Tag Archives: Chicago Public Schools

Chicago Tribune scrutinizes CPS bond deal

The Chicago Tribune published an extensive, front page feature on the Chicago Public School District’s use of innovative borrowing strategies over the last decade, which appears to have backfired and inflated borrowing costs by $100 million.

Appearing in the Sunday print edition of the newspaper, the story centers around the district’s practice of issuing auction-rate bonds, paired with interest rate swaps, to reduce the cost of borrowing money. In contrast to more traditional, fixed-rate bonds issued by school districts and municipalities, the variable rate instruments were subject to future market conditions and in this case, ultimately moved against the district. Servicing the debt became more costly, and breaking out of the contract required large lump-sum payments.

Several academics, financial professionals and public officials contacted for the story said greater consideration should have been given to the potential risks involved. The district’s financial advisors who crafted the deals defended them, disputing the newspaper’s analysis that concluded that they cost the district $100 million.

A couple notes: first of all, reporters Jason Grotto and Heather Gillers did a great job with this story. It’s a serious, in-depth piece on a local topic of real civic importance, showcasing one of the strengths of newspaper journalism. That’s not to say I endorse every sentence or every shade of tone and nuance in the article, but that’s beside the point. The point is that this is important, engaging reporting. Definitely worth my Sunday subscription price.

Secondly, it should be noted that the district and its financial people weren’t crazy or irresponsible for considering the new type of deals that were being used more often during the early 2000s. Innovation occurs in the financial industry just like every other industry, and just because something is new and more complex, doesn’t mean it’s wrong or irresponsible.

Thirdly, that being said, I believe (and I think most reasonable citizens would believe), that a school district should generally take a conservative approach to resource management and financial planning. That might mean you don’t try to shake a point or two out of every deal, if it means incurring an unpredictable future liability stream.

Fourthly and finally, I thought that the reaction of the CPS advisors in response to this article was lacking, at least in terms of what was published. The competing analysis they submitted in response to the Tribune analysis omitted key information, leaving their defense of the deals less credible. Again, it’s not always wrong to take calculated risks, but if the deals don’t work out, just say that, rather than stretch or skew an analysis stating that they did.

But worst of all was Adela Cepeda‘s attempt to strike back at the newspaper for investigating the public school district’s finances. “I consider the slant of the reporters for this article to be absolutely biased and outright sexist,” she said in a letter to the Tribune. She also criticized the paper for consulting a New York firm to review their own analysis before publishing, only to then use a New York firm herself to submit her own analysis.

Cepeda earned an MBA at the University of Chicago, and was in banking for ten years, according to the article. She married into a politically connected family on the city’s South Side, and very shortly after forming her firm won contracts with CPS. Her partner, David Vitale, is a former Chicago Board of Trade president and currently serves as president of the school board.


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Abusive employees stayed on job under Duncan

Arne Duncan is Secretary of the U.S. Department of Education

Arne Duncan is Secretary of the U.S. Department of Education

As former CEO of the Chicago Public Schools, Arne Duncan and President Barack Obama have known each other for some time. Duncan has been billed by some as a reformer for his efforts to turn around the nation’s beleaguered, third largest school district. He supported charter schools and performance pay, upsetting teachers unions and bureaucrats in the process. His appointment as Secretary of the U.S. Department of Education gave some observers hope that as president, Obama might not be as beholden to the government education establishment as he was during his state and federal legislative career.

Now, evidence is emerging that hundreds of school children were beaten during Duncan’s tenure as chief, which began in 2001.  According to a CBS-2 Chicago investigative report, 818 students allege being battered by school personnel since 2003, and at least 568 of those claims were found to be credible by the school district.  Most of the victims were in grades K-8, and endured abuse at the hands of a teacher, aide, coach, security guard or principal. Corporal punishment is illegal in the state of Illinois.

The news station informed Duncan of their findings before he became education secretary. Award-winning reporter Dave Savini has the story:

“If someone hits a student, they are going to be fired. It’s very, very simple,” Duncan said. Before heading to Washington, he vowed to take action. “Any founded allegation where an adult is hitting a child, hitting a student – they’re going to be gone,” Duncan said.

But that’s not what happened under Duncan’s watch. Of the 568 verified cases, only 24 led to termination. Records show one teacher who quote “battered students for several years” was simply given a “warning” by the Board of Education.

So what’s the point?

The point is, why have we not heard about this before? Why was it not brought up in nomination hearings? Exactly why were only 24 teachers let go? No doubt they were protected by the teachers unions….but did Duncan stand up against the unions in this case, or did he roll over for them? What specifically did he do to see that adults who hit kids in public schools were removed from those schools?

Believe me, I know full well Obama could have done a lot worse than choosing Duncan as his education czar. And no doubt managing the Chicago public school system would be a nightmare – there are inevitable failures and disappointments that come with a post like that. But these are some questions worth asking of our nation’s highest ranking education official.

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