Desperate Chicago School System Looks to Shield Debt from Potential Bankruptcy.

BLUE MODEL BLUES:

Desperate Chicago School System Looks to Shield Debt from Potential Bankruptcy.

Facing junk-bond status as it drowns in underfunded pension obligations, the Chicago public school system is trying to induce investors to buy its debt through an accounting scheme that will (theoretically) allow the bonds to keep paying interest even if the system goes belly-up. . . .
Yields on ordinary debt from CPS have reached nine percent in recent months. The latest effort to market its debt reflects a new level of desperation on the part of the district, which has failed for years to put enough money aside to fund teacher pensions even though residents of the state of Illinois and the Windy City pay above-average tax burdens.
The presence of the term “hypothetical bankruptcy” in the bond prospectus also highlights the fact that the district’s policymakers have given more than idle thought to the possibility that the school system may be forced into Title IX proceedings. (There have also been rumblings about bankruptcy for the entire city).
A handful of local governments have been forced into bankruptcy in the wake of the financial downturn, including Detroit and San Bernardino. But if pension debt keeps accumulating unchecked, the next wave of bankruptcy might extend beyond post-industrial regions in persistent decline and sweep up our mightiest urban centers as well.

When it happens, the price for help should include an end to public-employee unions, and other political reforms.

3Posted at 10:30 am by Glenn Reynolds