CHICAGO — After scaling back on capital projects with a $1 billion deficit looming, Chicago Public Schools will reverse course and bolster spending by $364 million this year in part to finance investments in schools slated to take students from more than 50 set to close.
The Chicago Board of Education will finance capital projects in a new-money bond transaction. CPS officials said the final sizing and timing are still under discussion but about $329 million of projects may be funded with bonds. Another $100 million may be tacked on to the deal to finance projects in the next fiscal year's budget.
The district is also planning a refunding of about $280 million in a transaction to be led by JPMorgan. It could sell as soon as next month depending on market conditions, officials said.
The board authorized the refunding at a meeting earlier this month and was scheduled to vote at a meeting Wednesday on its amended fiscal 2013 capital budget. The revised capital budget totals $473 million, reflecting a $364 million increase in the original plan approved last year for $109 million.
The amended capital plan provides an additional $155 million for projects at what CPS is calling "welcoming schools" that include upgrades such as air conditioning, new libraries and laboratories, and expanded programs.
"Consolidating underutilized schools will allow us to redirect resources so that every child enters their welcoming school with all of the tools and supports they need to succeed and thrive on the first day of class," said Barbara Byrd-Bennett, chief executive officer of the nation's third-largest district, which operates 681 schools and serves more than 400,000 students.
The amended capital budget also reflects additional spending in other schools impacted by the closures, support services, new common core textbooks, upgrades to accommodate expanded full-day kindergarten, and a new food service point-of-sale system.
The board would serve as issuer on the new-money sale although another borrowing entity — the Public Building Commission — will oversee some projects. The finance team has not yet been named and the timing is not yet set.
In addition to bonding, the district will cover capital costs with tax-increment funds, grants, and proceeds from a proposed financing for energy upgrades through the Chicago Infrastructure Trust.
In a separate transaction, the board gave CPS authorization earlier this month to refund up to $600 million but the administration said it currently is looking at a $280 million variable-rate deal that could sell as soon as next month.
"If the market is good, we'll try to do more," the administration said in an e-mail. The issue will provide traditional savings and will not push off near-term debt payments as the district has done in recent years for budget relief.
The district's structural budget woes and past reliance non-recurring revenues from debt restructurings and reserves drove several rounds of rating downgrades over the last two years.
The board late last year amended its $5.2 billion fiscal 2013 operating budget, adding $103 million to reflect the first-year costs of a new teachers' contract. The contract was struck with the Chicago Teachers' Union in September after the first teachers strike in more than two decades. The district restructured debt to cover much of the costs.
Factors behind the district's daunting $1 billion operating deficit in fiscal 2014, which begins July 1, include rising costs, a past reliance on one-shots, and a $338 million increase in pension payments due to the expiration of a three-year pension holiday.
Given the scale of its fiscal woes, the Chicago Civic Federation which tracks local government and Illinois spending, questioned whether the district could afford a 231% increase in its capital budget.
"The Civic Federation is very concerned that they are proposing a $364 million increase without providing any detail on how this expenditure can be afforded," said its president, Laurence Msall. "This is a government that is facing very significant financial challenges."
The board last year trimmed capital spending over the next three years to $750 million from the $2.3 billion authorized for the prior three years. The board has borrowed between $380 million and $500 million annually in recent years to fund projects.
The district began hearings this week on the planned closure of 54 schools. The district has promoted the move as one needed to "right-size" a system with 100,000 empty seats to better direct resources. CPS estimates the closures will generate $43 million annually in operating savings and save $560 million in capital costs over the next decade. Critics including the teachers' union warn of negative impact on local neighborhoods and have raised safety issues.
All three rating agencies affirmed the board's ratings in late 2012 after previously hitting it with a series of downgrades earlier in the year. Fitch Ratings assigns the board's $6 billion of GO debt an A rating and negative outlook. Moody's Investors Service rates it A2 with a negative outlook and Standard & Poor's rates it A-plus with a stable outlook.
An initial round of downgrades came after the district decided to nearly drain its reserves to help close a $665 million gap in the $5.2 billion fiscal 2013 budget. Analysts were also concerned over the looming spike in pension payments. The seven-day strike in September and pressures posed by the new four-year, $300 million teachers' contract prompted additional negative action.
The district can't rely on the cash-strapped state for extra aid and faces property tax caps. "Fitch believes significant actions will be necessary in fiscal 2014 to avoid a deficit position," analysts wrote.
