CHICAGO – Chicago Public Schools won't close early despite a judge's decision not to intervene in the district's funding crisis.

That was the pledge from Mayor Rahm Emanuel and CPS leaders Friday after Cook County Circuit Court Judge Franklin Ulyses Valderrama dismissed the district’s lawsuit accusing Gov. Bruce Rauner and other state officials of doling out aid based on formulas that discriminate against its mostly minority students.

The district had warned without additional state help or court intervention schools may have to close three weeks early with some summer school classes cancelled. The city and district did not provide any detail on where the district will find the money to stay open and pay its bills nor did they identify what form possible city help might take.

After the court hearing Friday, the schools’ chief executive officer, Forrest Claypool, and other CPS officials headed across the street to city hall to meet with Emanuel, who appoints the school board and named Claypool to lead the district. At a news conference Emanuel told students and teachers “you will be in school until the end of the school year” and city and CPS officials “will be working on finding the resources.”

“We are going to look at all options,” Emanuel said, providing no additional detail. Speculation has been that the city would provide the district some type of bridge loan or further tax-increment financing support. The district’s board could increase its short-term borrowing authorization but that must be paid back. Some council members have suggested that the mayor dip into the city’s reserves from its lease of the Skyway toll bridge, but that could harm the city’s already battered credit ratings so is considered unlikely.

"You will be in school until the end of the school year,” Chicago Mayor Rahm Emanuel told Chicago Public Schools students after the district lost a court case about funding.

Claypool said with the city’s support, he was confident that funding would be identified to erase remaining red ink left from Gov. Bruce Rauner’s veto of pension funding help.

“Although Gov. Rauner with his veto in the middle of school year….succeeded in crippling our ability to meet our financial obligations, he has not crippled the will of our parents, our teachers and more importantly the mayor in ensuring that our children and their interests are protected,” Claypool said.

Before announcing his decision on the state’s motion to dismiss, the judge denied the district’s request for a preliminary injunction blocking any further distribution of state aid funds under the current formulas before granting the state’s motion to dismiss.

The dismissal is not a fatal blow; Valderrama gave the district 28 days to amend its lawsuit to address his conclusions that the district did not adequately make its case that the state had violated the Illinois Civil Rights Act.

Valderrama expressed sympathy for the district’s arguments, commenting that to say the school funding system “is broken is to state the obvious,” but he concluded the district had not shown that ICRA was the “vehicle to address” the inequity.

He also agreed that the district indeed had shown it’s in the midst of a fiscal crisis – one of the criteria that could have helped win an injunction if the complaint was not dismissed -- and took the state to task for a comment he called “flippant.” He was referring to a suggestion in state filings that CPS could easily remedy its current emergency by borrowing. It’s “startlingly out of touch with reality,” he said from the bench.

Even if rulings Friday had gone in CPS’ favor, it was unclear how it would solve the current funding shortfall because the court can’t order the state to appropriate funds.

“We will continue to fight for racial justice,” Claypool said after the hearing.

The junk-rated district is trying to erase $129 million of red ink that remains after cuts to close a $215 million hole. The gap occurred when Gov. Bruce Rauner vetoed pension funding help for the district late last year. The aid was conditioned on passage of state pension reforms which have remained stalled amid a nearly two-year-old state budget impasse.

CPS filed the complaint in chancery court against Rauner, other state officials and state board of education 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, covering most of their pension payments while only providing CPS with $12 million.

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.

After ordering furlough days and trimming costs, CPS says it has run out of options without more state help.

Attorney General's lawyers warned that a preliminary injunction blocking any further distribution of funds under current formulas would harm school districts across the state who might not even be aware of the CPS lawsuit.

CPS in court filings has also argued that it also has limited ability to borrow more, saying it must use remaining authority to help cover its $733 million teachers’ pension payment owed in June. The state questions the validity of that position.

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 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. It pays dearly for short term borrowing and was nearly shut out of the markets with its last general obligation sale.

CPS' general obligation bonds are rated junk by 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.

Illinois Secretary of Education Beth Purvis said on behalf of the Rauner administration: “With this distraction behind us, we can move forward on working with the General Assembly to fix our state's school funding formula. Instead of pointing fingers and blaming decades of fiscal mismanagement on a governor who has been in office for two years, CPS should be urging lawmakers to pass a balanced budget that includes changes to our education system that will better meet the needs of every student.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.