August 23, 2016
District Should Detail Transparent Backup Plan
In a report released today, the Civic Federation announced it cannot support the Chicago Public Schools proposed FY2017 operating budget of $5.46 billion. The budget effectively remains out-of-balance by relying on uncertain funding and one-time measures in order to close a $1.1 billion operating deficit. The Civic Federation urges CPS to develop a public and transparent contingency plan for members of the Board of Education to approve in the event relied-upon revenues fail to materialize. The full 93-page report is available here.
“The District’s FY2017 budget represents a small step back from the edge of the insolvency cliff,” said Civic Federation President Laurence Msall. “However, CPS once again counts on unsustainable funding sources to close a billion-dollar deficit without detailing a practical long-term plan for ending its ongoing financial crisis.”
As detailed in the report, the Civic Federation has concerns about the District’s reliance on $31 million in expected labor concessions and on $215.2 million in State funding for teacher pensions, the latter of which is contingent on Illinois Governor Bruce Rauner and the Illinois General Assembly agreeing on pension reforms. CPS has provided no contingency plan if the State pension funding or labor savings are not approved. The District will again draw down reserves and rely on short-term borrowing to manage cash-flow issues, in addition to recently proposing a $945 million bond issuance that has not been tied to a five-year capital improvement plan. Because CPS’ credit is rated below investment grade, high interest rates will result in increased borrowing costs ultimately passed along to taxpayers.
Despite the major concerns, the Civic Federation is encouraged by several aspects of the proposed budget. Expenditure reductions made in recent years and cuts outlined in the FY2017 plan reflect a serious effort to better manage scarce resources and improve operational efficiencies. The District will collect $250 million in property tax revenue from a dedicated pension levy reinstated in State statute and will successfully phase out the pension pick-up for non-union employees by FY2018. Unlike past years, this budget does not rely on the use of costly scoop-and-toss financing that pushes current obligations into future years.
“Increased funding from the State is good news for CPS but should not be considered a panacea,” added Msall. “It remains to be seen how much of the nonrecurring funding or other estimated savings will materialize.”
The Federation’s full analysis recommends that the District implement a formal long-term financial strategy, present a realistic contingency plan for FY2017 that does not rely on borrowing or other unsustainable actions, create a policy eliminating the use of scoop-and-toss practices, end the pension pick-up for all employees, rebuild budgetary reserves, make budget hearings more accessible to the public and present consistent findings in its budget book and online budget. The Federation also recommends that the State of Illinois merge the Chicago Teachers’ Pension Fund with the downstate and suburban Teachers’ Retirement System and that CPS continue to advocate for changes to the Illinois School Aid Formula.