CHICAGO — The Chicago Board of Education yesterday voted during an emergency meeting to authorize the establishment of an $800 million line of credit to boost its liquidity as it grapples with late aid payments and uncertainty over state funding levels in fiscal 2011.
The resolution marked just one in a series of special measures the board unanimously approved giving Chicago Public Schools chief executive officer Ron Huberman extraordinary powers to manage through the district’s budget crisis.
The district is facing a roughly $400 million budget shortfall, though that figure is fluid given uncertainty over the size of state budget cuts in fiscal 2011 beginning in July.
Illinois is also $400 million behind on its block grants, though it is current on general state aid, and all fiscal 2010 funds might not be received until the end of the calendar year.
The district also must fund a contractual 4% increase in pay for teachers and other union members to avert a teachers’ strike, officials said.
Under the measures approved during the special meeting Tuesday, the district is authorized to set up a traditional line of credit to boost its liquidity as it deals with both late state payments and delays in the distribution of property taxes.
The borrowing would help ease the strain on the district’s ending-year fund balance that serves as a reserve and helps support the district’s current ratings in the double-A category.
CPS has previously initiated efforts to set up a line of credit, but has never tapped one, said schools Treasurer David Bryant.
The system also could turn to a tax and revenue anticipation note issue if it proves more affordable than a line of credit, but additional board action would be needed, Bryant said.
The board also gave Huberman authority to cut the ranks of tenured teachers and raise class sizes to up to 35 students. The board’s action could result in about 3,000 layoffs, including 2,700 teachers. The board also approved funding the contractual raises.
Some view the board’s actions as a move to pressure teachers and other union members to agree to contract concessions. The actions came as union members, teachers and others protested outside board headquarters.
“It is not without significant stress that I present these alternatives; however, the urgent and dire nature of this crisis has left us no choice,” Huberman said. The district operates more than 670 schools that serve 409,000 students.
The district originally faced a $900 million shortfall, but pension reform legislation signed by Gov. Pat Quinn allows the district to forgo a portion of its pension payment over the next three years.
Quinn sought to avoid public education funding cuts in the state’s fiscal 2011 budget through an income tax hike that was rejected by lawmakers. He then turned to a proposed cigarette tax increase and tobacco securitization to avert cuts, but only the tobacco financing was approved late last month before lawmakers adjourned.
CPS’ efforts to keep its long-term $5 billion capital program on track will be aided by Chicago’s issuance of $175 million of general obligation bonds this summer under the $1 billion Modern Schools Across Chicago program announced by Mayor Richard Daley in 2006.
The program taps tax-increment financing revenue to pay for school building projects located within existing TIF districts.
The district also is planning a new-money sale that has not yet been sized for later this year.
The district’s $4.3 billion of outstanding debt is rated AA-minus by Fitch Ratings, Aa2 by Moody’s Investors Service, and AA-minus by Standard & Poor’s. The outlook on all the ratings is stable.