Chicago Board of Education members got grilled over the district's questionable bond deals at a raucous school board meeting Wednesday evening.
It was the first school board meeting since the Chicago Tribune published a series of reports on the schools district's controversial borrowing decisions. The newspaper's analysis showed that between 2003 and 2007, the Chicago Public Schools (CPS) entered into auction-rate bond and interest-rate swap agreements with financial institutions that could cost at least $100 million more over the life of the contracts than traditional borrowing methods would have.
In light of the Tribune's investigation, mayoral candidate Ald. Bob Fioretti (2nd), who attended the school board meeting, introduced a city council resolution last week with his Progressive Reform Caucus colleagues demanding hearings into the "current borrowing practices of the Chicago Public Schools." The council's education committee is expected to hold a hearing on the matter, though a date has yet to be determined.
"We closed over 50 schools supposedly to help save the budget, but meanwhile we lost more than $100 million gambling on Wall Street," Fioretti said at the school board meeting, held at George Westinghouse College Preparatory High School. "That's $100 million that could have been used to save some of these schools, pay our teachers, provide resources to our struggling schools and more."
Fioretti urged school officials and the mayor to sue the banks or file for arbitration in an attempt to terminate the deals. They could also ask the banks to voluntarily renegotiate the contracts, the alderman said.
"Gambling with our children's future is not the same as investing in it," he added. "The people of Chicago should not stand to have their children used as an investment opportunity so bankers and millionaires can profit. Do something about it."
Chicago Teachers Union (CTU) Recording Secretary Michael Brunson noted that other municipalities have arbitrated and "successfully pressured the banks to end the toxic-rate swaps."
"You can do the same," he stressed. "Go get that money ... Our students and parents will back you on this. The citizens of this city will back you on this."
Brunson also called the projected $100 million cost of the risky financial deals a "conservative estimate."
"Our analysts have calculated there's already been a loss of $200 million in interest payments so far, and it will extend to $400 million over the life of the contract," Bruson said. "That translates to a job loss of over 4,000 educators."
In response to Brunson's comments, Board President David Vitale said, "You're facts are not correct," which caused audience members to shout, "Read the Tribune!" and "You're embarrassed because you made a mistake!"
After being heckled, Vitale said, "Alright, so move on," directing the secretary to call the next public speaker.
Much of the heat from the audience was directed at Vitale, who previously served as CPS' chief administrative officer from 2003 to 2008. Vitale is also the former president and CEO of the Chicago Board of Trade and the former vice chairman and director of Bank One Corp.
"Responsibility for pursuing such a risky financial course rests squarely on David Vitale," reads the city council resolution calling for hearings into CPS' borrowing practices.
Speaker after speaker, meanwhile, noted that the CTU and activists have been sounding the alarm on these deals for the past three years.
And at the same time, the mayor and school board told "us there was nothing we could do about budgets, that we had to close schools and layoff staff, close libraries, increase class sizes," said CPS parent Matthew Luskin.
"While that was happening, Goldman Sachs, Bank of America, Loop Capital and others took $237 million in profits from CPS through these deals -- this is according to CPS' numbers," he said. "We understand that you just can't walk away from these deals, that there's huge penalties tied to these predatory agreements. We get that. We have brought you legal and financial experts ... and people who say our facts are correct, and you have options here."
CTU Staff Coordinator Jackson Potter echoed Luskin's comments, saying school officials "didn't believe us when we said this was a real issue."
"You said the banks were upstanding and honorable, and you questioned whether or not we knew what we were talking about," he told the board and CPS CEO Barbara Byrd-Bennett. "That time is over. You have financial experts from across the country now raising the alarming. This is very serious. It's your duty and obligation to revisit this question and make amends for any mistakes or oversights that may have occurred."
Later in the meeting, board member Henry Bienen attempted to address the issue.
"These are very complicated issues when you talk about the amount of money that could have been saved or was spent," he said, adding that it would be useful if the board issued a "fact sheet and assumptions on these matters."
"We'll do that," responded Vitale, to which an audience member screamed, "It's a school system! We don't need the point of the view of the banks. We need the point of view of the students."
Jackson also interjected: "Why not say you'll consider legal action, Henry?"
"I don't know that I would be against that. Particularly, I'd really like to know...," Bienen said before he was cut off by someone in the audience who yelled, "So do it!"
Bienen asked audience members to not interrupt, but people continued to talk over him.
"We're going to move on with the meeting," Vitale said. "This is not productive."
Bienen and Vitale said they would be willing to continue the conversation with Potter at a later time.
"I'm always in the office, Jackson. You know that," Vitale said.
In other news, the school district supports Mayor Rahm Emanuel's call for city sister agencies to lift their hourly minimum wage to $13, up from the current $8.25, Byrd-Bennett said at the start of the meeting.
"I'm pleased to announce that the district is exploring raising the minimum wage to $13 per hour," she said. "We're supportive of the mayor's vision, and intend to put together a plan to ultimately follow all of the sister agencies. We agree with the mayor that this wage increase is the right thing to do."