CHICAGO – Cash-strapped Chicago Public Schools could find out next week whether the courts will intervene in its pleas for more state funding.
The district has said that without more state help or court intervention it needs to end the school year several weeks early and cut some summer school to erase about $129 million of red ink in its $5.4 billion budget. That’s what remains of a budget hole left by Gov. Bruce Rauner’s veto of $215 million in aid to help CPS cover a $733 million teachers’ pension payment due in June.
A hearing is set for April 19, during which lawyers for CPS and the Illinois Attorney General’s office will make their final pitch on several motions filed in CPS’ lawsuit, which accuses Rauner and the state of using funding formulas that discriminate against its mostly minority population.
Cook County Circuit Court Judge Franklin Ulyses Valderrama may then rule on CPS’ request for a preliminary injunction blocking state distribution of funds under the current formula and on the state’s motion asking that the complaint be dismissed. Or he may take additional time to decide on both issues.
In briefs, the two sides bickered over the urgency of the funding crisis, with CPS warning that it’s run out of options after imposing furlough days and trimming costs, and has limited ability to borrow more. The state questions the validity of that position.
“CPS does have an alternative avenue to keep the 2017 school year intact, and to maintain summer school in the midst of their funding problems," the state said in its filings. "Simply put, plaintiffs can borrow funds to ‘fill the $215 million gap’ that they allege. Nowhere do plaintiffs provide any evidence that CPS cannot borrow additional funds.”
“While plaintiffs admit that in 2016, CPS borrowed $1.1 billion, plaintiffs fail to disclose to the court how much CPS has borrowed in Fiscal 2017. Accordingly, plaintiffs have not demonstrated an irreparable injury, and injunctive relief is inappropriate,” the state filings added.
The district attacked that argument in its response.
“The state goes on to claim that imposing furlough days, depriving students of adequate educational resources, and shortening the school year amount to mere speculation,” a CPS brief reads. “The state does not argue that those effects are not disastrous, but instead appears to question whether they will occur. The state urges the court to wait and see, because maybe CPS can borrow more money to survive another month.”
The Chicago Board of Education raised the district’s authorized short-term borrowing capacity from $1.1 billion to $1.55 billion for fiscal 2017. The district has tapped that authority through credit lines structured with banks as tax anticipation notes in tranches of $325 million, $150 million, $475 million, and $600 million.
The latter was scheduled to mature March 31, opening up capacity, but CPS has indicated that’s needed to help cover the June pension payment. The other tranches mature in December, according to the district’s disclosure postings. The district pays punishing rates of 3% to 4% for debt of such short duration.
"To be clear, even with additional budget cuts to fill the $215 million hole, CPS still must access the capital markets to borrow hundreds of millions of dollars to make its June 30 pension payment,” CPS said in a past filing. The state covers about $12 million of the full $733 million payment.
Rauner vetoed the pension help late last year, because it had been linked to legislative passage of state pension reforms which remain stuck in partisan gridlock that’s driven a 22-month-old budget impasse.
Ending the school year June 1 would save about $91 million, while curtailing some summer school would save another $5 million. Trimming so many days, however, would violate state requirements on school days, so the district could lose between $45 million and $60 million in aid in the next fiscal year.
CPS filed the complaint in chancery court on Feb. 14 alleging violations of the Illinois Civil Rights Act of 2003. It contends under a fair system it would receive $500 million more annually.
The district argues the state’s funding structure is unfair, as Illinois provides $4 billion in annual pension help for all other districts. The district argues it receives a total of 15% of the state aid while educating 20% of Illinois' public school children. CPS gets $1.7 billion annually while $9.6 billion goes to all other districts.
The state countered in its filings that CPS last year received more than $252 million more through the block grants than it would have if it received the same funding as all other school districts in the rest of the state.
The state accuses the district of using a flawed argument in its charges.
“The state is not shortchanging CPS with regard to education funding. And CPS and state pension funding obligations have been separate for a very long time. CPS’s immediate fiscal problems originated years ago because of decisions made by prior CPS administrations,” state filings said.
The pension funding support for other districts was set by the legislature, and application of the civil rights act “cannot override the legislature’s funding decisions or the state’s pension laws,” the state argued in its briefs.
CPS closed the books on fiscal 2016 with an operating deficit of $537 million, has drained most reserves, and tapped out its ability to continue pushing off principal debt repayment. CPS' general obligation bonds are rated junk Fitch Ratings, Moody's Investors Service, and S&P Global Ratings. Kroll Bond Rating Agency rates the district's GOs in the triple-B category.