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Debt And The Chicago Teachers' Strike

Last month, 26,000 brave Chicago public school teachers went on strike for seven days. They were protesting the Neoliberal economic policies—promoted in equal measure by Democrats and Republicans—that turn public schools over to corporations, end teachers’ unions, and give administrators the power to fire educators based on standardized test scores. But there is more to the story. Occupy Wall Street and the growing Strike Debt campaign provide some conceptual tools that help clarify what the conflicts between the Mayor and the union are really about.

First, the socio-economic context: Chicago's schools, which serve mostly low-income and non-white students, are some of the least fairly funded in the country. Or, in the words of esteemed education scholar, Bruce Baker, Chicago is the "most screwed" school district in the nation in terms of per-pupil funding. Urban schools in Chicago are screwed because, instead of financing education and other public services, the city pays debt service to Wall Street. In fact, Chicago is a prime example of how, over the last few decades, debt has become the primary mechanism through which the 1% profits from the ninety-nine percent.

Chicago And Debt

Over the last 40 years, the 1% have used their economic and political power to smash the idea that the basic services, such as health care, education, and transportation, should be publicly funded and accessible to all. Neoliberal orthodoxy insists that markets are the best way—indeed the only way—to provide the basics that people need to survive and care for themselves and their families. This shift from public funding to the privatization of everything demands that cities finance themselves through private investment rather than through the commons. As public funds started to dry up in the 70s, many municipalities entered a period of prolonged fiscal crisis. Chicago responded by going into debt. Since the 1980s, the city has generated revenue through a mechanism called Tax Increment Financing. TIF allows city officials to use public money to subsidize the private sector.

Here's how TIF works. Chicago borrows money from Wall Street in the form of municipal bonds to develop property in low-rent districts. When the value of the land increases, the city collects additional taxes. That revenue is then supposed to be used to repay bondholders. In theory, then, TIF is a financial mechanism that requires no new taxes and pays for itself in a closed loop of borrowed money that creates higher tax revenues, which are then used to repay lenders. Today, Chicago survives on a revolving door of debt: one quarter of city land has been designated as a TIF district, and one sixth of the city's budget, over $1 billion per year, comes from the TIF fund.

What's the problem with TIF if it helps develop struggling communities? We might ask whether an economic model that depends on perpetual growth is a good idea. Even in the short term, though, TIF does not benefit anyone but developers, Wall Street investors, and the city officials who broker the deals. A major study showed that the TIF funding model, in which the city takes out loans that it promises to pay back with the revenue from developments that don’t yet exist, had "no positive impact on city property values." TIF is nothing more than a way for the private sector to access public funds. It has no track record of promoting economic growth.

The real winners of the TIF con game are the Wall Street bankers and investors who purchase city bonds. They almost never lose. Municipal bonds are backed by a city’s power to tax its citizens. If a city cannot generate enough revenue to pay the interest on its debt, officials can turn to austerity measures, including laying off workers, cutting wages and services, and raiding public pensions. In countless municipalities across the country, citizens have found themselves on the hook for debts to Wall Street banks that they did not agree to and did not benefit from.

What does all of this have to do with public schools and with striking teachers? In Chicago, the TIF losers are low-income communities, especially teachers and students in poor, minority school districts. When taxes go up in a TIF-designated district, those dollars do not go directly to local schools. Instead, they are earmarked for a TIF fund largely controlled by the Mayor. In the Chicago Reader, Ben Joravsky called this fund a "shadow budget" that is not subject to public review.

"Eight of the ten districts set to receive the most TIF-funded investment through 2011," Joravsky explained, "are in prosperous neighborhoods near downtown, such as the South Loop and West Loop, while the districts that will receive the least investment are concentrated on the [poor and minority] south and west sides."

TIF generates money by siphoning tax dollars from low-rent districts. These funds are then used for development projects in wealthy neighborhoods favored by tourists and populated by people with money and political power who are more likely to vote and contribute to re-election campaigns.

Wealthy school districts also get a disproportionate share of TIF funds. "Though selective enrollment schools account for 1% of all Chicago Public Schools," Chicago Magazine reporter Whet Moser explained, "'they received 24% of all TIF funds spent on school construction projects.'"

TIF essentially allows the Mayor of Chicago to skim money from poor school districts and divert it to wealthy areas of the city. Of course, the combination of reduced funding for schools, high poverty rates, and a brutal standardized testing regime looks very much like school failure, which can then be blamed on teachers. In a final coup de grace, the same people—public officials and entrepreneurs—responsible for the debt financing of US cities like Chicago have responded to a massive disinvestment in public schools by declaring a crisis in education. A crisis of this magnitude, they tell us, can only be solved by firing teachers, closing schools, and turning yet another public revenue stream over to the same Wall Street banks that profited from the TIF scheme that started it all.

Occupy/Strike Debt allows us to highlight debt as a central issue in Chicago and in municipalities across the country. The Chicago Teachers’ Union may not have framed their strike as a struggle against debt, but they are, nonetheless, a vanguard of debt resisters challenging Wall Street's control of their city.

Revealing the debt system for what it is—a machine that extracts public wealth—also provides a glimpse into the future. It is clear that occupiers and other debt resistors are in a long-term battle over some basic principles. One bizarre aspect of the debt financing of US cities is that some public officials deny that municipal bonds count as debt at all. In 2011, the governor of Illinois issued $8 billion in bonds to make a payment on past-due loans already on the books. Taking out debt to pay more debt, he assured the citizens of Illinois, is "not new borrowing." While this may come as a surprise to anyone who has fallen behind on a mortgage or credit card payment, it reveals something crucial about the mindset of the one percent. To them, the definition of 'debt' can be revised as circumstances warrant. Only the 99% must view debt as a sacred obligation. One task of social movements, then, is to insist on answers to some basic questions. Is debt the best way to provide public goods? Would we rather fund schools, hospitals, and mutual aid initiatives or pay debt service to Wall Street? Debt may be a complex system. But the questions that guide us are simple indeed.

Learn more about the Strike Debt movement here

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