CHICAGO – The Chicago Board of Education will vote next month to revise its $5.4 billion fiscal 2017 budget to incorporate $55 million of added costs under a four-year labor contract ratified by teachers this week.
While the adds to the junk-rated district's budgeted expenses, officials sought to stress that overall it will cost $400 million less than the previous labor deal that expired last year.
The district's finances, however, have dramatically deteriorated since the last deal was struck for fiscal years 2013 through fiscal 2015 as the district relied on one-shots like debt restructuring, a partial pension funding holiday, and a tax collection accounting change to mask a growing deficit that hit $1.1 billion this year. The district had been seeking higher savings with the new contract.
"We are optimistic that with a new collective bargaining agreement in place, we will be able to work together to advocate for the resources our students deserve from the state," the district's chief executive officer, Forrest Claypool, said in a statement.
The $55 million reflects the added expense of the contract compared to a January contract offer that Chicago Teachers' Union delegates rejected. The district had incorporated the cost of the January offer in its budget that was approved by the Board of Education in August. Costs will grow in the last two years of the contract as teachers receive cost of living raises.
The extra $55 million will be covered by the additional tax-increment financing funds that Chicago Mayor Rahm Emanuel is freeing up for the district by raising the city's annual TIF surplus declaration. The district budgeted for the receipt of about $32 million based on the anticipated $60 million declaration. The city raised the declaration amount to $175 million, lifting to about $88 million the amount CPS will receive.
The pact was reached early last month between CPS and Chicago Teachers Union negotiators just hours before teachers were set to strike. It advanced to a rank-and-file vote after the union's House of Delegates endorsed the deal. CTU announced late Tuesday that more than 70% of teachers casting a vote approved the pact.
The potential strike and cost of the new contract stood to impact ratings and investor acceptance for the district's bonds.
"This has taken nearly two years to reach a fair contract settlement. Now educators can focus their full energies on their classrooms as we continue to fight for equity throughout the district," CTU President Karen Lewis said in a statement.
Two public hearings are set for Nov. 28 on the revised budget ahead of the board's vote on both a revised budget and the final contract at a meeting Dec. 7.
The district had refused to release the cost of the contract ahead of teacher ratification over concerns that the information could damage its chances. CPS said Wednesday the contract carries a roughly $2.3 billion price tag for fiscal 2017. That grows to $2.4 billion annually in future years.
The district had sought to phase out its coverage of 7% of teachers' 9 % pension contribution, but dropped it amid stiff union opposition. The contract does phase out the benefit for new hires although they will receive a 7% hike in base pay. Proposed raises were scaled back and teachers will pick up more of their healthcare costs.
"Our agreement with the CTU is the most cost-effective contract in the history of CPS mayoral control," said Claypool. "We are pleased that students can continue to learn uninterrupted, teachers receive a well-deserved raise and the district can bend its cost curve."
Teachers will receive a 2% cost-of-living raise in the third year and a 2.5% raise in the fourth year and receive scheduled step-and-lane raises based on education and experience. Raises in previous contracts since the state handed control of the district back to the city in 1995 have ranged from 2% to 4%.
The board last week approved $840 million of new money borrowing backed by a citywide capital improvement tax levy and another $160 million of refunding bonds.
Moody's Investors Service recently dropped the district further into junk, to B3 from B2, and maintained a negative outlook. The district has about $7 billion of debt and $9.5 billion of unfunded pension liabilities.
The board's debt is rated B-plus by both Fitch Ratings and S&P Global Ratings and carries a low investment grade rating from Kroll Bond Rating Agency. All assign negative outlooks and S&P has the credit on negative watch. The district has paid punishing rates of between 7.25 % and 8.5% to borrow on recent deals.
