Watchdog: Borrowing Trouble
Last year the Tribune reported on a $10 billion borrowing spree by Chicago Public Schools that is contributing to the district's budget problems. Now, reporters Jason Grotto and Heather Gillers find that CPS obtained $1 billion of that money through complex bond deals that exposed the district to great risk yet were approved with little public debate. In the long run, the district stands to pay tens of millions of dollars in extra interest payments on the debt, a Tribune analysis found.
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A decade ago, Chicago school officials gambled that they could borrow money cheaply by issuing auction-rate bonds paired with derivative contracts. But in a first-of-its kind analysis, the Tribune found it was a losing bet.
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Banks knew the auction-rate bond market was unstable yet still inked a deal with Chicago Public Schools. When interest rates soared, the district took the financial hit.
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The state law that facilitated Chicago Public Schools' venture into high-risk securities included few oversight measures or checks on local borrowing. It also passed without much discussion.
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Mayor Rahm Emanuel said Wednesday that it's too late to try to recoup any of the money from burdensome interest payments that Chicago Public Schools made after issuing risky auction-rate bonds.
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Reporters Heather Gillers and Jason Grotto write about the methodology underlying their analysis, including how they estimated CPS' costs from its auction-rate debt and how they compared those costs to what the district might have paid for traditional fixed-rate debt.
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Chicago Public Schools' spending is financed by taxpayer dollars, but it took months of effort by Tribune reporters and attorneys to obtain details about the district's borrowing history.
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Chicago routinely uses bond money to paper over its budget problems. Future generations will pay a staggering price.