CHICAGO – The cash-strapped Chicago Public Schools will ask its school board Monday to approve a $5.75 billion fiscal 2018 budget and about $1.9 billion of cash flow and general obligation borrowing.
The agenda posted Thursday for the Chicago Board of Education’s Monday meeting calls for the board to approve resolutions adopting the budget and a one-year capital plan.
The vote was scheduled amid new optimism over a state funding deal for K-12 schools, as state legislative leaders announced a tentative deal Thursday. Monday's meeting will occur as the Illinois House of Representatives convenes to act on school funding legislation that would free up general state aid and likely bolster CPS' funding levels.
The school board agenda includes resolutions seeking approval for $1.55 billion of tax anticipation note borrowing and up to $385 million of GO refunding bonds. It’s unclear whether the refunding includes any debt restructuring, an option the district has turned to in the past to push off some upcoming debt payments for near-term budget relief.
CPS chief executive officer Forrest Claypool unveiled the budget earlier this month, which relied on $300 million of new state aid that was uncertain and $269 million of unidentified new “city resources.”
The district is relying on those funds to erase about $550 million of red ink in the new fiscal year that began July 1. The additional state aid had been in limbo due to Gov. Bruce Rauner’s amendatory veto of Senate Bill 1, which overhauls distribution formulas. The Senate recently overrode the veto, but the House delayed a vote amid ongoing talks among legislative leaders reach a compromise.
The deal was announced late Thursday, without much in the way of detail.
Republican leaders said in a statement: “This afternoon the four legislative leaders and the governor reached an agreement in principle on historic school funding reform. Language will be drafted and details of the agreement released once the drafts have been reviewed. The leaders will reconvene in Springfield on Sunday in anticipation of House action on Monday.”
Democratic leaders echoed the statement.
The fiscal 2018 state budget package pushed through by the General Assembly’s Democratic majorities with the help of some GOP members who broke with the Republican governor only allows for general state aid to be released under a new evidence-based formula such as the one in SB1. The state has missed two payments owed to schools.
Even if the state comes through with funding, CPS still needs city help. Mayor Rahm Emanuel has declined to say in what form the $269 million of city help might take.
Past reports have suggested the city was considering freeing up more tax-increment financing assistance or levying a new tax on high net worth individuals or downtown businesses.
Moody’s Investors Service has the school district’s B3 rating on review for a downgrade as it grapples with late state aid and other strains. Only Kroll Bond Rating Agency rates CPS in investment grade territory.
The district has whittled down a structural imbalance of more than $1 billion with new property tax revenue and spending cuts. On expenses, it’s facing an additional $99 million for teacher salaries and benefits and a $52 million increase in its fiscal 2017 $733 million teachers’ pension payment.
The district is also relying on $71 million in additional property taxes by raising its levy by the maximum allowed by the state and $22.3 million from the city’s now annual declaration of a TIF surplus.
The capital budget totals just $136 million, down sharply from $938 million. Short-term interest costs are expected to rise to $79 million from $35 million.
CPS issued $1.55 billion of tax anticipation notes in fiscal 2017 that are to be fully retired by December. It can borrow TANs up to its statutory cap of 85% of its fiscal 2017 tax levy of $2.37 billion. The district also recently issued nearly $400 million of state grant backed notes.
The district doubled its planned $250 million sale of unrated general obligation new money, refunding, and restructuring bonds in July as high yield buyers were drawn by attractive rates and an added security feature.
The district pays punishing yield penalties on all its borrowing. The latest GOs landed at yields in the low to mid 7% range. Its GO sale last year landed at 8.5%. Its new capital improvement tax bonds landed at a high yield of 6.25%. CPS paid initial rates in the 6% range on the GANs and they will be reset at LIBOR plus 550 basis points. On its most recent TANs, it paid LIBOR plus 400 bp.