In separate briefings to aldermen and reporters Friday, Chicago CFO Carole Brown presented a plan for Chicago Public Schools to borrow more money from banks to keep classroom doors open through the end of the school year and to make a $716 million teachers’ pension payment by June 30. The borrowing plan, presented without any CPS leadership participation, allows the city to avoid raising taxes, sweeping TIFS, or asking aldermen to vote on either.
The school system plans to borrow $389 million against expected state grant payments that have been delayed by the state’s two-year budget impasse. Banks will only fund 85% of the $467 million grants due to CPS through Grant Anticipation Notes (GANs), at an interest rate expected to be between eight and nine percent, Brown said in briefings to aldermen. The rate won’t be known until the borrowing is complete. The school district previously had $600 million in Tax Anticipation Notes (TANs) it could borrow against, but those are paid off and won’t be used, Brown said in her reporter briefing.
Before the new round of short-term borrowing is completed, CPS will have used a $950 million line of credit and have issued $6.8 billion in long-term debt. State statute caps CPS borrowing at 13.8% of the Equalized Assessed Value, the total property tax value of a district, at any one time. In 2016, that number was $9.8 billion. Counting the current debt and the new borrowing, CPS will have $8.1 billion in total debt, coming close to the district’s limit.
While CPS started the school year with a drastically low $86.2 million in cash, Brown says CPS will finish its fiscal year on June 30 with about $30 million on hand. Though, Emily Bittner, a CPS spokesperson said in an email to reporters, “CPS continues to work through its finances and does not have a final updated cash balance projection.” Experts suggest a good practice cash balance would be closer to $250 million for an organization its size, with a $5.4 billion annual budget.
How We Got Here
The school system began the 2016-17 school year with a $1.14 billion deficit, but plugged the budget hole with a series of cuts, cash taken from Tax Increment Financing (TIF) surplus and a series of grants from the state approved by the General Assembly in October. But that plan was laid to waste when Gov. Bruce Rauner vetoed a $215 million state grant, charging that promised pension reform was not delivered.
In response, CPS enacted a series mid-year cuts, but it was not enough to close the gap. In April, CPS announced that the state was late paying $467 million in “categorical” block grant funds, money to paid to local school districts to cover programs like special education, transportation and early childhood education costs.
While CPS might still have had enough cash on hand to get through to the end of the school year, the $716 million teachers’ pension payment, due by June 30, overshadowed everything else.
There was no senior CPS leadership present for neither the reporter nor aldermanic briefings Friday, flaring aldermanic tempers after weeks of demanding to see CPS leadership. Instead, city CFO Brown led the briefings, often referring reporters and aldermen to “talk to CPS about the specifics” when she did not have answers.
“Aldermen are pissed!” said one staffer who attended a briefing.
“It got very angry,” in the meeting, said Ald. Scott Waguespack (32) after he attended a briefing with Brown. “Aldermen going on about ‘Where is Claypool?’ There were lower level staff, [but] not a one spoke. They said [CPS CEO Forrest] Claypool was working hard and couldn’t be there.”
“To me it shows that the mayor is in charge, and we’ve known that from day one. We’re glad that the mayor is making it clearer than ever, and that he owns it,” said Ald. Carlos Ramirez-Rosa (35) after attending a briefing.
Others were less concerned. “I can’t think of any reasonable [funding] alternative,” said Ald. Joe Moore (49). “They tell me it took so long to come up with a plan, because they wanted to make sure they could sell the bonds. Apparently they can. It’s unfortunate because it just drives CPS further into debt.”