CHICAGO - The Chicago Board of Education unanimously approved a nearly $6.8 billion budget even as some board members expressed reservations about the district's reliance on one-time maneuvers to close a $900 million shortfall.
The budget dips deeply into reserves and taps two months' worth of property taxes from fiscal 2016 to balance the 2015 books.
Some board members said they worried the moves could lead to further credit deterioration and chief financial officer Ginger Ostro acknowledged during the board meeting Wednesday that the maneuver could eventually lead to cash-flow struggles.
The district acknowledged in a statement that the budget maneuvers provide just a "one-time" fix but defended them as needed to avoid deep classroom cuts, blaming the state for failing to pass pension reforms or provide adequate funding.
"While we have allocated funding to support key priority areas and crucial needs, this budget reflects the reality of our serious fiscal challenges," CPS' chief executive officer, Barbara Byrd-Bennett, said in a statement. "Without action from Springfield (the state capital) to bolster state funding and act on comprehensive pension reform, the district will have to make even more difficult decisions in the future."
Earlier in the day, local government research organization Civic Federation of Chicago released a stinging assessment of the budget, slamming it for its use of accounting gimmicks and failure to address a "grave" fiscal crisis.
"This is yet another misguided budget that fails to address the alarmingly clear message that the district's current cost structure is unaffordable," said Civic Federation Vice President Sarah Wetmore. "This prolonged fiscal crisis demands expansive and innovative reforms that right-size the district's spending and funding sources."
The federation acknowledged the state's failures, but said ultimately the district bears "responsibility because it has a duty to plan for the long-term impacts of the budget decisions it makes annually." The federation noted that despite declining revenues, the new budget broadens district programming and its real estate with more than $400 million in increased spending.
The budget relies on a near complete drawdown of unrestricted reserve funds. The district planned to nearly deplete reserves last year but ended up drawing less, due to lower than expected expenditures and early aid payments from the state.
The district will "artificially inflate" reserves available in the new fiscal year that began July 1 by counting revenues collected for the first two months of fiscal 2016 in fiscal 2015. The maneuver will provide $600 million.
"This one-time and non-recurring revenue will leave a gap in future budgets, contributing to deficits of over $1.0 billion in fiscal 2016 and 2017," the federation warned.
In defense of the tax collection move, CPS said the extended period brings CPS in line with the city and majority of school districts in Cook County. It used a similar tactic to raise revenue in the fiscal 2014 budget but it extended the collection period through just one month, not two as is now planned.
The district is also raising property taxes by the maximum allowed under state caps and cutting about $55 million in spending to balance the new budget.
The district's pattern of using one-shots -- from reserves to debt restructuring - to balance its books in recent years, as well as its deep pension funding woes, have driven the district's credit dive.
To fund fiscal 2015 capital projects totaling about $500 million, the district intends to sell general obligation bonds although a final size for the borrowing has not been released. The capital budget includes plans to install air conditioning in schools, build a new selective enrollment high school named for President Obama, and other upgrades.
The district also will refund $180 million of variable rate debt ahead of credit facility expiration this year.
State general aid is expected to go down by about $50 million in the new budget. The plan relies on a total of $2.2 billion in property tax revenue. CPS expects $60 million in state capital support for debt service. The budget earmarks $604 million for debt service.
The district said its pension contribution in the next budget will hit $634 million, the largest ever. The CPS teachers' pension fund has $6.8 billion of unfunded liabilities for a funded ratio of 59.9%.
Moody's Investors Service in March lowered the board of education's rating to Baa1 and assigned a negative outlook, its second downgrade within a year. A downgrade below the BBB level by any two rating agencies would trigger swap terminations.
Standard & Poor's rates the board of education A-plus and stable. Fitch Ratings downgraded the board in September, lowering it to A-minus with a negative outlook.
