How Chicago Public Schools Could Lose out on Future State Funding Increases

August 23, 2019

This year is the third year that Chicago Public Schools (CPS) will receive funding from the State of Illinois through the statewide Evidence-Based Funding formula that was signed into State law in August 2017. The CPS 2020 fiscal year runs from July 1, 2019 through June 30, 2020.

The Evidence-Based Funding (EBF) formula is more equitable than the prior General State Aid formula. It calculates the funding adequacy of school districts based on available resources and district-wide needs rather than setting the same funding level for every student. A target funding level (“adequacy target”) is set based on a school district’s student population needs and local capacity to fund schools based on the assessed value of property available to the school district for taxation purposes and other sources. School districts are separated into four tiers based on how close they are to their adequacy target. An overview of the formula can be found here.

The Evidence-Based Funding formula has two major components: a base funding minimum and tier funding. When Evidence-Based Funding replaced General State Aid, a base funding minimum was calculated for each school district in the State to hold schools harmless, meaning they would receive at least the same amount of funding as they did through the General State Aid formula and four block grants. In addition to the base funding minimum, the State allocates additional dollars it puts into the funding formula as tier funding, which is distributed to school districts and prioritized based on the tier levels. The total tier funding pot in FY2020 is $312 million. Tier 1 school districts, which have the highest level of funding need based on their local resources capacity, receive 50% of the entire tier funding pot. The next 49% of the pot goes to both Tier 1 and Tier 2 school districts. Tier 3 receives 0.9%, and Tier 4 receives the remaining 0.1%. Tier funding received by school districts each year is rolled into their base funding minimum for the next year, so no school district loses money going forward, unless the State reduces its funding to schools.

CPS is currently a Tier 1 school district. CPS has an FY2020 adequacy target of $5.59 billion, which is equivalent to $15,531 per student. This means that the District would need $5.59 billion to provide the necessary classroom and support resources to its student population. Based on currently available local resources including property tax revenue, personal property replacement tax revenue and prior year Evidence-Based Funding, CPS only has $3.66 billion, or 65.6% of those needed resources. CPS still needs an additional $1.93 billion to meet its adequacy target. The State, while pledging to increase appropriations for Evidence-Based Funding by about $300 million per year, has not fully funded the formula.

The FY2020 threshold for being considered a Tier 1 school district is an adequacy percentage of 67.4% or below. CPS will remain a Tier 1 school in FY2020 because its resource levels are below the 67.4% statewide threshold.

In the CPS budget proposed for FY2020, the District notes it could potentially become a Tier 2 school in the next several years. This is an important concern because it means CPS could lose out on increases in tier funding through the Evidence-Based Funding formula in future years. It is important to understand that losing Tier 1 status would not result in CPS losing any current State funding because of the hold harmless provisions in the law. Rather, it would result in CPS potentially losing out on future State funding increases.

Evidence-Based Funding is calculated using the following formula:
(Local Tax Resources + Prior Year EBF) / Adequacy Target = Adequacy Percentage

There are several ways CPS could move from Tier 1 into the Tier 2 category based on the formula: an increase in local resources, a decrease in the adequacy target, or a change in the adequacy percentage threshold based on the amount of tier funding available statewide. The more statewide tier funding available, the higher the Tier 1 adequacy percentage threshold.

Local resources are projected to increase in future years because Chicago property assessments have been increasing, which means there will be more property value available for CPS to tax and generate as property tax revenue.

The adequacy target is based in part on the percentage of low income students in relation to total enrollment. If the percentage of low income students decreases, the adequacy target decreases. CPS says that low income student population has been decreasing at a faster rate than overall enrollment, at an average annual decrease of 3.6% between 2014 and 2018. Total enrollment has decreased by an average of 2.7% over the last three years.

If these population and property value trends continue, and if there is no increase in the statewide tier funding allocation, CPS could end up above the Tier 1 adequacy percentage threshold and therefore move into the Tier 2 category.

According to the CPS FY2020 budget proposal, CPS is receiving a total of $1.67 billion in Evidence-Based Funding in FY2020, which includes $64.3 million from FY2020 tier funding. CPS estimates that if it were a Tier 2 rather than a Tier 1 school district, it would have lost out on about $30 million in tier funding this year.

The Civic Federation commends CPS for its transparency on discussing the possibility of becoming a Tier 2 school within the next few years because acknowledging the issue will allow the District to plan ahead and identify ways to make up for potentially losing out on future State funding increases.