| |
Phony deficits planned again…
The legacy of Vallas’ financial manipulations: feast or famine?
By Leo Gorenstein
 Vallas is running for
Governor based on the claim that he left the school system with a $345
million surplus for the fiscal year that ends this June. Yet the Chicago
Board took the extremely unusual step of shifting $49 million from the
funds meant for educating children to pay its debt on bonds in June 2001.
And in late February, all schools received an urgent memo telling them
to plan for a 5% cut in their budget in the current fiscal year, and a
10% cut in their school’s budget for next school year. Further, vendors
are complaining that the Board has instituted a major slowdown in paying
them.
The school system faces
escalating bond debts in the next several years, as the cost of money
borrowed in the last seven years to build and rehabilitate schools mounts
up. So, is the school system in a rosy financial situation (as Vallas
claims) or facing a serious deficit? Answering this question will require
some painstaking investigation. The history of the Chicago Board is filled
with financial trickery.
In fall 1993, for example,
the Board of Education cut 500 high school teachers and 283 elementary
teachers, claiming a financial crisis.
And it was reported
in the mainstream press that everyone agreed, including all the “watchdog”
groups (except Substance. See Substance, September 1993), that the board
really did face a deficit, this time. Unlike the past, the Chicago media
reported, the board really did have a tight budget.
On September 8, 1993,
as school began, Diana Nelson, the president of the business community’s
reform group Leadership for Quality Education (LQE), speaking in the auditorium
of the Northern Trust bank, claimed that all the “watchdog groups”
that traditionally monitored school finances agreed that the schools couldn’t
cut anymore from its budget. Nelson never mentioned that LQE’s own
budget analysts had recommended significant cuts from the budget in their
summer budget testimony.
Then, one week later,
the Chicago Teachers Union gave $61 million in concessions. The union’s
leaders told their members that it was absolutely necessary to make these
concessions. The bulk of the $61 million came from the above classroom
teacher cuts and the CTU gave up on trying to win back the 352 jobs of
the laid off truant officers, clerks and library aides.
But the board wound
up the 1993-94 school year with a surplus around $100 million. How’d
they do it?
Board has a laundry list of deficit building budget tricks
To predict a deficit
for the future one can underestimate revenue, overestimate expenditures,
or do both. Prior to the 1993-94 school year, the board mainly relied
on overestimating expenditures in the biggest area in the budget, employee
compensation. After the 1994-95 school year began, it became clear that
the board had overestimated total employee compensation by about $90 million
for the 93-94 school year. (See Substance, September, 1994.) It became
apparent that the CTU didn’t need to make the $61 million in concessions,
that the students didn’t need to lose all those classes, and that
the teachers didn’t need to lose all those jobs.
But, as one source
told Substance at the time, “They really loaded last year’s
budget.” Here are some of the techniques the board has used over
the
years.
- The budget-jobs-at-more-than-they-cost trick. In 1993-94, the board’s
pre-concession budget claimed that 3000 less employees would cost $82
million more than the year before. They did this even though the average
Chicago teacher salary went down from $43,087 in 1992-93 to $42,125
in 1993-94.
- The budget-all-jobs-at-100% technique. It’s impossible for any
entity with 45,000 jobs to keep all of them filled all the time so most
large institutions budget for savings from vacancies by budgeting positions
at, for example, 97% of cost rather than 100%. The city budgeted for
a 3% savings from vacancies. But, in the early 90s, the Chicago School
Finance Authority (SFA) wouldn’t allow the board to use a vacancy
allowance. It wasn’t until the 1995-96 school year that the board
finally used a small .75% vacancy allowance.
- Claim that you can’t reduce the year-end cash balance no matter
how huge. Every year the board plans to end the year with cash on hand
which is something any organization would want to do. The problem is
that the board has ended many years with quite a bit more cash on hand
than it said it would. Because of this practice and huge end of the
year balances, the Illinois legislature both prior to the 1990-91 and
the 1993-94 school years forced the board to reduce their ending balance
and use it to reduce the claimed deficit. At the end of the 2000-01
school year, the board had a $346 million ending balance according to
its current budget. In fact, it had so much surplus it took $49 million
of the surplus to pay off bond debt. Way back in the 1980s, then board
budget director Rufus Glaspar questioned how much the ending balance
(then set by the SFAs restriction calculation) should be. He said he
didn’t know if the ending balance should be $20 million, $50 million,
or $100 million at that time, but that it should be looked at to determine
what’s right. The same is true today.
- Throw lots of money in budget nooks and crannies with catchy names
like “Other Charges”. During 1993-94, when the board gained
$61 million in concessions from the CTU, they ended the year with a
$197.5 million cash surplus in “Other Charges”. Enough said.
There are many more
techniques and tricks to building a deficit projections.
- Underestimating revenue wasn’t even in the above list but it
provided for large surpluses at times in the past.
Historically, the board
has been able to keep down the ending fund balance by spending many millions
on items that weren’t in the original budget. They knew they’d
be able to do this because of the above techniques they used. That’s
why the public only saw a $50 million surplus at the end of the 93-94
school year, not the actual $100 million.
“You may never see that $100 million figure. They inflated some
revenue which will reduce the figure and they will spend [some of the
surplus] it and will encumber other money [to reduce the final surplus
figure],” a source told Substance at the time.
During the 1993-94
school year, once it became apparent that they would have a huge surplus,
the board spent $50 million on what it termed “critical needs”.
This included $9 million for building repairs, $19.5 million for management
information systems, $14.6 million for educational environment, and $7.2
million for instructional support.
Here we go again
Chicago teachers should
prepare themselves for an onslaught of dire deficit predictions. But one
can rest assured that a significant part of those dollars will be built
on false, or unnecessary premises. Do the schools need more money? Sure.
Did Paul Vallas spend, spend and spend some more for the bureaucracy and
other of his treasured projects? He sure did. Will the CTU be under great
pressure to cave in? Of course.
But don’t lose
heart. Just look in the biggest piles.
|
|
