July 24, 2018
Concerns remain about State funding reliability, capital plan and enrollment declines
(CHICAGO) In a report released today, the Civic Federation announced its support, with reservations, for Chicago Public Schools’ proposed $7.6 billion FY2019 budget. Due to considerable recurring revenue sources, including increased State funding and a property tax levy dedicated to pension funding, the District’s financial position has significantly stabilized compared to recent years. However, the Federation remains concerned about aspects of CPS’ finances going forward. The full report is available here.
Due to passage of the statewide evidence-based school funding formula and other legislative changes, CPS received $450 million in additional funding in FY2018 over the previous year. In FY2019, the District expects to receive an additional $111.9 million in State funding over FY2018. Approximately one-third of the CPS budget will come from State funding in FY2019.
“Fortunately, the Chicago Public Schools’ finances have begun to stabilize following Springfield’s much-needed overhaul of the decades-old education funding formula—though the work is far from over,” said Civic Federation President Laurence Msall. “Unfortunately, because Illinois continues to languish in its own financial crisis, State funding will remain a source of uncertainty for CPS and other districts.”
As detailed in the report, the Federation supports several aspects of CPS’ FY2019 budget. The District relies less on short-term borrowing than in prior years in order to manage its ongoing liquidity challenges. While CPS’ credit ratings are still below investment grade, improved outlooks from ratings agencies and upgrades from Moody’s and Fitch translate to reduced interest costs for the District’s debt issuances. Proceeds from the dedicated pension levy allow CPS to decrease the amount it must pay out of operating funds into its pension fund. At the end of FY2018, CPS is projecting its first operating surplus in several years.
Despite an improved financial position, the Federation has concerns that the nearly $1 billion capital budget will require CPS to generate $750 million in additional capital funding, the majority of which will come from issuing long-term debt on top of the District’s $8.2 billion in outstanding debt. The size of the capital budget is also of concern given the lack of transparency regarding prioritization for selected projects and how they fit into a capital plan.
“CPS’ finances have barely reached more stable footing; this is not the right time to issue massive amounts of additional debt with only a portion going to the most critical facility needs,” said Msall.
Other concerns include the District’s ongoing use of $1 billion in short-term borrowing and ongoing enrollment declines coupled with increases in personnel and spending on salaries and benefits.
For increased transparency, the Civic Federation recommends that CPS make more information publicly available about the prioritization of capital projects and issue a five-year Capital Improvement Plan as required by law; live-stream board meetings; present consistent budget information in both the budget book and online interactive budget platform; and provide revenue and expenditure updates regularly at public meetings. The Federation continues to recommend consolidation of the Chicago Teachers’ Pension Fund with the downstate and suburban Teachers’ Retirement System to create true pension funding parity from the State.