Chicago Public Schools to Borrow $389 Million to Stay Open
Chicago Public Schools is once again turning to its lenders, this time to keep doors open until the end of the school year on June 20.
City Chief Financial Officer Carole Brown briefed aldermen Friday on the plan to borrow $389 million to help close a massive budget deficit. The money will be paid back by $457 million in state block grants that are allocated to CPS but late to arrive from Springfield because of the state’s massive backlog in bills. That money, plus another $215 million that the school system had hoped for from Springfield created a budget deficit of $672 million.
“We worked with our lending partners so we could sell short-term borrowing that could be secured by the state block grants,” Brown said.
Brown says that the remaining deficit will be made up by cuts and savings, including a 3 percent across-the-board cut in expenses that had been budgeted for four employee furlough days. She did not say how expensive the new borrowing would be.
“Once CPS’ board approves the sale of the bond, CPS will advertise for terms,” she said, noting that the solution is the least bad of many options.
“From a practical standpoint, this is not how you manage an enterprise,” Brown said. “Springfield is the ultimate solution to the problems we face.”
Many aldermen seemed resigned to the plan absent the state help.
“There's no other option right now,” said Howard Brookins, chair of City Council’s Education Committee. “It’s a reasonable option right now.”
“The whole funding structure is unfair to residents of Chicago, to taxpayers,” said Ald. Michelle Harris. “We've been forced into this position by circumstances nobody in Chicago can control.”
Others complained that the plan would tighten the noose around CPS’ already beleaguered ability to borrow more money.
“It's a payday loan with bad fees and bad interest rates,” said Ald. Ricardo Munoz, who, along with other members of the Progressive Caucus, have pushed for more TIF revenue and other taxes to adequately fund the system.
The city opted not to go with a plan that would have involved lending TIF money to the school district. CPS CEO Forrest Claypool had long threatened that schools would have to close three weeks early because of the lack of funding from the state. But the ability for the schools to survive without the $215 million that they had asked for might undercut the argument he made that CPS desperately needed it.
Brown did not address how this new borrowing would affect next year’s budget.
“We are not going to let the hard work and record progress of Chicago students, teachers, principals and families be derailed by failed leadership in Springfield,” Mayor Rahm Emanuel said in a press release. “The State of Illinois is dead last in education funding, has among the most inequitable school funding formulas in the country, and owes Chicago Public Schools $467 million in payments. While we work with state lawmakers on long-term solutions to Illinois' education funding challenges, in the short-term we are doing what is necessary to keep our students in the classroom and on the path to a brighter future.”
CPS says this borrowing will come in the form of Grant Appreciation Notes, which it claims will be secured through delayed block grant payments from the state, which the district expects to receive in the coming months.
The district says revenue gained from the sale of those notes – coupled with additional savings from staff furloughs and school spending freezes – will be used to make its annual contribution to the Chicago Teachers Pension Fund and keep classrooms open through the end of the school year.
As of May 9, the CTPF says the district’s balance due is almost $716 million. CPS will also use $250 million collected through a new property tax this year to cover the rest of that payment.
The Board of Education is expected to vote on this plan at its meeting next Wednesday.
Matt Masterson contributed.
May 2: It’s still the unanswered question even though the Mayor Emanuel says schools will remain open until the end of the school year.
April 28: A Cook County Judge has dealt a financial setback to Chicago Public Schools – stating that the school district’s complaint is “not the vehicle to address [the state’s] inequity” in education funding.
April 28: Chicago Public Schools will stay open until June 22, the end of the regular school year, instead of closing early on June 1. “We will be here working to find the resources,” said Mayor Rahm Emanuel.