School Finance Authority: From Creation to Dissolution

May 19, 2010

The Chicago School Finance Authority (SFA) is scheduled to be officially dissolved on June 1, 2010. The SFA is a separate unit of government created in 1980 by the Illinois General Assembly and charged with “promoting the financial integrity” of the Chicago Public Schools (CPS) (see the School Finance Authority statute, 105 ILCS 5/34A).

In the wake of CPS’s 1979/1980 financial crisis, the Authority was directed to exercise financial control over and furnish financial assistance to the Chicago Board of Education. The goal stated in 105 ILCS 5/34A‑102 was to provide a secure financial basis for the continued operation of Chicago’s public schools. In the thirty years of its existence, the SFA issued over $1.1 billion in bonds.[1]

The School Finance Authority, with a board of five directors appointed by the Governor of Illinois and the Mayor of Chicago, had the power to issue bonds for CPS expenses and then levy a separate property tax for the debt service. The principal responsibility for the education policies of the public schools remained with the Chicago Board of Education. 

In recent years there has been little discussion about the Chicago School Finance Authority, but that has not always been the case. In addition to its bond and tax levy authority, the SFA was also charged with approving the budgets, financial plans and contracts submitted to the Board of Education. The bulk of this review took place during the 1980s and 1990s. In 1993 the Illinois General Assembly expanded the Authority’s financial review duties to include an independent management assessment and audit in response to the District’s growing budget deficits.[2] Once control of the Chicago public school system was transferred to the Mayor of Chicago in 1995, the Authority’s actions primarily involved administration and oversight of its outstanding bonds.[3]

Illinois statutes state that the Chicago School Finance Authority will dissolve one year after all of the financial obligations incurred by the Authority have been fully paid, discharged or otherwise provided for.  The Authority has discharged its remaining debt on June 1, 2009.[4] Upon dissolution, all the assets and property of the SFA are to be transferred to the Chicago Board of Education (105 ILCS 5/34A-604). The statue also requires liability insurance for the board members to be maintained for an additional two years past the date of dissolution (105 ILCS 5/34A-602). The SFA levied its final property tax in tax year 2007, payable in 2008.

[1]The SFA issued over $1.1 billion in principal through the following bond series: 1980A, 1980B, 1980C, 1980D, 1984E, 1994A, and 2004C. It also issued approximately $1.4 billion of principal in various refunding and defeasance transactions related to the original “new money” bonds.
[2] Don Haider. “Why the School Finance Authority has put teeth in its growl.” Chicago Tribune. July 10, 1994.
[3] Yvette Shields. “Chicago School Finance Agency crafts a budget saving restructuring.” The Bond Buyer. January 18, 2005.
[4] Chicago School Finance Authority, Annual Financial Report, August 31, 2009, p. 4.