George Schmidt, who taught for many years in the Chicago Public Schools but was fired by Paul Vallas for releasing test questions, edits Substance News. Here is his analysis of Chicago’s perennial budget crisis:
Sorry this is very long, but I have a hunch that many people will want to know how the “austerity” lies that feed all those “necessary school closings” and teacher layoffs are created in the fictional propaganda offices of school districts across the USA — not just Washington D.C.
The “deficit” claims have to be reported (and accepted) as “fact” in order for the liars who are operating the “school reform” offices get away with all these attacks.
But: Let’s not give Michelle Rhee credit where she was only following a script that was previously written and perfected in — you’ll never guess — Chicago. As long ago as when Michelle Rhee was failing as a Teacher for America “teacher” and using masking (or duct) tape to maintain order in her classes, Chicago had perfected the process of “eternal austerity” in its education budgets. Every year (except one) during Arne Duncan’s term as “CEO” (2001 – 2008), Duncan held a press conference to announce that CPS was facing an enormous “deficit.” Duncan’s predecessors had been doing the same for a decade, concocting a “deficit” using what the former Board Secretary told me was their “magic number.”
That’s right — a “magic number.” According to Tom Corcoran, who first laid out the plan for me after his retirement, CPS officials would meet and decide what was needed to have a certain “deficit” (the “magic number”) and then arrange the preliminary numbers in the next year’s budget to create that “deficit.” Throughout the 1990s, the “magic number” every year was “$300 million!” That number then became a headline across the top of the front page of the Chicago Tribune, and was repeated endlessly until it was believed by everyone who was paying attention to the official version of reality.
Anyone familiar with a budget process knows how easily a “deficit” can be created in a future budge:
Overestimate expenses.
Underestimate revenues.
And this was the “Chicago Plan” from the days when MIchelle Rhee was still learning to “pass” her literature classes in high school thanks to Cliffs Notes.
Because the Chicago budget is projected for the next fiscal year, it’s difficult to challenge the magic number except based on history. The audited financial statements of Chicago’s public schools do not come out until six months after the end of the fiscal year, and that has been the first time the city has an accurate accounting of its school finances, since the lying about the magic number has been going on now for more than two decades.
Anyone interested can read the CAFR (the Comprehensive Annual Financial Report) of Chicago Public Schools, because they are public (by law) in December of each year. Unfortunately for the truth, the CAFR for a fiscal year comes out nearly two years after the BIG LIE of each magic number is created and spun to the public. Therefore, the CAFR for the current fiscal year we’re in in Chicago won’t be available until December (when it’s presented to the Board of Education members) and January (when we squeeze it out of CPS using the Freedom of Information Act). The FY 2013 CAFR will be available in December 2013, but FY 2013 ended two months ago, on June 30, 2013. And the Magic Number (another billion) was lied around and picked up by the corporate media in Chicago during the early months of 2012, during the first year of Rahm Emanuel’s Board of Education.
“Everyone” knows that Chicago’s public schools were facing a “billion dollar” deficit for the current fiscal year (FY 2014, July 1, 2013 through June 30, 2014). Everybody can read hundreds of stories from the past eight months in Chicago’s corporate media citing that figure. The New York Times repeatedly cited it, so, as most intelligent people knew, it HAD to be true.
BS.
The “Billion Dollar Deficit” was concocted the same way it always was, and then repeated over and over propaganda style in a way that would have been approved by the tyrants of the 20th Century.
One of the features of that “Billion Dollar Deficit” was that Chicago had “zeroed out” its “reserves.” That part of the big lie was part of the story told by Penny Pritzker and others on Rahm’s Board during that first year (leading up to the Chicago Teachers Strike of 2012). “Everyone” knew that CPS was facing a “Billion Dollar Deficit!” just by reading the newspapers and the quotes, from the Chicago Tribune through The New York Times. Blach Blachhhh Blahhhhhhh…
Suddenly, on July 24, 2013, CPS announced that its proposed budget had eliminated that Billion Dollar Deficit! — partly by “finding” more than $600 million in “reserves” it didn’t have. Of course, the July 24 report to the Board took place after Barbara Byrd Bennett and the Board had ordered the closing of 49 of the city’s real public schools (because of the need to save money because of that “Billion Dollar Deficit!”) and fired about 3,000 school workers (most of them, teachers) because everyone knew CPS was facing a “Billion Dollar Deficit!”
Anyone who wants to read the Power Point that shows how CPS “balanced” its new budget after telling the latest version of Magic Numbers for six months, with the help of the city’s (and nation’s) corporate media can go to the CPS Website:
http://www.cpsboe.org/meetings/meeting-videos/15
where there are videos of the presentations of the Board meetings.
In the third video, national readers can witness Tim Cawley, who currently serves as “Chief Administrative Officer” for CPS, and Barbara Byrd Bennett, who was brought to Chicago after helping destroy the public schools of Detroit, do a Power Point about that FY 2014 proposed budget. The public can also download that Power Point to have while watching the video of Cawley reading carefully from his scripts.
Cawley is just the latest in a long line of CPS officials who have presented the Magic Numbers with a straight face to an uncritical public.
Not one of the city’s corporate media noticed that a “reserve” that had been “zeroed out” supposedly 13 months earlier had not only fattened up, but reached a historic high — more than $600 million. And “everyone” who was reading the papers (including as I’ve said, The New York Times) knew that CPS had been facing a “Billion Dollar Deficit!”
The difference this year is that leaders of the Chicago Teachers Union began studying how CPS budgets in the room from which I’m writing this five years ago. We began, not with news clippings or CPS “Proposed Budget”, but with the CAFRs. Each year, we were able to track the same lies.
This year, as everyone read on the front page of The New York Times, the reason for the “Billion Dollar Deficit!” is the teacher pensions! And just in case The New York Times missed it, Tim Cawley repeated that over and over and over in his presentation the you can view on line.
But just so people reading this know, the New York Times reporters who did that front page story about the CPS “pension crisis” never called the Chicago Teachers Union or the Chicago Teachers Pension Fund to check the facts they were reporting — as “news” — from Rahm Emanuel and his allies and minions.
While it would be nice to say that Michelle Rhee was responsible for the “austerity” nonsense that drives all those teacher layoffs (and not, “pension reform”) and other “reforms” (close 49 “underutilized” schools, as in Chicago), as a matter of historical fact, one of the place that invented this whole scam was Chicago. Back when Michelle Rhee was honing her mendacity skills in elementary and high school.
Again:
All you need to reach a “Magic Number” for a “deficit” is to:
First: Underestimate revenues and
Second: Overestimate expenses…
And…
MOST IMPORTANTLY:Enjoy the services of a corporate media trained to treat a quote from an authoritative “source” (Michelle Rhee; Tim Cawley; Jean-Claude Brizard; Barbara Byrd Bennett) as if it were a “fact” even when the facts contradict the words oozing out of the mouth of the latest talking heads of “school reform.”
But you don’t have to believe me. Just read that front page story in The New York Times from a month ago about how Chicago’s schools will be broke because of the high price of all those teacher pensions. Here we go again…

I really appreciate George Schmidt. Diane, thank you for posting.
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Isn’t this false reporting and misleading the voters? Seems to me that something could be done. I don’t have legalese, but I can’t believe Chicago can continue to get away with this!
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It started in Chicago under Arne Duncan, but it was spread nationally through Superintendents trained at the Broad Superintendents Academy. Arne Duncan was on the board of The Broad Foundation before he became Secretary of Education and Michelle Rhee has been on its board since 2008.
“Who is Eli Broad and why does he want to destroy public education?”
http://www.defendpubliceducation.net/
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It’s a lot more complicated than this post suggests. CPS has had a serious structural deficit for at least a decade, with the gap made up by borrowing and draw-downs on reserves. (Cities try to maintain reserves to avoid the situation where, for one reason or another, a sudden catastrophe or long-term distress might leave the city actually unable to pay its bills.) There is some discretionary element to how reserves themselves are set, but if anything, cities tend to set them too low rather than too high (which makes sense given all the pressure to avoid cuts in services or increases in taxes). In any event, it’s never a sign of financial health when a city is using its reserves year after year to cover basic operating expenses.
CPS’s operating deficit has actually narrowed in the last couple years, but that’s partly because Chicago’s been on a “pension holiday” and thus has been shorting the teacher’s pension fund. That holiday’s over, and that means an extra $400 billion this year in expenses. That’s a real bill, it’s not made up.
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Sorry, $400 million. Phew, right?
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FLERP, any idea what caused this? Surely bad teaching causes a structural deficit, right? 😉
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Here’s a great short version describing the CPS lie machine in action. http://karenfraid.tumblr.com/post/56080765916/cps-math
And just for fun, http://www.ctunet.com/blog/extra-extra-the-curious-tale-of-the-cps-press-release-budget
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This is how the Broadies operate. This “magic number” is used to build a case to close schools which creates a demand for charters. Teachers are laid off in anticipation off these massive “deficits” and are replaced by TFA.
Looking back, this same exact plan was orchestrated by Pete Gorman in Charlotte to close schools. It seems like every year under his regime, he warned of dire cuts. We would find out later, the approved budget turned out “better than expected.” Wake County is the largest district in NC. During this time, they were led by a non-Broadie and they did not have any budget-related layoffs to my knowledge.
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I’m not really seeing any supported facts in this post. Is there any evidence for these assertions?
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Not that I’ve found.
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The author cited the Certified Annual Financial Reports of Chicago Public Schools. Comparing the CAFRs for a given year to the budget projections released 18 months earlier revealed that the annual budgets were manipulated to forecast deficits.
Did you even read the whole post?
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I read the words in the post. I also read the CAFRs. I also plugged some numbers in Excel and thought about it.
It reveals variances, it doesn’t prove manipulation. By the logic in this post, CPS has also manipulated its budget in other years to overstate expected revenue that ultimately turned out to be several hundred million dollars lower than expected.
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Blind?
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Or just can’t see?
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Many people can’t see the forest for the trees! (to pay too much attention to details and not understand the general situation)
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Duane Swacker & philaken: c’mon guys, lighten up…
Look, this is this nifty thing called the internet (aka the world wide web) that just got invented about five minutes ago. Pretty darn cool, I’m tellin’ ya. After some magical abracadabra called “googling” I found a URL [uniform resource locator] for that thing called SubstanceNews that George Schmidt edits. If you use your “mouse” to “click” on the “link” below you will be magically transported to said place:
Link: http://www.substancenews.net
Better yet, anyone in need of more information concerning Diane’s post can contact George Schmidt at SubstanceNews by “clicking” on the “link” below:
Link: http://www.substancenews.net/contactsubstance.php
I can’t tell y’all how tingly I feel after spending 60 exhausting seconds putting this all together in case anyone feels they need more information from George Schmidt.
But no need to thank me with mere words. I have been studying up on $tudent $ucce$$ and I am inclining [declining? degenerating?] towards Dorothy Parker’s observation:
“I’d rather have a bottle in front of me than a frontal lobotomy.”
Oops! Wrong thread. I meant:
“The two most beautiful words in the English language are ‘check enclosed.”
Watch your mail.
🙂
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As always George is right on target.
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We have plenty of this nonsense in Connecticut–now home to Paul Vallas and Steven Adamowski.
I appreciate George Schmidt’s every post and I learn so much from each. Thanks for posting, Diane Ravitch, and I look forward to reading your latest book–and George Schmidt’s review of it.
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How different is this from the concocted “value” of stocks on the daily Stock Exchange? I no more believe the validity of their numbers than I believe the moon is made of green cheese. They manipulate by speculating and by setting goals that they know will give certain results. People buy and sell while the computer whizzes predict how to make the market roll. The whole “mess” we are in could be stopped in a heartbeat, but then, what would all those worthless hedgefund managers and brokers have to do? I wish they’d go sit on their yachts and sail into the sunset.
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This doesn’t speak to the issue of whether estimates of expenses and revenues are lowballed or highballed in budget processes. But I thought I’d write a few words to try to correct what seem to be some very common misunderstandings about deficits and reserve funds in city budgets (on a very general level).
First, CPS is required by law to have a balanced budget each year. There are two kinds of budget “balances” that CPS talks about, but only one of them is legally required. The “balanced budget” that’s required by law, which we can call the “official accounting budget,” happens when expenses are less than or equal to revenues *plus* any “spendable” balances from the prior year general fund reserve. The other kind of balanced budget is the “structurally” balanced budget, which is when expenses are less than or equal to revenues. CPS is not allowed to use fund reserves to achieve a “structurally balanced” budget. And a “structurally” balanced budget is not required by law. (That should be obvious from the fact that CPS has operated so many years with structural deficits.) Rather, it’s a goal.
So the first thing to understand is that when CPS says there’s a “deficit,” that means that there is a *structural* deficit based on projected expenses and revenues. It has to mean that, because it cannot, by law, have a deficit in its “official accounting budget.” CPS *prefers* not to have a structural deficit, but it obviously can and does have them in practice. What it’s not permitted to do is have a deficit in its “official accounting,” which, again, includes the use of available reserve funds.
Second, CPS (like most districts and almost all cities and states) is also required by law to maintain reserves. These reserves are sometimes called “rainy day funds” or “stabilization funds” or just “general fund reserves.” The reason is obvious: it’s good to have a cushion in reserve, because who knows what might happen next year. It’s like your bank account. All things equal, it’s better to not have a balance of zero if you can avoid it.
Third, there are rules and procedures that govern how CPS sets its reserve targets. You can access them and read them. Here’s the Cliff’s Notes version:
* CPS is required to maintain reserves of at least 5% and no more than 10% of its budget. CPS picks the precise target in that range, based on the advice of its CFO. That is indeed a “magic number” of sorts that is chosen annually during the budget process.
* Any amount in the reserve fund that exceeds the 5% threshold is categorized as “unreserved, undesignated,” or alternatively “spendable.” So if the 5% threshold is, for example, $300 million, and the reserve fund has $600 million, there’s $300 million of extra, spendable money in the reserve fund.
* CPS is allowed to use these extra, spendable reserve funds to plug structural deficits.
It is important to note that the “magic” number referenced in point #1 above (the fund target) is chosen in a backwards-looking manner: The *current* year’s “budget” is what’s used to determine the *prior* year’s reserve fund target. I assume this is why many people think there’s something sinister happening when CPS seems to suddenly “find” spendable reserve funds during the budget process. The intuitive reaction is “wait, either the extra spendable reserves are already there or they’re not, you can’t just decide what the spendable reserves are based on what you want them to be.” But that is in fact how it works.
But it is *really* important to note that just because CPS is, in essence, making up its spendable reserves figures on the spot during budget season, that doesn’t mean that CPS can make up any number it wants, or that CPS is holding back huges pile of money to fool people into thinking there’s a deficit that doesn’t exist. The structural deficits are real — that’s why the reserve funds get tapped. And the spendable reserve funds are not unlimited. It’s difficult to predict how much money in excess of the 5% target there will be in the CPS general fund. It’s possible the number will be zero. If that happens, this year’s school budget cuts will seem like a paper cut.
So there’s nothing sinister about the fact that every summer CPS “finds” spendable reserves that nobody knew a few days earlier. By definition, it’s not possible to know how much spendable reserves are left from the prior year until the next year’s budget is calculated and the fund reserve target (again, between 5% and 10% of that budget) is set.
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Relevant primary source #1, especially beginning at page 216:
Click to access FY2014BudgetBook.pdf
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Relevant primary source #2:
Click to access AppendixE.pdf
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Thanks for that thorough and enlightening explanation. If you poll the general public, I would bet that a minuscule percentage of the population knows how “official accounting” and “structural” budgets work.
I think part of the discourse comes from the concept that district CFOs do not know how much money will be in reserves until after said budget year is over. Surely, anyone monitoring a budget would be able to predict the future status of the accounts, especially those who are trained as accountants, right?
I did not read nor study the documents you referenced (been working 12-16 hour days and I have 2 working brain cells left), but what is the reasoning behind the “big reveal?”
The second point of contention is what is done with the reserve funding that is within the limits of transfer from “structural” to “official” status.
In my state, we have a law where teachers must pay a percentage of their salaries into their health benefits. This percentage goes up each year. (First off, percentages favor those on the lower end of the pay scale and penalize those with more experience, but that’s another discussion.) The money from the teachers’ health insurance payment goes back to the district, but it does not go back to the teachers by presenting employees with a fabulous health plan or by hiring an adequate number of teaching staff members to distribute the workload. Instead, the district hired more technology chiefs and supervisors to implement the new evaluation models set forth by, you guessed it, law. So now the teachers are paying for their own evaluations, after a fashion. You can imagine the frustration level when over-worked, under-paid professionals are asked to shoulder the burden of paying for an evaluation system that requires a massive amount of unpaid training for them (meaning, unpaid time FOR training) and disrupts their teaching environment several times a year.
Nobody wants to hear that a CFO cannot predict the end figure of a district’s budget until it already has happened, and certainly nobody wants to hear that money that could be paid to staff a school is used for non-teaching personnel and testing or teacher evaluation resources. We are exhausted–manage our schools so we are not and you will get THE best work out of everyone.
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Ok, this is off topic, but I would like someone to help me understand this. I have a friend who is very supportive of a private school run by a local Roman Catholic Church in Phoenix. She was very upset telling me about teachers who have worked there for years being laid off, arts being cut, PE cut back, bigger class sizes, etc. I don’t get it. They get voucher funds, tax credit funding (more than public schools can get), etc. I told her this is what has been happening in Title I schools for several years. She and I are good friends but don’t agree on what is happening in education. By the way, there is a very interesting article in the local paper: http://www.azcentral.com//news/politics/articles/20130913study-arizona-third-school-cuts.html?source=nletter-
Arizona is third in most school cuts. Isn’t that a wonderful distinction to have?
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