicans that were willing to cross the aisle in support of the 40-day delay.”

Some good news this week, though, was Governor Rauner’s announcement that he planned to sign that portion of the State budget that funds the schools. So, although almost everything else is still being debated, schools now know the size of the checks they’ll be receiving from Springfield in August.

And finally, the Ernst and Young report. It was commissioned by CPS presumably to show the public just how bad things are.

“While we’ve all been waiting for the latest trick, they came in and said, there kind of aren’t any,” FitzPatrick tells us. I think it’s page 24 of the report that lists all of the things that will pretty much all be needed to pull this off this year. Some are taxes, some is help from Springfield, some is classroom cuts. One of the other points that the report tried to make is that solving this problem can’t just come from CPS alone. That there are all these other people who are gonna have to sign off on a lot of these proposals to pull them off too. The State, the City Council, retirees, unions – CPS cannot get out of this on its own, Ernst and Young was paid to say.”

The CTU has said, and often repeated, that the financial mess was created by CPS, and that it’s “broke on purpose”. We ask if that’s a credible claim.

“I don’t think that they ever intended to go broke or spend themselves into oblivion,” Fitzpatrick explains. “But I think the union would argue that it’s a cute way of saying that they’re not acting as though they’re actually in financial crisis – that they’re spending on big-ticket items and things that are not working, like the Aramark contract for example, the SUPES contract, which has blown up in their faces, they continue to open new schools. They’re not acting like they’re broke, and that they’re digging themselves in even deeper.”

And after last night’s vote, about 1.1 billion dollars deeper.

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CN June 18, 2015

 

So when was the first time you heard the term “Scoop and Toss”? You’re probably aware by now that the City’s apparently been scooping and tossing for years, but can you actually define the process? The Tribune’s Hal Dardick can, and it isn’t pretty.

“Scoop and Toss is where you you have debt coming due. You have the final interest and capital payments, but at this point it’s mostly interest because it was backloaded – on your long-term debt. Your previous 20-30 year bonds. It’s coming due, and because you don’t have the money to pay it with the current revenue coming in, you say, guess what? We’ll take out another loan and pay off the old loan. You scoop up the debt and you toss it into the future.”

At yesterday’s City Council meeting, Mayor Emanuel sought, and obtained, authority to enter into 1.1 billion in new debt, adding to the mountains of existing debt the City already has.  But a lot of it is kind of like refinancing  your lousy high-interest home mortgage.

“The biggest chunk of it,” explains Dardick, “$338 million, is to finish off the restructuring of variable-rate debt to fixed-rate debt to please the markets that, as we know – one major agency downgraded the city’s credit worthiness to junk status recently. So the Mayor’s trying to soothe the markets by doing that.  And it’s a sound move that everybody’s in favor of.”

But that’s only about a third of the loan.

“The Mayor was trying to emphasize that part of it,” Dardick explains, “but then there are also some of the old bad practices that got us into trouble in the first place included.” And one of them is $171 million dollars in the aforementioned “scoop and toss”.

So if scoop and toss is so bad, why do it then?

“Because you have no choice,’ he says. “Because you don’t have the money otherwise to pay for it. …It’s old bonds. Old fixed-rate bonds. They have a certain amount of money to pay debt, but it’s already used up. There is no more room.”

“And the other thing they’re doing – it’s also $170 million dollars – they’re taking out $170 million to pay the first two year’s interest on this loan. Because they don’t have that money, either.”

Both Dardick and panelist Ted Cox from DNAInfoChicago confirm that, yes, you read that correctly. The City doesn’t have enough money to pay the first two years of this huge loan, so it’s borrowing $170 million more, and will use that money to pay off the first two years’ interest on the loan.

“To be fair,” asserts Dardick, “I think the the Mayor deserves some credit. He’s trying to reduce these practices, and believe it or not, he is doing less of this sort of thing than had been done in the past, and he’s trying to slowly phase it out. He was dealt a very bad hand. But it’s just a sign of the horrible shape that this city is in financially. And there’s a lot more to come in terms of taxes and cuts.”

Ted Cox continues with the cataloging of the various portions of this massive loan.

“They had privatized the (Millennium) garages, and part of that agreement was that there’d be no competition with the garages. Then Jeannie Gang is building the Aqua Tower and they said they needed a parking garage, and Daley said, – go ahead”

Lawsuts ensued, followed by arbitration, and even an attempt to override the arbitration. But in the end, the courts said the new managers of the Millennium garages had been harmed by the Aqua Tower garage- to the tune of more than $60 million – and the City had to pay. Again, it didn’t have the money.

“And the thing about that is the city should have a certain amount of revenue on hand to deal with issues like this,” Dardick tells us. “That’s considered by the analysts as an annual expense and instead they’re taking thirty years to pay it off.”

The City faces a crushing deadline in just twelve days. CPS is required to make a pension payment of more than $600 million, and there’s no indication that the money will be there.  The Mayor says the State has the primary responsibility for funding the schools, and it’s derelict. The Governor and the legislative leaders are at odds. If they don’t come to a resolution, the state may begin shutting down on July 1.  Governor Rauner has reverted to campaign mode, partnering with his fellow billionaire friend Sam Zell to fund a new PAC that’s firing up TV commercials around the state blaming everything on Democrats Mike Madigan and John Cullerton. It’s a new kind of politics never before seen in Illinois.

“We do have to ask, though, what kind of an effect this is having on democracy, this campaign by checkbook, which – this is just an extension of the campaign in November,” Cox opines. “There are a lot of people who believe that Rahm won the election because he outspent Chuy Garcia by millions of dollars, ditto Rauner and Quinn – although Quinn had his own issues. This is now continuing (campaigning) into he actual act of governing.”

The Mayor has said he wants the City budget released to the public a month early, to allow all interested parties to make suggestions for cuts and new revenues, according to Cox.

“Rahm did say that any ideas had to be ‘implementable’. That was like a clear signal to the progressive sorts who’ve said we want a LaSalle Street tax, or a commuter tax or a change in the state income tax, all of which would require action, again, back in Springfield, where nothing ever gets done.”

But one idea that’s been floated for months and so far hasn’t been seriously considered in Springfield is expansion of the sales tax to include certain categories of services, such as hair cutting.

“The governor’s in favor of it,” says Dardick. “The Mayor’s in favor of it. There’s a strong argument for it. Thirty years ago, the sales tax applied to fifty percent of the economy, today it only applies to twenty. Most other states are doing it. It would help both the state and the city, and the suburbs and the downstate communities that are in similar pension crises but just don’t get a lot of attention.”

And we end with our conversation about the Stanley Cup that actually began the show.

“I was wondering last night,’ Ted Cox mused, “where would we be if Bill Wirtz were still alive? I don’t know, but there’s no doubt about it,  that things have turned out better.”

He’s referring to son Rocky’s decision to make Hawks games more accessible on TV, thereby raising the team’s public profile.

“Going back to baseball, even Bill Veck missed out on the importance of free TV,” says Cox. “And a do-nothing owner like Phil Wrigley said, go ahead, put it on TV, who cares? And it turned out to be, long-term, the wise move.”

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CN Jun 11, 2015

What we’re seeing in Springfield right now could be a level of intellectual virtuosity unmatched in the modern age, as three unrivaled masters jockey  for the dominance of a political philosophy. Of course, it might not be.

When Governor Rauner takes to the road to campaign for his reform agenda – loosely encompassing right-to-work zones, a property tax freeze, reductions in the coverage of Worker’s Compensation plans, redistricting the State and enacting term-limits – he’s not in Springfield negotiating these issues with his rivals. Is that smart or not smart?

“That’s been an interesting theme over the past few months,” explains Tribune reporter Kim Geiger, who’s been covering the Governor’s road show. “He came out in February. He laid out his agenda. He said – this is what I want. Initially it was this really long list with all of these bullet points, dozens and dozens of them. Then he hit the road, and went to try and sell this plan to local voters around the state. He was on the road for a few months. He kind of stopped that in May when the Legislature started moving pieces of his agenda and knocking down pieces one-by-one. And now that we’ve passed the May 31 deadline he’s back on the road and he’s pushing the agenda again.”

But now there’s a political twist. “This time he’s much more forcefully going after Mike Madigan and John Cullerton, trying to lay the blame for this budget problem on the two of them.”

It’s not easy being an opposite-party Governor facing veto-proof majorities in both chambers.  WBEZ’s political reporter Tony Arnold says, in a way, Rauner doesn’t have many choices. “The way he’s doing it is campaign style, because it’s not like he can go to the Legislature to get them to pass these things.”

“He narrowed down all his bullet points to about five things,” Geiger explains. “And the five things happen to be things that really target the key Democratic power bases, right? Organized labor. Trial lawyers, the ability of Democrats to hold power by drawing maps. And term limits. He’s going after the guys who’ve been there for decades.”

So Illinois is already behind schedule in passing a budget, and there are no clear signs that a budget’s coming soon. And with the sharp division between the Governor and the Legislative leaders, Rauner has to resort to theater to get his points across.

“The General Assembly, their core purpose is to pass a budget,” says Geiger. “So it makes sense. Mike Madigan is saying – Rauner’s operating from the extreme – by attaching all these non-budget issues to the budget. But really – the budget is where he has leverage. Once you get a budget deal, what’s he gonna do? Go to the Democrats and say – now I would like all these other things? That’s not gonna happen.”

We ask the panel if the Governor is being out-maneuvered by Madigan and Cullerton. Arnold says, not necessarily.

“He hired quite a few people who’d actually been around Springfield a very long time. His Chief of Staff, his Budget Director. He’s also contracted with people not from Illinois at all. One of the budget hawks that he’s hired has gone through several states talking about how to make cuts in a way that balances your budget. So he’s done this combination of people who’ve been around, mostly the Republican Party for several years.

Arnold says that the Democrats have their own challenge – keeping the legislature focused on the need for additional revenue. “If you get into the nuance, which is what the Democrats are trying to do, it’s, well, if you want to keep your school doors open, we have to talk about property taxes. They’re tied together.”

And if we ever get through this budget process, something entirely new will  begin.

“You’re gonna see what Rauner’s starting to do,” explained Geiger, “which is target very specific Democratic Representatives. People are going to have to get more used to who their Democratic State rep is in next year’s campaign. It’s a year away, but I think people are gonna be hearing more about who their State Rep is, in an effort by the Republicans to try to take down Mike Madigan. Sometimes the threat is more powerful than the money itself, just having it looming there over their heads.”

So the 2016 campaign should be getting under way in about three or four weeks.

 

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The Bloomingdale Trail in 2008

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Spent an absolutely charmed day today at the grand opening of the 606.

About 7-1/2 years ago, I was asked by WBEZ to do a report on what was just emerging as a big idea- the Bloomingdale Trail. There were already passionate groups gathering in the neighborhoods along the trail to urge the City to move forward, but it looked like a real long-shot. To his credit, Mayor Daley offered his support, and a little money to get planning started. But the really big moment was when the trust for Public Lands jumped on board.

I went back into the archives to find his piece just because it was interesting to hear after having walked the almost six miles this morning and afternoon. But I also wanted to pay tribute to Ben Helphand, who – along with some others – was there at the beginning and never let go of the dream. And to Beth White. Beth had already been a Chief of Staff at the CTA and CHA before she left the City to take on the new office for the Trust for Public Lands in Chicago. This was her first mega-project, and she steered it for all these years – acquiring property for the parks and coordinating construction with the City. Mayor Emanuel deserves tons of credit for making this happen, but without folks like Ben and Beth, it would’ve been dead way before his election.

My favorite moment in this report is standing in a frigid February wind at what’s now the east end of the trail, pointing over the Kennedy and the River, and dreaming about the next link – the one that connects the Bloomingdale to other pathways and eventually to the lakefront.

One brazen piece of advocacy: The community is now waist-deep in the planning for the Finkl property just across the way. It isn’t too much to ask to have the riverfront reserved as an extension of the 606, and maybe to demand that the developers, who will make billions on this project, foot the bill for the bridges that get the trail under the Kennedy and across the water. Just sayin’.

Here’s the audio of the February, 2008 report:

Bloomingdale Trail sequence

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CN June 4, 2015

In a week that saw the Mayor summarily dismiss four of his CPS Board members and replace them with different people from similar backgrounds, and, oh, yes, the resignation of his hand-picked Schools CEO, there wasn’t a lot of good news. Except maybe the steadily falling dropout rates a and rising graduation numbers. But now that’s being called into question, too.

WBEZ’s Becky Vevea has been studying the numbers for weeks now, and has discovered that both the dropout and graduation rates have been favorably distorted by a collection of new “alternative” schools that have come into the picture recently. In some cases, these are small, often storefront operations that use on-line approaches to quickly get students who would otherwise be considered dropouts a high-school diploma. Further, when that student “graduates”, it’s counted with the people who really did graduate from the original home school. So large numbers of what would have been counted as dropouts now count as graduates of the very school from which they dropped out.

“They’ve been counting those graduates since about 2007,” Vevea tells us. “And with the Mayor’s expansion of alternative schools, of course, you’re going to get more graduates out of those alternative schools, you’re going to get more graduates over all, and they’re gonna count in the same  number.”

There’s also another factor distorting the dropout/graduation equation.

“The Inspector General report from earlier this year isolated a high school that was coding dropouts who were going to a GED program as ‘moved to Mexico'”, Vevea says. And her new reporting shows that the practice is more pervasive than originally thought.

“We have found that is not a single high-school problem, but that it is a wide-spread problem, and that there are high schools across the city that are, for whatever reason, miscoding dropouts. And those kids are simply disappearing from the calculation,” she tells us.

“Statistical gerrymandering”. That’s what Community Media Workshop’s (and host of Live from the Heartland’s) Thom Clark calls it.  “It’s similar to the homicide rate, where, if you reclassify an apparent murder to something else, then your murder rate drops,” he says.

But, Vevea says, despite all the manipulation of the statistics, the fact is that graduation rates for CPS high school actually are going up.

“We said, OK, let’s put the kids back in that should be in, and remove the kids that went to GED or whatnot, and it still ticks upward. It’s just not this crazy exponential growth you’ve seen in the last three years. You see smaller, incremental progress. There is improvement happening, and there are high schools all across the city that aren’t doing this, but there are a lot that are. I think it’s driven, frankly, by a lot of the pressure that’s placed on schools to make these numbers better.”

Mayor Emanuel swapped out four of his Board members this week, and the new members are remarkable for their similarity to the members they replaced. A banker replaces a banker, one former principal replaces another. Even two retired University chiefs switch places.

“They were kind of interchangeable parts,” explains Clark, “And I think they were picked to be “yes” votes. That’s who the Mayor wants on his Board. At least one of the people who was dismissed was not a guaranteed yes vote – a respected educator, Carlos Azcoitia…he was a studied educator who tended to look at issues presented to the board, and didn’t always vote lock-step with the rest of the board.”

“The bigger issue is the wide-spread support for an elected school board,” he continues, “and this kind of decision this week I think drives that. I’m actually neutral about whether the elected board is the right way to go. I’m in the camp that thinks a hybrid system might be better, because these are wonderful folks who got picked but I think we could do better. If it were a little bit more open process – that I know some folks are afraid of becoming too political – well, it’s awfully political now. There’s one guy on the fifth floor making decisions. Given what the education system faces in this city, we need to open that up a little bit more. ”

And Vevea injects a harsh dose of reality for this new Board.

“What’s interesting is that the July meeting is typically when the budget gets approved,” she says. “Unless they move that back to the August meeting, which would be a week before schools open. This new board – that could be their first vote.”

And Clark tells us about  the “Say No to Noble” movement that’s part of several push-backs happening against charter expansion on Chicago’s north side. Eight Local School Councils have voted against a charter school expansion there.

“There is in Rogers Park an effort on the part of community leaders and parents to say to CPS – because it’s not clear how these decisions get made any more – that we think, for a system that’s so strapped for money and closed fifty school two years ago because of over-capacity, we don’t have a capacity issue in Rogers Park,” he explains. “A fourth high school will take away from the other high schools that are there, and we’re very afraid of  Sullivan, the neighborhood public school, losing significant enrollment such that it could get closed.”

There isn’t any question that Noble Street will open a new high  school, Vevea points out. The Board has already acted.

“That campus has already been approved,” she reports. “And all we’re debating now is where we’re going to put it. And there are valid arguments. Location is a valuable marketing tool. You walk by and think, what’s going on in that school? A parent might be interested in it and be more interested in that new school than in Sullivan that’s trying to keep up its reputation…but they will draw students from somewhere.”

Clark argues that there’s a financial disparity between “classic” schools and charter schools.

“Now that the Board budgets on a per-pupil basis,” he claims, “If you have competing schools to give parents choice, someone’s gonna pay. Typically, the neighborhood school is the one that suffers enrollment issues, and therefore budget issues when the new guy in town comes in. It typically has a fixed-up building, some additional corporate support, independent fundraising – a lot more things at least on the front end to attract parents.”

But in a way, the charters are creating a kind of marketplace competition.

“On the north side principals are speaking out and saying, look, we’re trying to attract families,” Vevea says. “We have tons of room in our buildings. we want families to stay in the city and use those buildings. Use what’s sitting in the neighborhood. And the City isn’t helping the charter schools they’ve already approved figure out, OK, maybe there’s another location in an area where there is more demand, or some overcrowding. And there’s not really any conversation.”

So the new Board has to assemble, in a couple of weeks, a budget that right now is said to be about a billion dollars away from balance (as it so often is about this time of year). By law, they’ll cobble something together, and nobody knows what that budget document will contain. But Vevea assures us that there’s one thing we already know.

“All schools will see their funding depreciated this year.”

 

 

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CN May 28, 2015

 

It all just seems so hopeless. Unfunded pensions are everywhere. A billion dollar hole here, a half-billion one there.  A hundred-billion shortfall in Springfield.  Junk bond ratings. There doesn’t seem any way out of it without giving up hard-earned pensions, imposing draconian tax increases or just declaring bankruptcy and trying to start over.

But all is not lost. There are rational approaches that, while difficult, can help us find a logical pathway out of this mess if we’re all willing to be adults about it and accept some pain in return for future calm.

That seems to be the message from Ralph Martire, Executive Director of the Center for Tax and Budget Accountability. He’s been on the show before and we invited him back because we needed an antidote to all of the fiscal doom and gloom.

So, first things first. What’s all the noise about Moody’s and junk bond ratings?

“A number of the debt instruments that the City got into in the early 2000’s under Mayor Daley,” Martire begins, “Were variable rate debt instruments that were supported by letters of credit by banks that basically said if your bond rating status dips below a certain level, into junk area, (which, of course, will never happen) – once that happens it triggers a “call” on the letter of credit, so the letter of credit gets funded, the bond holders get paid, and the City then has to reimburse the banks.”

That’s why Mayor Emanuel this week had to seek refinancing of that debt, and while he succeeded, the financing costs were about an extra $70 million.

In a way, the City was just as vulnerable as innocent homeowners who fell for adjustable-rate mortgages. The “experts” were pushing these flawed products, and the City’s financial people went for them, too.

“At the time everyone was saying, why doesn’t the City take advantage of these things?” Martine explains. “You could lower your current interest rates. It’s very funny, the short memory the talking heads have about positions that they encouraged the City to take. So at the time it was very much supported by the private sector, saying you’re gonna save the taxpayer money. And no one ever believed that the City of Chicago would drop to junk bond status. Well, reality is a brutal thing.”

And the rating houses were justified in their lowering of the ratings, Martire says.

“The bond rating went down for good reasons. There never has been a rational plan at the City level to deal with its unfunded liability, particularly with their fire and police pension systems, and in fact the City’s unfunded liability for its police and fire pension systems is actually harder to resolve than the State’s unfunded liability…first and foremost, the City of Chicago has far fewer revenue tools in the kit to resolve its liabilities than the State does. The State has far broader taxing authority and can do many more things.”

So, says Martire, the City is looking at a very significant crunch on its revenues. “Everyone now knows that the balloon payment due this year on the pension systems is north of $550 million more than what went to the pension systems last year.  When you consider the City’s general operating budget is only about 3.2 billion, finding another $550 million just out of the blue is a significant challenge, especially when the City’s running a deficit north of $300 million already.”

But that doesn’t mean the City was exactly prompt about confronting the issue.

“The City’s known about it – Mayor Emanuel’s known about it – since he’s taken office. This bump in funding s part of a 2010 law. It’s been on the books since he’s been Mayor. No incremental steps have been taken to get the taxpayers used to paying a little bit more to fund these obligations.”

What Martire proposes, and some political leaders seem to be paying attention, is a dose of very tough medicine. But it’s process that eases with time. Mayor Emanuel has proposed ramping up the payments needed to make solvent the police and fire pension systems. Martine agrees, but foresees a differently-shaped ramp.

“If you’re gonna have a ramp at all it has to be very short – two or three years to get to a level dollar.” he explains. “And then that level dollar has to be consistently funded, and it needs to be a mandatory payment that they can’t cheat. Now that could extend beyond the current payment period because frankly the significant size of the debt load the City’s carrying toward its pension systems is gonna require the re-financing to go out a few more years.”

If Rahm Emanuel adopts, and passes into law, a plan something like this, says Martire, “The emanuel administration would be pursuing good public policy.”

So, how would it work?

“The ramp has to be very short to get to this level dollar amount.” he tells us. “The level dollar amount has to be set so that it is sufficient to grow the funded ratio of the systems every single year, and to grow that funded ratio while accounting for the system’s obligation to pay benefits to both current and future retirees during the payment period. And it has to grow that funded ratio significantly enough so that the systems get healthy sometime in the next 40 to 50 years.”

Sounds pretty good, right? Well, there’s always some bad news…

“We’ve run some tentative numbers on this, and we think that the level dollar amount needed to get these systems to healthy is north of  $450 million a year. So they need significant revenue. And they need to have a rational plan for getting to that revenue, and the payment obligation has to be absolute with no ability for future administrations to renege on it.”

And remember, it has to reach full funding in 2 to 3 years.

“The problem with the plan as it is now is it doesn’t just ramp up next year. It ramps up the next year and the year after that. It’s one of these “ski-slope-looking” repayment plans. Well, you’re never gonna fund that. It’s irrational to think you will, and tax systems don’t operate that way.”

What Martire proposes is a fixed payment that (albeit large) remains stable for 30 or 40 years, just like a home mortgage.

“Because it’s no longer ramping up, because it’s flat, after inflation, in real terms, it becomes a diminishing obligation. So it’s very difficult to get to in the first 3 or 4 years, and probably difficult to fund for 4 or 5 or 6. But by year 7, 8 and 9, and down the road, it becomes something that the fiscal system can handle.”

The Mayor has proposed building a land-based casino, and funneling the proceeds into this pension fund. Nobody seems to believe that its revenues will come anywhere close to $450 million annually, though. But, says Martire, that’s no reason not to do it.

“Whatever it’s gonna generate, it’s gonna generate, and that will be a plus.  But in the interim you need a solid revenue strategy…then if the casinos come on line, you could reduce your current tax levies that have gone to fund the pensions to accommodate this money coming in from the casinos or divert that revenue to funding current services.”

So there’s at least a rational path that could lead to a solution for the police and fire pensions. But what about that billion-plus hole in the upcoming CPS budget, and the related massive shortfall in the Teachers Pension fund?

“Two things you have to understand about the Teacher’s Pension fund,” asserts Martire. “Number one, when the City of Chicago got control over the pension fund from the State as part of the deal for giving Mayor Daley control over the CPS Board, the systems were 90 to 100 percent funded. And in fact, they got north of 100% funded in the early 2000s, and the intentional policy decision was made to stop funding them. So literally the contribution from CPS – from the City – went down to zero. It flattened out, and then they magically got an unfunded liability. I don’t know why this surprised anyone. It was an intentional policy decision. So I think someone needs to step to the plate and say that was a bad decision. And we need to make amends for that and fix it.”

But it’s not just the bad-old City that’s to blame for the mess.

“Second, I think if you look at one of the driving reasons policymakers made that decision was to put more money into current operations – funding the delivery of  education to children in the City of Chicago. And the reason they were looking for new revenue to do that is that the State was dropping the ball on funding schools. So a real reason that contributed to the decision-makers’ under-funding their pensions was the lack of adequate financing from the State. So you can’t really resolve the City of Chicago’s unfunded liability for its teachers without the State really stepping  up to the plate with enhanced revenue and enhanced investments. And the State should, because the State is very much complicit in the policy decision to under-fund the pensions by its under-funding pf operational costs for schools.”

So, new taxes will be needed. “New revenue” is the more politically acceptable term, we should acknowledge. And if you’re looking to the taxpayer for that “revenue”, remember that, as Martire said, the state has more taxing options than the city. And one creative idea, tacitly accepted by even the Governor, is the “modernization” of sales taxes to include some additional consumer-service taxes.

“You can’t ignore the largest and fastest-growing segment of the Illinois economy with your tax system and expect that your revenue will be adequate to balance your budget from year to year,” he explains. And that’s precisely what our current policy on the sales tax does. So our sales tax, of the 45 states with a sales tax, is the 45th most narrow. We only include 5 class categories of services. There are 168 you could go after. We go after 5.”

“What we focus our sales tax on is pretty much the sale of products – hard physical things you can touch. That doesn’t work, because right now, in our economy, the sale of products is only roughly 17% of all economic activity. And what we don’t tax – services – are 72% of the economy.”

We asked Martire abut the often-discussed “Transaction Tax”. The CTU and others have frequently raised the idea of a penny-or-so tax on every transaction at Chicago’s stock exchanges. Proponents say it could raise billions a year, and opponents say it will drive out of Chicago’s central business district one of the most thriving and energetic economic engines it has.  Turns out, Martire doesn’t think much of the idea, either.

It’s got no political viability whatever,” he claims. “It would be very difficult to enforce. It would be great policy at the federal level. And the federal government really ought to look at that. But you’re diverting attention from the primary areas people should devote their time and efforts to. Those are the main taxes that feed state governments across the nation, the income and sales taxes. And our income and sales tax policies are very poor. If we fixed them, if we modernized them, if we made them work in the current economy, we wouldn’t need to even discuss a financial transactions tax.”

Also making the tax almost impossible to consider, he says, is the fact that no other state has one.

So,in 30 minutes, Ralph Martire makes the argument that there is a “rational” way out of this mess. And before you throw up your hands to exclaim that the Illinois political class will never settle anything, Martire begs to differ. “There are a number of elected officials who are very tired of going from crisis to crisis. And that’s no way to govern,” He says.

“We’ve run the numbers,” he proclaims. “The math works. It’s just the political will to make the tax policy reforms and the re-amortization of the pension debt law.”

 

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CN May 21, 2015

 

The situation in Springfield looks dire. There’s at least four billion less coming in next year due to the reduction in the income tax that just went into effect, and billions more due to help plug the various pension obligations and debts. So is this the worst it’s ever been?

Not really, says Chicago Tribune Editorial Board member Kristen McQueary.  It’s actually just State of Illinois politics.

“Every year, regardless of who’s in the governor’s office, whether it’s a Democrat or Republican, this is crunch time in Springfield. This is the sausage-making part. It’s always chaotic. So it doesn’t surprise me that they’re talking about possibly an overtime session, staying past the May 31 date. They’re trying to cobble together a budget, which would be an improvement over last year, which was to leave on May 31 with a budget that only paid for half of the year.

So what is going on? Roosevelt University professor and City Club Chairman Paul Green, who has covered Springfield since before Jim Thompson, says they’re all in a bit of a jam.

“Right now they’re jabbing each other, poking for holes,” he tells us. “The reality of it is, it is so enormous, there’s no way you could cut your way out of this, there’s no way you could revenue your way out of this. So they’re playing games. Sooner or later, someone’s gonna have to make a decision.  I’m just guessing, because you could spend a whole lifetime and never come close to figuring out Madigan’s moves, but neither one wants to go first. So to me it’s a giant game of chicken. Who blinks first? And I think that, unlike last year, there’s no way they can put together a BS budget like they did last year…they may have to blink together.”

But MCQueary, whose ed board can pretty reliably be counted on to be anti-tax, says new taxes are coming. “Financially we’re in a hole,” she explains. “There’s no doubt about that. I think at some point Rauner is going to have to look at maybe expanding the sales tax – that’s something he did not shut the door to as a candidate – and there are lots of fiscal conservatives who think that’s a smart way to raise revenue. But he wants reforms. He wants further worker’s compensation reform. He wants further tort reform. And if the Democrats don’t give him a little of that, then he says he’s just gonna keep them in Springfield beyond May 31.”

Of course, the legislators today are faced with something quite new: the clear mandate from the Illinois Supreme Court that pensions may not be abridged. When that factor is added to the generally miserable fiscal condition, it gets complicated.

“You go back to the great Depression,” Green asserts. “The City was in terrible shape, so was the State. And I think today is equally bad as the great Depression. The big difference today is the P word. Pensions. That was not an issue back then.”

“The thing that bothers me the most,” he continues, “And for the record I have a State pension, is that people who have their pensions now don’t give a damn about the kids and the young people who are going to have nothing left. They’re gonna soak up all that money…the City pensions are gonna be gone. There’ll be nothing there for the people who are working putting the money in. Remember, this is nothing but a ponzi scheme. Young people put money into the pensions so old people can get their pension benefits and then the next generation gets the benefits. Well, they’re gonna spend the money down to zero. Then what do you have? Everybody gets shafted. But as long as there’s a nickel in the till – I want my share, I don’t give an inch. I think it’s absolutely madness.”

So should the unions come to the table and give back some benefits, we ask him?

“Absolutely.”

“If the unions, back in 2000, 2002, were willing to give a little bit on raising retirement age,” McQueary adds, “I argue that the law that the Supreme Court threw out as unconstitutional, the unions got everyone riled up  that – we’re taking away your pensions, we’re stealing your pensions – that bill was a minor curbing of the growth of your pension. It still included annual raises. It made you work a little longer, which is logical because people are living longer, it froze some of the COLAs for a couple of years. It was a very reasonable compromise, and still everybody dug in and said no.”

But, we ask, isn’t the root cause of this madness the continual insistence of state and local governments to issue pension “holidays”, the result of which is a long-term, chronic under-funding of the system? Isn’t it true, we ask Mr. Green, that if Illinois had legally and adequately  funded their portions of these instruments, that we wouldn’t be having this discussion today?

“It’s irrelevant what happened fifty years ago,” he retorts. “If the captain would have just steered the ship a little differently, we wouldn’t have hit the iceberg. We’ve hit the iceberg. It’s over. So what are we gonna do now and into the future? The reality is there have to be tremendous concessions from everybody. The pensioner. The taxpayers. And let’s not let the taxpayers off the hook. One of the reasons that they delayed, was they didn’t want to put money into pensions instead of into services because in the next primary someone would say – you know what that guy did, those public employees got the money instead of schools.”

So there’s agreement that this will be a lengthy, onerous debate. But Green says he’s pretty sure he can predict how it’ll end.

“I think if this is gonna be settled it’ll be settled in two hours in a closed room. With the players.”

Police Superintendent Garry McCarthy was a recent City Club speaker. He tended to focus mainly on the Department’s accomplishments, and principally these revolve around reductions in crime. But his numbers are controversial, says McQueary.

“The crime stats issue does make the police department look less credible, and the superintendent,” she explains. “It’s been pretty obvious if you’ve been following the Chicago Magazine articles, (here and here) and even Joe Ferguson, the City’s Inspector General audited some of the crime stats and found that they’re wiggling the numbers.”

But the Superintendent also spoke about the complex social issues that challenge the department. He claimed that he has a renewed commitment to community policing, and to reducing the numbers of young arrestees sitting at Cook County Jail. McQueary thinks it’s laudable effort.

“His office is meeting regularly with States Attorney Anita Alvarez, Toni Preckwinkle’s office, Tim Evans, Sheriff Tom Dart, because it’s not just jail overcrowding, it’s the unjust nature of keeping people behind bars who haven’t even had their day in court. They’re people who’ve been arrested, but their cases haven’t been adjudicated. So I have to say, they all deserve credit for trying to get through that backlog and do a better job of getting people out on electronic monitoring who are non-violent offenders.”

“He’s trying to balance the need to maintain order in this city with  problems that the police officers cannot, by themselves, solve,” Green adds. “Police officers, teachers (and) social workers. Those people that are sort of the DMZ between the people doing bad things and the people doing good things. And the police officers aren’t paid enough, aren’t trained enough. They aren’t psychologists and sociologists.”

 

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CN May 14, 2015

 

The Illinois house today voted 72-0 (with 37 Republicans voting “present”) against a proposal Governor Rauner’s been promoting to create so-called opportunity zones in Illinois – zones where union membership would be optional, along with the payment of union dues.

The proposal didn’t impress Sun-Times columnist and Channel 7 commentator Laura Washington. It would’t do much, even if it passed, to fill up the State’s empty cash drawer, but it’s been occupying a lot of the Governor’s time, she says.

“There’s been a lot of consternation in Springfield by lawmakers who say – wait a minute, he was supposed to be this fiscal genius,” she tells us. “He was a CEO who’s so successful, he’s gonna come in and solve all our problems. And where is he? He’s going on tour, and talking about stuff that’s not gonna do anything to balance the ledger.”

For a few weeks, it appeared that Mike Madigan, the enigmatic Democratic House Speaker and legendary power broker, might be able to get along with his new Republican Governor.

“It seemed like it was going pretty well,” says Sun-Times political reporter Natasha Korecki.  “They came up with this $1.4 billion agreement to fill last year’s budget. Everyone said, wow, let’s see more of this. They got together, and then a couple of weeks later, Governor Rauner’s team on Good Friday cut $26 million in social services – after Mike Madigan on the House floor said, autism won’t be cut. Social services won’t be cut.  We saved this, this and this. So it just crumbled…and ever since that point, you’ve seen this complete downward trajectory between the two of them.”

“I think what it shows is Rauner’s lack of political experience, which is something we should have expected,” adds Washington. “Yes, he’s a very successful businessman, yes, he’s created companies, but he had no, zero, zilch political experience coming in here. And if you want to come in and run a state like Illinois, that puts you in a world of hurt if you don’t have that kind of experience.”

Mayor Emanuel hasn’t been able to come up with much in the way of big solutions either. His attempt to negotiate some concessions from City labor unions has been shot down by the Illinois Supreme Court, so he’s essentially back at the starting line four years after assuming office.

“He’s trying to put the onus of solving the problem on the folks who are not responsible for it – the unions in particular,” Washington explains. “He says over and over, the unions need to come to the table. I’m willing to work with them, we have a dire situation here, so it’s up to you to solve the problem. In an interview this weekend he wouldn’t even rule out bankruptcy for the City. I don’t believe for a minute that this man wants to see the City go bankrupt on his watch. But this is this sort of doomsday rhetoric to try to pressure the folks on the other side of the table.”

“Even if they come to the table and they do negotiate and give some concessions, it’s still not enough,” Korecki adds. “He has to raise taxes, and I think everyone knew that during the election.”

And both panelists agree that with increased competition and the development time-line, a casino wouldn’t bring in nearly as much money as it’s supporters claim. “That was his answer during the campaign, says Korecki. “Well, I’m gonna have a casino. But even if it happens, it’s not gonna solve the problem.”

In any case, the bond-rating agencies have all down-graded Chicago, in Moody’s case, to junk status (But, ironically, not Illinois.) Yet, with full knowledge that a finanical armageddon was approaching, the Legislature and incoming governor allowed the temporary income tax increase to expire.

“So now we’re in a much bigger hole,” Korecki asserts. “We’re seeing all kinds of studies showing that residential property taxes in the City are among the lowest. We have a flat state income tax. We’re among the few states with a flat tax. There’s all kinds of structural issues with how we tax in the state, and it’s caught up to us. Besides the big pension issues we’ve talked about forever – politicians borrowing from the funds, not making payments, getting pension holidays, and that’s been going on for decades. Now you have the Supreme Court saying – you have to pay up. You can’t keep doing this, you can’t find a way around it. Pay.”

Spike Lee made news today, appearing with Father Pfleger to assure Chicago that he would, indeed, be here this summer to film “Chiraq”. It’s a controversial project, because Aldermen such as Will Burns a a number of prominent political leaders and commentators have said it will harm Chicago’s image and possibly suppress tourism. Washington’s not having any of it.

“What I like is Spike Lee’s angle on black-on-black crime,” she claims. “Because I think that’s something that’s been under-reported and hasn’t been discussed enough. This is not about outsiders coming in and destroying our communities. We, in many ways, African Americans are hurting our own communities with the violence, and I think that’s what Spike Lee wants to focus on.”

And we close with  some talk about the Obama Library. It’s a good thing, all agree. But we ask if maybe it’s time to acknowledge that, no matter what, the Obamas won’t be coming back to Chicago. Nobody’s going to catch them eating omelets at Velois.

“We don’t see them even showing up at their house,” Washington explains. “They come to Chicago frequently now and they don’t even go to their house. I think they’re gone, and I understand that. They’ve got children who have to finish their education and who they want to be stable for the next several years. And then, you know, New York is the place to be if you want to be an international, or even a national player. And the Foundation has to have some roots in New York, because that’s grand central for  the philanthropic world.”

Oh, and Laura Washington does not think that Michelle will ever get into politics.

 

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CN May 7, 2015

 

Mayor Emanuel thanked a lot of people for helping bring about the Jon Burge torture settlement yesterday at City Council. But he didn’t get around to thanking the guy who, perhaps more than anyone, drove the legal battle and devoted three decades of his life to making the settlement happen. That would be Flint Taylor, who we were honored to have on today’s show.

If you have any interest in this remarkable case, please check out Taylor’s concise, fairly breathtaking verbal timeline of the Burge torture operation beginning in August, 1972 – just, as he says, a few weeks after Burge became a CPD detective.

Also hear Taylor’s description of Deep Badge, the credible insider who leaked critical information to Taylor and helped lead the way to some of Burge’s first victims. Deep Badge, who was never identified even to Taylor, played a major role in breaking the case open in its earliest days.

On this show, we also discuss the new revelations from The Guardian about  a different, but also disturbing level of abuse it claims is going on at the Homan Square facility.  The paper has done more than a dozen stories on the allegedly unconstitutional operations at Homan, and has identified a large number of credible witnesses who detail their unconstitutional interrogations and detentions at the facility.

The Beachwood Reporter’s Steve Rhodes tells us about his concerns that the Chicago media has been reluctant to take on Homan Square or do do any independent investigative work to build on (or discredit) the Guardian stories. He draws a comparison to the early days of Burge, when the Reader’s John Conroy continually wrote about it, but no other reporters would touch the story.

We ask both Rhodes and Taylor whether it might be fair to draw some sort of parallel between Burge and today’s Homan Square, and both say yes.

It’s all on today’s Chicago Newsroom.

 

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CN April 30, 2015

 

“We have had for decades in Illinois a consensus from both parties that what they want from state government is health care, human services, education and public safety,” explains Shriver Center President John Bouman on today’s show. “In fact  over 90 cents on the dollar of discretionary spending in the state budget, that’s exactly what it goes for. So if you’re gonna cut your way out of a budget crisis that’s what you have to  cut.”

But, says Bouman, for decades Illinois has never been able to raise the money to pay for the things it promises. “We’ve had a revenue problem in this state for decades,” he explains. “The recession turned it into a train wreck. And that’s why four years ago the General Assembly passed a temporary income tax increase. Without that, we would now be about thirty billion dollars in deficit…this is not a spending crisis. It’s a revenue crisis.”

Governor Rauner is faced with two significant problems. In one case, the current fiscal year is about four billion dollars short of the budget Pat Quinn left for him, and he also has to develop his own budget for next year that reflects his own priorities.

Why is this year  so out of balance? Because  a temporary increase in the state income tax, enacted for years ago, was automatically reduced this year unless the Legislature reinstated it, and it didn’t. The new anti-tax Governor didn’t want it and instead he made drastic spending reductions. Those reductions included  $1.5 billion in medicaid cuts, 128 million in cuts to the RTA and CTA, and $385 million in cuts to higher education. And numerous cuts to small social service programs.

“These are services that affect the needy,” says the Tribune’s Lolly Bowean. “Sometimes we push away that idea by thinking, well, Im a working person, therefore I’m not needy. But low-income residents come in all shapes and sizes. They’re the retired who are on limited incomes, they are people who are disabled, they are homeless teenagers who find themselves in crisis, so the money that’s being cut comes back home to us when you see that your grandmother can’t take an ambulance to the hospital or that the Pace bus that used to cost three dollars now costs four. So these programs, although they may not feel like they’re being directly used by the middle-class, all of us are touched in some way”

And the situation’s made worse, says Glenn Reedus, who heads DePriest Voters’ Chronicles, because of population shifts.

“You’ve got people leaving Chicago,” he explains, “so you’ve got fewer people trying to fill the pot, and what had been coming in is no longer there, so it’s an impossible situation.”

The battle that’s just getting under way right now, though, isn’t over these immediate cuts the Governor has made to balance the current budget. This big fight is over Rauner’s first budget of his own, the one that takes effect later this year. And it’s going to get interesting.

“I think he knows that there has to be significant revenue,” Bouman speculates. “I think he’s trying to win these business reforms and to make some cuts to protect his right flank. And he needs Republican votes…I don’t think the leaders of the House and Senate are going to be able to get Democratic majorities for the kind  of budget that it looks like is shaping up here, and the Republicans are going to have to vote for some revenue.

 

Among Governor Rauner’s supporters, it’s commonly stated that Illinois is a high-tax state, and that taxes suppress business activity and therefore job creation. But Bouman doesn’t see it that way.

“We’re not talking about the People’s Republic here,” he tells us. “Illinois currently, with the 5% income tax, was around 30th in taxing its people among the 50 states, so with the roll-back we’re back in the bottom third, and we’re not a high-spending state. Three-quarters of the states spend more (as a percentage of residents’ income) on state government than we do. So we’re not talking about putting Illinois in some extreme situation. We’re just talking about being grown-ups and realizing we have to pay for the things we want from state government.”

As to the debate about business climate and whether Illinois is or isn’t business-friendly, Bouman says it’s a bit more nuanced than that.

“There’s a lot of false claims about the relationship between state and local taxes and decisions about business location. It’s a factor, but it’s like, tenth on a list of twelve. More important are the things that you actually need from state government like transportation systems, a good, educated workforce, amenities, a good health system. And, let’s face it, a market.”

And, just to be clear, none of this debate has anything to do with the hundred-or-so billion dollars in shortfall in the pension plans. That’s a whole different discussion.

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