CHICAGO — The Chicago Board of Education approved without discussion resolutions authorizing $1.135 billion of short term tax anticipation note and warrant-backed borrowing to manage its precarious liquidity position.
The board voted 5-0 in favor of the borrowing resolutions at its meeting late Wednesday. The vote clears the path for one of two short-term fixes the district is pursuing as it scrambles to pay obligations, make payroll, and close a $1.1 billion deficit in its fiscal 2016 budget that begins July 1.
The path hasn't been as smooth for the other short-term fix it is pursuing to avert a liquidity crisis.
Despite agreement reached among the school district, Chicago Mayor Rahm Emanuel, legislative leaders and Illinois Gov. Bruce Rauner, legislation to permit the district to delay a scheduled $634 million teachers' pension fund payment due in June stalled in the Illinois House. The bill would allow the district to push off the payment by six weeks when it expects an infusion of tax dollars and a scheduled state aid payment.
The legislation failed in a House vote Tuesday although House leaders said another vote is expected next Tuesday when the House reconvenes. Emanuel and CPS officials are working to drum up the additional support needed to reach the required three-fifths supermajority.
"Without the help of lawmakers in Springfield, we face the tough decision of paying our pension obligations or operating our schools," interim chief executive officer Jesse Ruiz told the school board Wednesday.
The district has characterized the borrowings the school board approved as new credit lines to complement two existing lines of $250 million each with BMO Harris Bank and PNC Bank.
JPMorgan would provide $200 million in tax anticipation note financing that would be payable solely from the pledged portion of the district's 2014 $2.2 billion education tax levy. The notes mature on Oct. 30 under a note purchase agreement with a closing expected on June 29, according to
The district's interest would be tied to a portion of the London Interbank Offered Rate plus an "applicable margin." JPMorgan could place the notes with no more than 35 qualified institutional investors.
The second resolution authorizes $935 million of tax anticipation and warrant notes for a credit line that would run through October 2016. No bank is named a provider. The rate also would be tied to LIBOR and an applicable spread tied to rating levels, according to board documents.
The maneuvers would give the district short-term relief as it struggles to stay afloat, but they come with the risk of triggering fresh credit rating hits and further burdening the district's balance sheet over the longer term.
The district suffered several multi-notch credit blows in March that triggered interest-rate swap termination events negatively valued at $228 million. The bank counterparties have not demanded payment. Moody' Investors Service again hit the district in May, stripping the board's $6.2 billion of debt of its investment grade rating.
The school board carries ratings of BBB-minus with a negative outlook from Fitch Ratings, A-minus with a negative outlook from Standard & Poor's, and BBB-plus with a stable outlook from Kroll Bond Rating Agency. Moody's assigns a Ba3 rating with a negative outlook.
A CPS "fact sheet" distributed this week argues that its financial pension burden outweighs other school districts that participate in the state-funded teachers' pension system.
"The CPS financial crisis has reached our classroom doors and threatens to undermine" academic progress, the document warns. "State law mandates huge pension payments and CPS now faces a choice between meeting its pension obligations and properly running our classrooms."
The district is pressing for additional funding and changes to its pension funding burden whether through increased state help, reforms, or a merger with the state teachers' fund.
The fact sheet also presses the district's argument that city taxpayers are unfairly burdened by paying for the Chicago teachers' fund through property taxes and the state fund through its income taxes, unlike downstate and suburban districts whose teachers participate in the more highly subsidized state fund.
The district contends the state spends more than $2,000 per student on downstate teacher pensions and $157 per student on Chicago teacher pensions. The state provided $3.4 billion to TRS and $62 million to CTPF. The system owes $634 million to CTPF this year, while downstate and suburban districts will pay just over $200 million combined to the TRS.
The district's revenue flexibility is limited by state tax caps. Raising its property tax levy would generate just an additional $19 million in revenue. A CPS-commissioned analysis from Ernst & Young suggested raising $50 million from a capital tax levy that could be activated if approved by the City Council.
