DALLAS — Chicago Mayor Rahm Emanuel is requesting authority from the city council to buy, among other things, junk rated Chicago Public Schools debt.
Emanuel, at the request of City Treasurer Kurt Summers, asked the council last week to change the city investment rules to allow the it to buy tax anticipation warrants, municipal bonds, notes, commercial paper or other instruments representing a debt obligation from sister agencies, including the Chicago Board of Education, the Chicago Housing Authority, the Chicago Park District, the Chicago Transit Authority, and the City Colleges of Chicago.
The city is typically limited to investing in bonds that meet certain requirements, including a rating of at least A-, a maturity of no more than 30 years, and cannot exceed 25% of the total holdings across all funds. These same limitations would not be true for the proposed sister agency investments.
Illinois Gov. Bruce Rauner said at a press conference today that the proposal while not "really a solution to CPS's problems", does show that Emanuel is "finally acknowledging that it is the city's responsibility to fix the mismanagement of its own schools."
However city spokeswoman Molly Poppe said the proposal was not designed as a solution for the school district's growing fiscal crisis. "This has nothing to do with Chicago Public Schools' current fiscal crisis," Poppe said. "The proposal, which is still under discussion, is about expanding the class of investments that are permitted investment for the City's operating funds."
CPS is grappling with a $1.1 billion deficit. Although the school district is on track to close out the fiscal year June 30 with $24 million of cash in the bank, that's only because it's fully tapped $870 million of existing credit lines set to expire in August. If not for the credit lines, the district would end the year with an $846 million negative balance.
The district's debt load includes $9.6 billion of unfunded pension obligations and nearly $7 billion of bonds. The district hasn't announced when its fiscal 2017 budget will be released.
Rauner said that legislative leaders are set to return to the state's capitol on Wednesday to vote on two Republican sponsored stopgap measures to fund schools and other services.
The state is perilously close to starting a second fiscal year without a budget after winding regular spring session on May 31 without passage of a balanced budget in place.
While an agreement is near on funding operations, Rauner said today that House Speaker Michael Madigan and Senate President John Cullerton, both Chicago Democrats, plan to oppose the proposed measures unless the funding formula changes and CPS gets more money. Rauner called the move "wrong, unfair and unreasonable."
"People across the state should not be held up with their tax money to go bail out Chicago public schools," Rauner said.
The package of interim bills pitched by the GOP would provide some near term relief by appropriating the remaining non-general revenue fund line items for the current fiscal year and use the state's rainy day fund to pay outstanding bills at various state agencies. The package of bills funds utilities, food and medical services at state prisons and other facilities, dipping into a human services fund for $458 million.
For fiscal 2017, it would fund early childhood and K-12 education; appropriate the fiscal 2017 road construction program paid for with motor fuel tax and vehicle registration fees and appropriate all federal funds.
It would appropriate non-general revenue funds for capital projects that were halted in mid-construction due to the lack of a budget and cover emergency repairs at state facilities.
It would also provide the appropriations needed to free up the tourism-related tax revenue that covers debt service payments for the MPEA and appropriations needs for the state's Civic Center bonds and Illinois Sports Facilities Authority bonds.
The interim package would provide $600 million from the Education Assistance Fund for Higher Education and appropriate $180 million from a human services fund to cover payments to human services providers not covered by court orders or consent decrees in fiscal 2017.
Fitch Ratings, Standard & Poor's, and Moody's Investors Service have the district deep in speculative-grade territory with single-B level ratings. The district's last deal, which priced in February, received a BBB rating from Kroll Bond Rating Agency, which rates other CPS bonds BBB-minus.