Crain’s Chicago reports that the negotiations between the Chicago Public Schools and the Chicago Teachers Union appear to be deteriorating:
Chicago Public Schools, reacting to yesterday’s rejection of a contract offer by the Chicago Teachers Union, said it would cut an additional $165 million from the budget, while Gov. Bruce Rauner reiterated his intention to put the struggling school district under state control.
The union termed CPS’ announcement “an act of intimidation and bullying because teachers refused to accept a flawed contract offer.†Before scheduled press conferences this afternoon by each side, the CTU said it received a letter from CPS disclosing the budget cuts and the possibility CPS would stop making employee pension contributions on behalf of CTU members.
At a news conference in Springfield, Rauner said he told Illinois Board of Education members to look for an interim superintendent for CPS, the Chicago Sun-Times reported, quoting him: “The state’s going to be ready to step in and take action.â€
Despite the brinkmanship, CPS today said it plans to proceed as early as tomorrow with plans to sell as much as $875 million of bonds after the deal was postponed last week by investors asking for more time to evaluate the securities. “We have good momentum with our investors,” Claypool said.
The article continues:
Chicago’s schools are running out of cash after drawing down reserves and shortchanging pensions for years, which caused its annual payment to soar. The district has relied on borrowing to help cover budget shortfalls, making it crucial to maintain access to the municipal bond market. On Jan. 29, Moody’s Investors Service cut the board deeper into junk, citing an “increasingly precarious liquidity position and acute need for market access to support ongoing operations.”
The basic situation is that Chicago has among the highest property taxes in the country and the highest sales tax of any major city in the country. It does not have the power to levy an income tax. The mayor just announced the largest property tax in the city’s history a couple of months ago.
CPS has a lousy credit rating which means that borrowing is relatively expensive.
The CPS has been postponing payments into its teachers’ retirement fund for decades which has resulted in its owing large payments to the fund.
To add insult to injury the upshot of the mayor’s caving into the CTU’s demands when the CTU went out on strike a couple of years back was that it made the CPS’s financial position worse, increasing both its expenses and its long-term liabilities.
The city just announced a couple of hundred million dollars more in cuts.
There’s an old saying about not being able to get blood from a stone. I don’t think Chicago’s teachers have heard that one.
Show of hands. Who wants to sign up to the fiduciary responsibility and investment accountability to your investors for buying those bonds??
Tasty is losing his mind over on another thread over the issue of discretion to enter into financial contracts. Maybe the Teachers Union figures CPS will put a gun to bond buyers heads.
We have Cullerton/Madigan, and Claypool calling bankruptcy or state takeover a dead stick. As a point of law, suppose the bond issue fails and CPS can’t meet it’s obligations, in particular teachers salaries. What next?
CPS continues on as well as it can. Pays some bills, delays the others. They get sued.
@Drew
You post a link that you are too stupid to understand, and not only can you not grasp the intent, you derive the exact opposite conclusion. Please, submit more links supporting your arguments. It makes my life a lot easier.
Oh and by the way idiot, what do you want to bet that the bonds will be bought by somebody?
It’s that last piece I was wondering about, Dave.
I’ll be more charitable, Tasty, and lament your inability to not think in such a linear fashion. It can be limiting.
The implicit point was that relative to the early aughts the issuers and marketers have changed. Apparently, in your view, banks have learned their lesson and are no longer greedy, while the current issuers and marketers, virtuous before, are now greedy fallen angels.
The more explicit point is that borrowers cannot be forced to take out mortgages, Alt-A or other, any more than they can be forced to finance autos subprime, or vacation in the Bahamas, buy a Rolex watch, dine at the finest steakhouse or buy the premium cable channel package when they cannot afford it. The starting point is their own irresponsibility, vanity and greed. Everyone is greedy, or should we say, acts in their perceived self interest. Only one party is authorized to conclude a voluntary financial transaction.
As for the CPS bond issuance, neither of us knows if it will clear the market. I, at least, only know that Lucco Brazzi and Vito Corleone won’t show up and threaten investors that either their signatures or brains will be on the subscription agreements.
May I respectfully request you endeavor to keep up with the argument in the future.
Guarneri:
Not really any question that CPS cannot go into bankruptcy without the General Assembly passing a law authorizing it.
The State Board of Education has authority to take over school districts outside of Chicago which are found to be failing. The local school board can be fired, and emergency funding allocated. This has been done in places like East St. Louis and North Chicago.
The proposal to expand the “takeover” provision to Chicago, includes authorization to enter bankruptcy. Currently, no school district can enter bankruptcy. That additional bankruptcy provision indicates that the Governor believes, right or wrong, impairment of contracts are necessary to fix things. The U.S. Constitution forbids states from impairing contracts.
Otherwise, the creditor’s remedy is probably filing a writ of mandamus with the circuit court, asking for new taxes earmarked for
debt service. This 1993 University of Chicago Law review article has a good background on the non-bankruptcy laws dealing with municipal government insolvency.
The judicial power to impose taxes has to come from the operation of some other higher law, perhaps including the debt-instrument itself. The problem with raising tax levels is that doing so does not always increase revenues and may damage the fiscal base of the city:
“Creditors thus had an incentive to negotiate debt relief, for to
invoke the only real legal remedy, mandamus, could precipitate a
financial meltdown that would leave creditors worse off than
before. But the final, and most serious, practical difficulty was the
absence of legal means to prevent holdouts from refusing to cooperate with the compromise solution. Often they would insist on obtaining more favorable terms than other creditors, which then caused even willing compromisers to withdraw from the deal. ”
This was the reason local governments sought and obtained a municipal bankruptcy law from Congress in the 30s and 40s, they didn’t want to be left with only the taxing option, but wanted to be able to adjust liabilities and deal with creditors as a class.
Yeah, that’s the reason I referred to suing the city.
Thanks, guys.
This: “But the final, and most serious, practical difficulty was the
absence of legal means to prevent holdouts from refusing to cooperate with the compromise solution. Often they would insist on obtaining more favorable terms than other creditors, which then caused even willing compromisers to withdraw from the deal. â€
….is what makes workouts in a private setting so much fun (snicker) and why participants deep in the cap structure get nuisance payments lest the nuclear option is invoked. Taxing authority would make it almost impossible to reach resolution.
So to be clear, if in the judgment of CPS teacher payroll will not be met in two weeks, and after whatever last second cuts it deems doable are done, it simply does not “fund” and the CTU sues the city hoping to force all creditors to the table for a haircut? It seems suicidal in that the cash flow imbalance is still not rectified, the teachers pension fund would be a hair cut-ee and you would chase away bond investors. I may be missing something but it’s not clear that the CTUs position is enhanced.
@Drew
Interesting how you jumped away from the thread where you posted the link. Here it is for anybody who cares to judge for hi/herself: “Liar Loans” Are Back In 2007 Housing Bubble Redux
You can imagine the post is about anything you like. Your ability to rearrange reality in your mind does not make you brilliant. You are still the idiot you have always been.
My position has been that large pools of cheap money will be spent in some way no matter how foolish it might be. If it were not housing, it would have been something else. The various investment funds needed “safe” and “high return” investments.
I have never blamed “the bankers”, President Bush, or any of the usual boogie men. My argument would be supported by many at ZeroHedge, and let us all not forget that you are the one who endorses the site. The site has many contributors who are in the financial sector, and they would agree with very little you have to say. Frankly, they would not cross the street to put you out if you were on fire. Well, they might if they could piss on you.
Your implicit point is gibberish. You are trying to apply a 1930’s paradigm to the modern world. George Bailey and Mr. Potter’s world is long gone if it ever existed. The article states that “large banks” are staying away. Most of the institutions are not “banks” in the traditional sense. Furthermore, traditional banks were not necessarily directly involved with the mortgages.
Your explicit point is meaningless. Nobody forced any lender to lend one cent to anybody. The last time I checked investing in a US bank was voluntary. If anybody thinks there are too many regulations or it is too burdensome, take your money and invest it in something else. Problem solved. This is how the free-market works.
(Let me help you and all the other dumb asses. Every argument you make about borrowers is applicable to lenders, and lenders have well paid lobbyists. Either, the lenders are getting exactly what they want, or they are too stupid to know what they want. Which is it? I can play this game all day long.)
Of course, you are too stupid to understand any of this. Like a good little right wing dolt, you read the Republican talking points, and you spew back the nonsense without having the foggiest idea of what any of it means. You have no idea of what anything at ZeroHedge means, but the titles sound like Republican talking points. Therefore, you mistakenly draw the conclusion that they are the same, but being a complete idiot, you do not have the slightest idea of how wrong you are.
For anybody who wants to play the home game, go over to ZeroHedge, and peruse the articles for a day or two. They are prolific, but you can skim through many of them. You may disagree with most of them, but you might be surprised to find that while most agree with Sen. Paul a lot of them agree with Sen. Sanders. What you will not find is a lot of agreement with a certain PE investor, but do not take my word for it.
@Drew
If this was the bond sale you meant: Chicago Public Schools Gets Sale Done at Big Penalty, you were wrong again, but what is new.
Somebody somewhere is lending the CPS money. I doubt it is going to turn out well, but I suspect that it is not their money.
BTW, in reaction to the CPS’s bond sale Gov. Rauner gave the obvious response: when you’re issuing bonds to pay operating expenses it’s a sign of a serious problem which the bond sale does nothing to solve. A bond is deferred taxation.
The city’s problem is that it is expanding obligations and a shrinking tax base. IMO the CTU has not come to terms with that reality yet.
Good lord, tasty. I hate to break this to you but in my original post I didn’t even have you in mind. Then you had a seizure. Not sure what kind of demons are rolling around in your head.
As for the narrow point on CPS bonds, I was commenting on desirability. I wouldn’t want to buy them a week ago, yesterday or today, as a money manager or investor. It turns out they had to price them accordingly. Good luck to those that did.
@Drew
I have argued all along that exactly what is happening now is what happened prior to 2008, and it will happen everytime cheap or free money is available. An additional point is that when portfolio managers must manage funds that are expected to produce high returns with little risk, there will be problems.
Large pools of cheap or free money were driving the demand for foolish investments, and they are still driving demand for foolish investments. Today it is not first time home buyers. Instead, it is Wall Street borrowing to buy stocks.
The government pushed the housing purchases, and they are pushing the student loans. Most of the loan standard relaxation has been industry driven, but the government is not blameless. The government has done a lot of damage through the GSE’s, and this allows them to leave no fingerprints.
The government is also pushing the financialization of the economy and making available much of the money.
I know exactly who you were directing the link towards, but you have been mocking my position and claiming I do not know what I am talking about for some time. I suggest that you had better read what you post and understand it. @steve reads political pundits. I do not, and I do not care about your’s, his, or Mother Goose’s political positions.
I see where you added another link in a comment two posts up, and again, it supports everything I have been saying. I have never been in a position where my opponent supplies the support for my arguments thinking it is supporting his. This feels creepy – kind of like taking candy from a baby or hitting a girl. Defending somebody else is different. but on my behalf, I usually fight at or above my weight, physically or intellectually.
Finally, the CPS bond sale is just one more bit of evidence that lenders seek out the most foolish borrower they can find. Unless, there is a super double top secret CRA for public bonds. Well? Yeah, I didn’t think so. They are just dumb asses like the dumb asses ten years ago.
“I have argued all along that exactly what is happening now is what happened prior to 2008,…….”
You don’t really expect me to,disagree with that do you”. But only as it applies to credit standards.
“…..and it will happen everytime cheap or free money is available.”
No. The cost of metered money is different from credit extension. If your income says you could only afford a $300k house and I came along and said a) “buy this $500k house and put a $100k down payment at risk of loss, but I’ll only charge you 3% on the loan” I don’t think you would do it. Or, b) “buy either house, I’ll charge you 5% on the more expensive house loan and 3% on the less expensive, but you only have to put down $15k or $9k, respectively”. You’d probably do that……..and hope. A is an example of cheap money, B is an example of easy credit.
“An additional point is that when portfolio managers must manage funds that are expected to produce high returns with little risk, there will be problems.”
There are no such fund managers. There are no such portfolios. What they generally do is reallocate their portfolio holdings to riskier asset classes, and the portfolio is riskier. It’s called yield chase.
“Large pools of cheap or free money were driving the demand for foolish investments, and they are still driving demand for foolish investments. ”
Again, no. Easy credit in the form of a low amount of equity at risk can drive risk taking, or simply foolish investors. Any reasonable range of cost of money won’t encourage that. The returns required to make up for losses won’t support it.
“Today it is not first time home buyers. Instead, it is Wall Street borrowing to buy stocks.”
And money launderers. Or high end real estate. As long as they have to pay the piper. That’s there’ll culprit. They don’t pay Hillary Clinton those speaking fees for her scintillating oratory.
“The government pushed the housing purchases, and they are pushing the student loans. Most of the loan standard relaxation has been industry driven, but the government is not blameless. The government has done a lot of damage through the GSE’s, and this allows them to leave no fingerprints.”
And then blames the lenders in public, but bails them out. Only the taxpayers lose. It’s been my essential point since 2008.
Lastly, I haven’t been mocking your position, but rather the breathless and pedantic delivery of what really are age old debates about fiat vs commodity money, moral hazard, prudent credit standards etc. I think I even made a snide remark about needing the secret handshake to understand it. I think we pretty much agree that western countries have lost their financial disciplines. I’d suggest you revisit notions of cost vs availability of money, and that cheap money makes professional money managers take outsized risks. It’s really a credit issue, with, in the case of homebuyers, every bit as greedy and desirous of using that EZ credit for personal gain, with cost of money more at the margin. People who use payday or title loans know they shouldn’t be buying houses.
@Drew
There are no such fund managers. …
We are just going to stop right there. You assured everybody that the CPS bonds would not be sold, and you were wrong. (You are supposed to be the expert. Remember?)
Furthermore, you keep providing links that refute your argument. Above, I included the link you originally posted that says this is exactly what happened prior to 2008, and it is what is happening again.
If I am breathless, it is only because you introduced me to ZeroHedge, and if there is a secret handshake, they would know about it.