CHICAGO – The clock is ticking for junk-rated Chicago Public Schools as an August deadline to renew its credit lines looms large.
A legislative overhaul of school funding sponsored by Sen. Andy Manar, D-Bunker Hill, that would provide CPS up to $300 million in additional aid and pension help remained stalled Thursday.
"Senators have had three, massive reports on this issue land in their laps in the past 36 hours, and at least one of them was not accurate," said John Patterson, a spokesman for Senate President John Cullerton, D-Chicago. "Before moving forward on an issue of such importance and magnitude, there's a desire to have a stronger degree of comfort and confidence in the numbers for Senators' local school districts."
An Illinois Board of Education review of the proposal prompted Republicans to label the package a bailout for CPS, but Manar hopes that amendments will quiet concerns over the impact on other school districts.
CPS officials recently laid out for City Council members a bleak overview of its fiscal condition. About $300 million in spending cuts this year will only go far to trim a $1.1 billion deficit with its teacher's pension payment set to rise to nearly $700 million in the next budget. The district's debt load includes $9.6 billion of unfunded pension obligations and nearly $7 billion of bonds.
"CPS cash flow needs are immediate and require a balanced fiscal 2017 budget," the district warns in documents presented to council members and published by the news site Aldertrack. "CPS will not be able to continue meeting its obligations without a renewal of the lines of credit."
CPS is on track to close out the fiscal year June 30 with $24 million of cash in the bank, but that's only because it's fully tapped $870 million of existing credit lines set to expire in August. If not for the credit lines, the district would end the year with an $846 million negative balance.
The $24 million figure equates to 1.5 days of operations. It operates on a $5.7 billion budget.
"In order to close the new credit line, the fiscal 2017 budget needs to be approved and the property tax levy to be filed," the document says. "Banks will only lend if they see a balanced budget with meaningful progress to structural balance and positive projected cash flows for fiscal year 2017."
Closing the gap "will require shared commitment from all parties" including more state funds, an affordable teachers' contract, and the restoration of the pre-1995 property tax levy, the district says. The district wants teachers to begin picking up the 7% of its pension payment now covered by the district to save about $150 million. The levy restoration would generate about $170 million.
On Thursday, schools chief Forrest Claypool said after a public appearance with Mayor Rahm Emanuel the district can cover the $676 million teachers' pension payment owed by the end of June because of cuts undertaken this year.
"When we make that payment, we'll have very little resources left," Claypool said.
While the district remains reliant on expensive short-term borrowing that has carried an interest rate of 3.25%, its leaders have questioned their ability to return to the market any time soon. That's after its bond sale earlier this year was delayed, scaled back and sold only after intense investor lobbying by Mayor Rahm Emanuel and his administration.
The district paid a high yield of 8.5%, near the state legal cap of 9%, and its bonds have been trading at between 450 and 500 basis points over the Municipal Market Data's top-rated benchmark.
Emanuel and Claypool dismissed the notion that Manar's bill is a bailout. Instead, they argue it puts the district on more equal footing with what the state provides to other districts to help cover teachers' pensions and there's bipartisan support to reform the school aid formula. Manar's bill would initially hold harmless districts that would eventually lose some state aid.
Gov. Bruce Rauner's administration has been critical of the bill and its fate remains unclear.
The threat of a teachers strike eased, a bit, on Wednesday when the union's bargaining group opted against calling for a strike during its monthly meeting. "We've made a serious play about getting the schools funded, we have to watch that play out," CTU vice president Jesse Sharkey said.
That could change if Claypool makes good on his prior threat to halt the district's coverage of 7% of the teachers' 9% pension payment. He wants the change included in the next contract currently being negotiated. He said this week he would leave the issue to be decided through the collective bargaining process.
The union on Wednesday pitched a tax package that could raise $500 million. The unions wants the city to reinstate and increase the so-called "head tax" that companies previously paid based on their number of employees. The group also proposed increasing the existing personal property lease tax rate on rental vehicles and imposing a rideshare tax. The menu also included a hotel tax hike and raising the city's five cents per gallon gasoline tax.
"The solution is not about more taxes," Emanuel said. "I'm not going to let the state of Illinois get off the hook."