Leave it to Obama’s hometown to treat real money like monopoly money! Obama’s old buddy Mayor Rahm Emanuel has made such a mess of Chicago. Then again, what Democrat led city isn’t a mess?
Illinois on the whole is a financial disaster with a pension crisis which has the state on the verge of receiving a credit rating downgraded to junk status. Overborrowing without any ability to repay debts is par for the course in Illinois and the latest loan is no exception. The state can’t even pay it’s lottery winners! It’s not like Illinois property taxes are the highest in the nation or anything. Oh, wait yes they are. What in the world are they doing with all that money? Apparently, making interest payments.
H/T Illinois Policy
“In July, Chicago Public Schools borrowed $500 million in long-term, high-interest loans. These loans, taken out at interest rates between 7.25-7.65 percent, will cost the district more than $850 million in interest costs alone for a total cost of $1.35 billion, according to a Chicago Tribune analysis.
CPS will pay off the loans over 25 years, paying roughly $35 million a year in interest. Adjusted for inflation, the total value of the interest on the loan is roughly $405 million.
As the Tribune notes, by the time the loan is paid off, CPS students entering kindergarten this fall will be in their mid-30s.
The district plans to use $229 million from the $500 million loan to recoup losses on bonds from previous years. The district will also reimburse itself $31 million in capital expenses from past years, the Tribune explains. This tactic of using new loans to pay off old debts is known as “scoop and toss,” a method of covering deficits used by various city bodies.
While CPS funnels more money toward exorbitant interest costs due to years of financial recklessness, Illinois lawmakers are attempting to bail out CPS as part of the state’s new education funding plan.
If CPS is unable to secure funding from the state to pay off the loan, the district has stated it plans to look to property taxes to pay off its increasing debts.
The $500 million long-term loan came shortly after the district borrowed $387 million in short-term loans from JPMorgan to cover a pension payment and generated nearly $70,000 in interest a day over the summer.
Despite having taken out a total of $887 million in loans over the last two months, CPS students and parents may not notice any large improvements in the classroom come fall, as CPS has used its dependency on short-term borrowing to make payments on pension debt rather than using the money to fund classrooms.”