How much will the new settlement between the CTU and Chicago Public Schools, which has now been ratified, end up costing? CUBS WIN! Is using TIF money to fill budget holes at CPS a good idea? CUBS WIN! Is the City of Chicago’s financial ship actually beginning to right itself since the budget office is finally reducing persistent structural deficits and getting out from under high-interest loans?
Bobby Otter, fortunately, is a Sox fan, so he was able to keep focused during our conversation today about our City’s financial stresses. As budget Director for the Center on Tax and Budget Accountability, he has some keen insights regarding state and local finances. And as Cubs fever wears off, you’ll probably find yourself asking – hey, where can I find some sober analysis of state funding shortfalls and the Lockbox Amendment?
Well, you’ve come to the right place. Here are some highlights from Bobby Otter’s comments.
On the CTBA’s opposition to the Illinois Safe Roads Amendment (“the lockbox”) and why you should vote “no”.
There’s better ways to do this. It’s a noble goal, but there’s better ways to do it…the issue with the lockbox amendment is not necessarily what it’s trying to accomplish, but it’s how they’re accomplishing it. So they want to put in a constitutional amendment that says any revenue generated through transportation issues, be it the gas tax, that’s probably the biggest one, that has to go towards projects, infrastructure projects for roads and transportation and what-not. Sounds great. Using the Constitution to do that though greatly greatly limits the wiggle room and the flexibility that governments have, especially local governments. It sounds great and overall we agree, infrastructure investment is needed at the state and city level, but there’s better ways to do it. Constitutional amendment is definitely not the best way to do it. It’s probably better to do it through statutes or other things to give the flexibility, because once you’re locked in in a constitutional amendment you’re locked in.
On the CTBA’s recently released study about how the legislature and governor managed to make massive cuts in state spending on safety and human services without holding a single vote:
If people remember there was a budget impasse pretty much for the all of FY16 which runs from July 1st to June 30th, so we had an actual budget for FY16 for I forget, but it was roughly 12 hours. It wasn’t long… However, spending continued to take place even though we didn’t have a budget last year. Schools were open. Hospitals were receiving patients. Jails continued…What happened was that a bunch of court orders and consent decrees were handed down by the courts saying you have to continue spending money on healthcare, so like Medicaid for example, so hospitals can continue to get paid for seeing patients. A lot of human services also fell into this category, and some public safety fell into this category.
They did pass a budget for K through 12 education, so the schools got their money last year, and they didn’t pass anything and the courts really didn’t say anything on higher education. So higher ed actually went most of the year without money. Now they did a couple of things throughout the course of the year, and roughly about $700-million got to higher ed, which is still a huge cut from the previous year. In FY15 we spent $1.9-billion on higher education. In FY16 we spent $622-million in higher education, so a $1.3-billion cut in higher education.
That was voted on. The General Assembly and the Governor and everybody voted on that and it was signed into law. On the education side, everybody agreed upon this, but that only consisted of about $7-billion of spending at the State level. We still spent another roughly $21-billion, so only a third of what was spent was actually approved by the General Assembly and the Governor. That’s their job, right, to pass the budget. They only passed a third of the budget. The other two-thirds was in the form of consent decrees and court orders and continuing appropriations, so things continue to happen.
Then when you kind of drill down even more and look at what they actually spent – they got the authority to spend $21.5-billion, but they only actually spent $20-billion. So there’s about $1.5-billion that the State was authorized to spend again through court orders, consent decrees and what-not, but they didn’t spend that, and that’s the gray area. Why didn’t they spend that? Who made that decision? What programs weren’t properly funded? That’s kind of up for debate right now, and that’s what our report looked at is kind of drilling down through FY15, using 15 as a starting point, through 16 and looking at okay, what was approved. Again, two-thirds of that was from consent decree and court orders, not the elected officials which is how it normally should work, and therefore there was a lot of non-transparency. So we didn’t see, especially once we start digging into this $1.5-billion of spending that didn’t happen, why didn’t it happen? And we don’t know, because again there was no…public deliberation on it.
On the impact the newly ratified contract will have on CPS budgets for the next three years:
Overall it looks pretty cost-neutral at the end of the day when you kind of add the numbers up. Probably some more costs than the district expected or was budgeting for FY17… though it’s not like a ton more money. The last contract ended up costing the district about $175 to $100-million in that first year more than they budgeted. This looks like about 50-million as the Sun-Times is reporting. A lot of the savings actually probably took place last year because there was no COLA, Cost of Living Adjustments made last year. There were no step-and-lanes for teachers last year, so a lot of the savings probably already happened for the district.
On the State’s promise to allocate $215 million more to CPS in return for an agreement on “pension reform.” What does that mean? What would qualify as pension reform?
Could they just pass for instance SB1, which they passed under Governor Quinn and has since been found unconstitutional? I mean would that qualify? Would that release the $215-million? I think it would but who knows. I mean yes, they could pass another unconstitutional pension reform bill. Sorry, they could pass another pension reform bill that may be found unconstitutional, or is likely to be found unconstitutional, and I guess supposedly that would free up the money for CPS…But this money, this is the only money that right now CPS doesn’t have in the bank. They budgeted to receive it, but they don’t actually have it right now.
On the decline of the CPS student population, and its fiscal ramifications:
This is a really big issue because it affects funding especially from the State. The district has been losing students every year at about a 1% clip, but this year we saw a pretty substantial loss of students of roughly 12,000 from last year. That’s going to impact the bottom line of the district, maybe not this year, but in years to come because of the way the State formula works – it depends on how many students you’re educating…a lot of CPS’s costs right now won’t also decline with the decline in enrollment…the district’s pension costs right now and unfunded liability on those pensions, that’s one of the main drivers for CPS right now. They are seeing declining revenue, but expenditures are either going to stay flat or most likely increase with the pension.
On the State of Illinois being 50 out of 50 among the states with regard to funding for education:
We are last when it comes to the share of education funding that comes from the State. The State just doesn’t properly fund education in K through 12 and higher ed. And especially districts that are at risk with a lot of at risk students or high poverty students. They’re not receiving the money that they need to properly educate their students, and CPS with 80 to 85% low income, that’s a lot of students that aren’t receiving the necessary revenue from the State to educate them.
On how popular it is to tell the stories of thousands of Illinoisans running for the Indiana border to escape our exorbitant taxes.
Yeah, that’s very misleading. We are actually in the lower third when it comes to our tax burden in the State of Illinois. We have a very narrow sales tax base for starters. We only tax goods. Most services aren’t taxed in the State of Illinois on sales taxes…And then you look at our income tax rate at 3.75 flat, personal income tax rate and a flat tax, everyone is paying that no matter how much money they make, that’s one of the lower tax rates, especially when you start comparing it to most states who have graduated rates…At the end of the day our total tax burden in the State of Illinois actually puts us probably around 35th in the nation.
You can read a complete transcript of this conversation HERE: cn-transcript-nov-3-2016