CHICAGO – The junk-rated Chicago Public Schools will offer a “balanced” fiscal 2017 budget next month that relies on credit lines to help pay its bills, schools chief Forrest Claypool said.
The district continues to press for state help as it faces a $1 billion deficit. The current budget assumed $480 million in additional state help but the district’s pleas for the funds have gone nowhere with Gov. Bruce Rauner and state lawmakers locked in a budget impasse.
Without additional state aid, the district must cut deeply and continue its reliance on short-term borrowing.
“We can’t pay for anything absent a line of credit,” Claypool said Monday.
The borrowing is needed not just to cover the potential costs of a new teacher’s contract but to “keep the doors open,” he added.
The district has tapped out $870 million of short term credit lines set up for fiscal 2016 and is expected to end the year June 30 with little cash on hand after making a $680 million teachers’ pension payment.
Last week, the district said it was looking to renew existing lines of credit as well as examining opportunities to seek a new line of credit. “The amount we will seek will be determined by our FY17 budget, which we are still developing. The purpose is the same as it was for FY16 – to bridge cash flow needs through the fiscal year,” officials said.
The district did not provide an answer as to whether questions over its borrowing authority were resolved by a recent opinion from Illinois Attorney General Lisa Madigan.
Rauner suggested that the state could block future CPS borrowings if the state board of education which is examining CPS finances determines the district to be in "financial difficulty." It’s a power the state holds all other districts.
The attorney general’s opinion found that the state board lacks the authority to prevent the Chicago Board of Education from establishing a line of credit or incurring other debt.
The Chicago board may continue to exercise those powers granted by applicable provisions of the school code including the power to establish lines of credit, the opinion said.
CPS had been struggling to establish to fiscal 2017 credit lines due to the uncertainty created by Rauner’s assertions, according to the legislative letter requesting the opinion.
The district has paid punishing short- and long-term interest rates on recent transactions. Short-term lines have cost the district 3.25% and market worries over the district’s solvency pushed its yield up to 8.5% on a $725 million sale earlier this year. State law caps debt at 9%. The district delayed the sale a week after the underwriting team struggled to get orders.
Claypool’s comments came during a news conference called to ask the Chicago Teachers Union to continue negotiations aimed at averting a strike. Over the weekend, an independent arbitrator sided with the district in backing its last four-year contract offer.
The pact offered raises but ended the district’s coverage of 7% of the teacher’s 9% pension payment, which costs about $170 million annually.
The union rejected the district’s proposal just days ahead of the bond sale earlier this year, sending the issue to arbitration.
The union rejected the arbitrator’s findings and union officials said the two sides remain far apart on money issues and guarantees of job protection. The rejection sets the clock ticking on a possible strike. Teachers could strike as soon as mid-May or wait until the new school year.
The district has announced a total of $335 million in annual cuts or savings, part of its plan to tackle a $1 billion budget deficit. It also is relying on city and state legislative support for a special pension property tax levy that could raise $170 million and additional state help. The district has argued that additional state help is not a bailout as its funding levels fall short of what other districts receive through the state’s coverage of districts’ pension contributions.
Fitch Ratings, Standard & Poor's, and Moody's Investors Service have the district deep in speculative-grade territory with single-B level ratings. The district’s last deal received a BBB rating from Kroll Bond Rating Agency, which rates other CPS bonds BBB-minus.