CHICAGO — The Chicago Public Schools system faces a $720 million deficit in its next budget to cover the growing costs that include teacher salaries and debt service amid chronic delays in state aid payments and expiring federal stimulus funds.
Illinois is currently $236 million behind in its school aid payments as it struggles with a $15 billion budget deficit and a backlog of more than $6 billion in payments owed to schools, transit agencies, social services agencies, and other vendors. CPS also will not know what final funding level to expect from the state until the General Assembly adopts a fiscal 2012 budget.
“There are the very big questions about what decisions the state will make, both in terms of funding level and the current backlog of $236 million in state payments due CPS,” interim chief executive officer Terry Mazany said in a statement.
Mazany, who was appointed to the post on an interim basis by Mayor Richard Daley late last year, provided a brief budget update to the Chicago Board of Education at its Wednesday meeting. Mazany said the looming deficit calls for shared sacrifice that includes teacher pay raises.
Current contracts call for pay raises that carry an $80 million price tag next year. Labor negotiations will be left to Mayor-elect Rahm Emanuel’s choice to lead the schools. Emanuel takes office in mid-May and has said naming a new schools’ chief is a priority.
After some difficult times that included teachers’ strikes, Chicago and its teachers’ unions have enjoyed labor peace since Daley was handed back control of the school system by the legislature in 1995. It has been considered a positive credit factor by rating analysts.
At the board meeting, Mazany also proposed consolidating eight schools into six other existing facilities. The move will have a limited near-term fiscal impact but is expected to result in long-term budgetary savings.
Mazany said the changes address shifting enrollment trends in the system.
The district faced a similar deficit last year in its $6.5 billion budget; it cut spending and staffing levels and restructured $240 million of debt to help close the gap.
Fitch Ratings last year downgraded CPS’ $5 billion of debt to A-plus due to mounting fiscal challenges and a reliance on one-time revenues.
“The downgrade … reflects the Chicago Public Schools’ weakened financial flexibility and expected continued challenges in the next several years in attaining stable financial operations given the diminution of non-recurring sources of budget relief,” Fitch analysts wrote.
The current budget includes more than $400 million in federal stimulus funds that won’t be available in the fiscal 2012 budget and $400 million in pension relief that will continue for two more years. The General Assembly trimmed the size of the district’s pension payments by $400 million for three years.
The school district enjoys a healthy unreserved fund balance and its ratings are supported by Chicago’s large and diverse economic base, and a stabilized enrollment base of more than 400,000 students who attend 675 schools.
CPS carries ratings of AA-minus from Standard & Poor’s and Aa2 from Moody’s Investors Service. Both agencies assign a negative outlook to the credit.
