Kill the Machine
Every person in any career should spend 90 minutes in a classroom at least one time in a school year, sharing their stories and setting an example for the students,” he said. “It’s part of giving back. These kids generally don’t see enough examples of why education is important or who they could be or what they could do.
— Brad Keywell, Groupon co-foundervia Sun-Times.
This is a brilliant idea.
Kudos to Mr. Keywell for putting this together.
A leading bond-rating agency has downgraded the Chicago Board of Education’s debt in the wake of the settlement of the Chicago Teacher’s Union’s recent strike.
Moody’s Investor Service had already downgraded the Chicago Public Schools’ bond rating outlook to “negative” from stable in July, and cited Thursday the rating agency’s “view that the district will be hard-pressed to make the budget adjustments necessary to close an estimated $1 billion budget gap for fiscal 2014.”
The schools’ downgrade to an A2 rating “reflects a weakened financial profile” born of depletion of reserves, a coming jump in pension payments after three years in which state law was changed to reduce the payments temporarily, slow payment of state money–and the recent strike, Moody’s said in a release.”If progress is not made toward improving the financial condition and liquidity of district operating funds, or if challenges arise in making the required pension contributions, the district’s general obligation credit quality will be impaired,” according to the release.
Strikes by other unions, more delays in state funding or “unmanageable” increases in pension costs could result in further ratings downgrades, Moody’s warned.
A spokesperson for Chicago Public Schools wasn’t immediately available to comment on the downgrade.
via Chicago Tribune.
CPS is falling apart. The biggest losers here are the poor families generally on the South and West sides that have no other options for their children. It’s the false choice of failing CPS school A or failing CPS school B.
Rahm caved. He owns this. Epic fail.
… Newark, N.J. Mayor Cory Booker and former New York Gov. David Paterson — who spoke Tuesday morning about recidivism and racism at a panel hosted by Stroock law firm — say.
During the talk, Paterson observed the smartest students in the Chicago Public School system are the gang leaders because they’re giving kids what they need — structure, a way to make money, and some sense of belonging.
Until society steps up and gives those kids that same sense of security, according to Paterson, this non-stop cycle of people going to prison on nonviolent drug offenses is never going to end.
via Business Insider.
These two guys are real pieces of work. Newark is quite likely the only city in America worst off than Detroit and East St. Louis. Why doesn’t he fix his own damn problems before telling us who our smart kids are?
Doesn’t he have any gang leaders smart kids in Newark he can talk about? Why drag us down to Newark’s standards?
What a jerk.
Ok, so I was getting asked about this the other day both in person and in the comments about why the pensions are really in such bad shape and what the latest GASB positions mean to the funds. GASB first.
GASB Changes
I did some poking around and the recent GASB changes really mean nothing.
After six years of research and about 400 pages of text, GASB’s statements 67 and 68 do little to provide enough meaningful information about the potential retirement costs faced by the taxpayers. The statements will force the worst of the worse, such as Illinois, to recognize a much larger liability.
That’s like throwing the zombified Walking Dead under the bus to give the appearance of taking a serious step in providing transparency. Zombies are already dead. You can throw them under a bulldozer; it doesn’t make them more dead. …
The new standards still allow most pension funds to choose their discount rates when determining their pension liabilities. In other words, the sworn and civilian plans of the City of Los Angeles can wantonly throw caution to the wind and assume a 7.75% earnings assumption going forward, avoiding any consideration of risk.
via City Watch LA.
You can read the policy papers. It’s pages and pages of nonsense summarized nicely with the zombie analogy above.
But what the lastest GASB changes point out to us is the danger regarding the assumed internal rate of return.
Interest Rate Issue
For giggles I found the 2011 annual report of the Chicago Teachers’ Pension Fund. It’s 116 pages detailing a underfunded, mismanagement, no financial understanding pension time-bomb with some lipstick.
From page 13:
As of June 30, 2011, investments at fair value plus cash totaled $10,456,912,118. This reflects a 16.8% increase from the $8,949,590,783 value of June 30, 2010. The Fund’s investment performance rate of return for the year ended June 30, 2011, was 24.8%, exceeding the projected return of 8% and reflecting a 82.3% increase from the 13.6% performance rate of return as of June 30, 2010. The ten-year rate of return posted by the Fund for the period ended June 30, 2011, was 5.7%, and fell short of the actuarial assumption of 8%.
That’s a lot of information. I draw your attention to the incredible swings in the rate of return of the fund over the years. 24.8% one year, 13.6% another, however the 10-year average is a mere 5.7%. On page 25 we learn that the 5-year average is only 4.7%. Yikes!! But the fund assumes that over the long term it will average 8%.
But what does that mean? So what?
Well, the fund currently has net assets of $10.344 billion. When invested at the given rate of returns at the end of 5 years we have:
| Year | Value @ 4.7% | Value @ 5.7% | Value @ 8% |
| 0 | $10,344,100,000.00 | $10,344,100,000.00 | $10,344,100,000.00 |
| 1 | $10,830,272,700.00 | $10,933,713,700.00 | $11,171,628,000.00 |
| 2 | $11,339,295,516.90 | $11,556,935,380.90 | $12,065,358,240.00 |
| 3 | $11,872,242,406.19 | $12,215,680,697.61 | $13,030,586,899.20 |
| 4 | $12,430,237,799.29 | $12,911,974,497.38 | $14,073,033,851.14 |
| 5 | $13,014,458,975.85 | $13,647,957,043.73 | $15,198,876,559.23 |
If the next 5 years are like the past 5 years the fund will earn 4.7% on its assets. So in 5 years it will have $13.014 billion.
In the next 5 years are like the past 10 years the fund will earn 5.7% on its assets. So in 5 years it will have $13.646 billion.
However the plan assumes that over the next 5 years it will follow the 8% column and have $15.1 billion. History is against them.
If the fund earns 5.7% over the next 5 years it will be $1.55 billion short of projections. That’s 10% less money available.
If the fund earns 4.7% over the next 5 years it will be $2.18 billion short of projections. That’s 14% less money available.
If all the assumptions go on for 10 years:
| Year | Value @ 4.7% | Value @ 5.7% | Value @ 8% |
| 10 | $16,374,178,752.54 | $18,007,050,537.73 | $22,332,136,064.29 |
Earning 5.7% the fund is $4.33 billion short or 19.3%.
Earning 4.7% the fund is $5.95 billion short or 26.6%.
So if the next 10 years are anything like the past 10 years from an investment standpoint we can expect the all the state pension funds to have about 20% less money than they’re projecting. That could easily be another $40-50 billion that someone’s going to come looking for.
– – –
Now in all fairness, a historic average suggest that a return rate of 8% could be reasonable. i.e. These funds may be able to earn an 8% return in the next 5 years. Why?
Interest Rates & Inflation. In the last 5 – 10 years there has been very little inflation and interest rates have been low. That’s generally accepted to be a good thing. However it messes with the long-term analysis as to what something will be worth in the future.
Given the amount of debt carried by the Feds, and the quantitative easing (a/k/a money printing) that been happening, it’s safe to say that very soon interest rates are going to start going up… fast and dramatically.
When interest rates go up, the rate of return on these pension funds should go up as well. If they get close to the 8%, then we’ll only have to worry about the current short fall of billions and billions and billions.
Any questions?
The union and HuffPo object:
Stand for Children is a non-profit education reform group advocating for the inclusion of standardized test scores in teacher evaluations, charter schools and decreased teacher union power. Over the past three years, the group’s political action committee has raised more than $4 million and doled out more than $1 million to politicians, political parties and other political committees in Chicago and around Illinois. That’s more than double the $460,000 the Chicago Teachers Union PAC has given to political campaigns and other committees over the same period of time. While contributions from the Illinois Federation of Teachers bring the two sides into closer competition, much of IFT’s contributions went to a Supreme Court race in 2010.
via HoffPo.
It’s bizarre to me how anyone can get behind the current union, CPS model. It’s so clearly failing. … Well maybe what we have is a tale of two school systems — one that services the middle-class on the North and Northwest Sides and South Loop, and another that dooms the poor kids on the South and West sides to lives in poverty. But that’s a topic for another post.
What we have is CTU standing in the way of progress. They don’t want teachers to be accountable for anything. When 79% of 8th graders are not proficient in reading and Karen Lewis says, “Give us more money” and “You can’t evaluate teachers” the message is clear that she, a/k/a the union, have no interest in teaching… only the money for even the worst of the worst.
Four years of up-to-the-limit property tax increases for Chicago homeowners and businesses. Closing scores of under-enrolled and underperforming schools. Thousands of layoffs of teachers and other school staff. More cuts to the central office.
That’s what could await the Chicago Public Schools, thanks to the tentative agreement between teachers and the district that is expected to put an end to the five-day teachers strike.
Civic Federation President Laurence Msall said the 16 percent pay raise included in the tentative agreement will almost certainly trigger massive layoffs and scores of school closings.
via Chicago Sun-Times.
Well Duh!
This comes as a surprise to no one. What did CTU think was going to happen when you have a broke and bankrupt system giving 16% raises to it’s staff? You balance the budget by having less staff.
This is just like the minimum wage discussion: If the minimum wage was $25/hour there would be fewer people working… not more. And the price of your hamburger and groceries would be 20-50% higher.
When you artificially increase wages in the private sector you get inflation. When you artificially increase wages in the public sector you get a bankrupt public sector.
Striking Chicago teachers fear that once they approve a new contract with the school district and end their strike, Mayor Rahm Emanuel will go ahead with dozens of school closings because of falling enrollment and poor academic performance.
via Reuters.
Really? Well what do they think the mayor should do when the city is shrinking and budgets are in the red and the students are failing?
The union’s position is ‘just keep giving us more and more money to achieve less and less.’ It’s unsustainable.
Epic fail.
On the fourth day of the teachers’ strike, protesters targeted school board member Penny Pritzker, whose family owns the Hyatt hotel chain.
At 3:30 p.m., thousands of demonstrators dressed in red gathered outside the Hyatt Regency Chicago, at 151 E. Wacker Dr., protesting the $5.2 million in TIF money the city provided for a new Hyatt hotel in the Hyde Park neighborhood. Around 4 p.m., they began marching south on Michigan Avenue toward the South Loop.
Protesters said the TIF money spent on the Hyatt in Hyde Park would have been better used to improve schools in the neighborhood, and avoid budget cuts that have hurt the local schools.
via CBS Chicago.
Indeed, the TIF system in broken and the law needs to be repealed in Springfield. Of that there can be no argument.
But let’s look at this for just a second…
$5.2 million for the new Hyatt. 26,000 CPS teachers.
That’s $200 per teacher. That would be an average salary increase of 0.000026% for each teacher FOR ONE YEAR.
And that my friends is why unions suck. They will keep the kids on the street fighting over mice nuts. For all their fancy “for the children” rhetoric it’s really about draining every last nickel from the taxpayer.
Leaches.
Then is an adverb referring to a period of time.
Than is a conjunction used to make a comparison.
I guess no one should be surprised given that 79% of CPS 8th graders are not proficient in reading.
When schoolchildren start paying union dues, that’s when I’ll start representing the interests of school children.
— Albert Shanker, former president of the United Federation of Teachers
I wrote about this before, how the truth is that CTU, WEAC, and all other teacher’s unions have a fiduciary duty to the union members. The union cannot do anything which would advance the interests of non-members (i.e. children) to the detriment of the members (i.e. teachers.)
This is a very simple legal principle that most educated people easily understand.
Of course there’s the greater philosophical discussion that should take place as to whether of not unions of government employees are to anyone’s benefit.
The process of collective bargaining, as usually understood, cannot be transplanted into the public service.
— F.D. Roosevelt, in 1937 to the National Federation of Federal Employees
The idea being that when private sector employees collectively bargain they can overplay their hand only to their own detriment as well and to the detriment of their employer. Another company will be the beneficiary of the higher wages (and cost of goods/services) of the first. This is not true in government where there is no competition.
Anyone seeking more and more from the public coffers should be considered with extreme skepticism.