Chicago public schools are caught in a debt spiral they could get out of. However, Chicago mayor Rahm Emanuel said, “There’s a thing called a contract, ” when confronted about public school woes. Other organizations, however, according to the Chicago Tribune have been able to regain losses from ruinous contracts involving debt.
The borrowers claim that the banks failed to disclose the vulnerability of the auction rate market. When the auction rate market collapsed in 2008, Chicago Public Schools had to pay draconian interest rates. Florida public schools, for instance, took fewer auction-rate debt and is suing for $9.3 million. The interest rate Chicago Public Schools (CPS) has to pay amounts to $3 million per month, close to the yearly budget of its elementary schools. CPS claims that lenders knew of the high probability of a collapse, and were irresponsible, and they should have offered CPS fixed rate debt.
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In addition to Chicago’s problems with its public schools, new Chicago Treasurer Kurt Summers faces a situation in which many of the city’s pensions, especially those of firefighters, are underfunded, by as much as $37.3 billion. A main problem is the less than expected return from investments by the funds, and Summers is looking toward alternative investments.
