Chicago Public Schools is banking on $500 million in state pension help to avoid deeper cost cuts and more borrowing in fiscal 2016, officials said Monday as they released neighborhood school budgets.
The fiscally stressed district, which has yet to release a budget for the fiscal year that began July 1, signaled the need for state help as it announced Monday that individual school budgets face a $60 million drop in funding due to enrollment declines. The final spending levels will depend on enrollment figures on the first day of school in September. Charter schools are in line to receive $30 million more, as their enrollment is projected to rise.
The spending levels reflect $200 million in cuts the district and Chicago Mayor Rahm Emanuel recently announced as part of the system's effort to help close a $1.1 billion deficit while also meeting a recent June 30 deadline to make a $634 million fiscal 2015 teachers' pension fund contribution.
The district tapped its credit lines to cover the payment. At least $200 million of the borrowed money must be repaid in October with tax revenues. CPS is working to establish another $900 million line to use in the new fiscal year.
The district's efforts to manage through fiscal 2016 suffered a setback Friday when it pulled efforts to win approval from the teachers' fund to defer $500 million of its nearly $700 million fiscal 2016 contribution to the teachers' fund. The district is expected to raise its tax levy by the full amount under state caps to generate an additional $60 million and should get some extra tax-increment financing-related funding from the city, but the broader solution to its solvency woes hinge on the state.
Without action, interim schools' chief executive officer Jesse Ruiz warned that the district would be "forced" to use borrowing and make additional cuts.
"The fact is much of the pain in this year's budget is due to a broken pension system that forces CPS to choose between making pension payments and investing in our classrooms," Ruiz said.
CPS and Mayor Rahm Emanuel want the state to pick up a greater share of teacher pension payments to bring it in line with support provided to other districts in the state, which participate in the state teachers' pension fund. That would provide about $200 million in relief for CPS coffers. A plan laid out by Emanuel would also raise property taxes by about $225 million and require teachers to pick their share of contributions covered by the district for a savings of about $200 million.
Gov. Bruce Rauner has proposed some of those reforms in a sweeping pension bill that will be the subject of a House legislative hearing Wednesday. The bill however includes measures considered anti-union and would establish a path for local governments to file Chapter 9 bankruptcy raising questions over its fate which is already complicated by the state budget impasse.
The district's budgetary and pension ills have dragged its ratings down and raised concerns over its solvency.
Standard & Poor's dropped the Chicago Board of Education's general obligation bond rating two notches to BBB and put it on CreditWatch negative recently after CPS borrowed against its credit lines to cover the fiscal 2015 payment.
The board's $6 billion of GO debt previously was rated A-minus with a negative outlook by the rating agency. The credit score is two notches above a speculative grade. Moody's Investors Service in May stripped the Chicago Public Schools of its investment grade rating, lowering it three notches into junk territory at Ba3 with a negative outlook.
Fitch Ratings assigns the Chicago schools its lowest investment grade rating of BBB-minus with a negative outlook; Kroll Bond Rating Agency assigns a BBB-plus rating with a stable outlook, though it recently put the rating on watch negative.
