CHICAGO -- A fiscal watchdog group warned Thursday that Chicago Public Schools faces serious long-term problems -- led by pensions -- despite implementing more than 2,000 layoffs and 50 school closings last year.
The Civic Federation blasted the struggling school district in an 85-page report that said its new $6.6 billion budget will only worsen its long-term fiscal health. The federation criticized the district’s decision to drain nearly all of its reserves -- both unrestricted and restricted -- to cure a nearly $1 billion deficit.
It also cited school officials’ lack of action on the mounting pension funding crisis, as well as lack of sufficient time for public feedback on the budget and a lack of data in the new spending plan.
“The district knew this budget crisis was coming and should have been aggressively advocating for their own pension reform proposal tied to a long-term financial plan to stabilize their budget,” Laurence Msall, the federation’s president, said in a statement.
School officials blame much of the deficit on a looming $400 million increase in pension payments which they attribute to state inaction on pension reform. CPS’ scheduled pension payment rises to $613 million in the next budget from $208 million in fiscal 2013. Without changes to the pension system, the number will rise to $1 billion by 2032.
The federation said the district needs to be more aggressive in pushing state lawmaker to enact reform and crafting its own long-term policy.
“While the Civic Federation remains hopeful that the General Assembly, Governor Quinn and other important stakeholders will come together to enact comprehensive pension reform in the near future, it remains critical that the district publish a plan to address its unique ongoing structural deficit,” the report said.
CPS said its hands are tied until the state acts.
“The district faces a historic $1 billion financial crisis due to a lack of pension reform in Springfield, which has forced us to make difficult decisions such as scraping the bottom of our reserve funds in order to keep cuts as far away from our classrooms as possible in addition to making $112 million in reductions to central office, administration and operations spending,” the district said in a statement in response to the federation’s report. “We will continue to rigorously push for pension reform as we did last session and hope that union leadership will come to the table willing to support the kinds of reforms necessary to provide significant financial relief for our schools while keeping the pension system viable and sustainable for current and future retirees.”
Deficits of between $900 million and $1 billion are projected in fiscal 2015 and again in 2016.
Moody’s Investors Service downgraded the district in late July to A3 from A2, leaving a negative outlook on the credit. Analysts cited as the lead factor a leveraged overall debt burden on the district’s tax base due to the weight of its debt and pension obligations in combination with the city of Chicago and other overlapping government bodies.
Standard & Poor’s rates the Board of Education A-plus and stable. Fitch Ratings assigns an A rating and negative outlook.
CPS’ teachers’ pension fund has $6.8 billion of unfunded liabilities for a funded ratio of 59.9%.