CPS CEO Forrest Claypool unveils district’s FY18 budget at Galileo Elementary School, Friday, August 11, 2017. Credit: Claudia Morell

Last winter, it seemed for a time that maybe Chicago Public Schools wouldn’t start on time. The school district projected an operating deficit of hundreds of millions of dollars, state payments were half a year behind and the Illinois legislature seemed unlikely to kick forward the millions of dollars CPS needed to stay open. But this week CPS leadership took a victory lap, as classes started on time and the school district touted rising graduation rates and improving test scores.

While the education funding deal hatched in Springfield will deliver CPS $450 million more than in past years, it still doesn’t cover the district’s entire budget hole. Last month CPS, banking on $300 million more from the state, said it still had a $269 million hole to fill. Complicating matters, the state budget deal includes higher payments to Chicago’s charter schools, diverting something between $60 and $100 million away from traditional public schools.

So, depending on the math, CPS still has a budget hole of $200 to $250 million. Where’s that going to come from?

Borrowing seems to be totally out the question. This week Moody’s Investor Service announced that while it was giving CPS bond debt a “stable” rating because of the state funding deal, the school district would still be rated as junk. Unless CPS is willing to pay super-high premiums, the bond markets are closed to the school system.

With tax caps raised by the state as part of the school funding deal, CPS will raise property taxes by $150 million, but that’s all.

What’s left are cuts, for the city to funnel money to schools through TIF givebacks or new city taxes, and maybe going back to an old playbook, creating a school finance authority.

The last time CPS had a school finance authority, in 1980, CPS’ fiscal problems mirrored many of today’s. At the time, the district’s deficit stood at about $115 million (but was rumored to be as much as $400 million). It was on the brink of insolvency and frozen out of the bond market. Employees were subject to no-pay paydays, and there were questions as to whether doors would open in the fall.

A new entity with a clean slate would give CPS access to capital markets and lower interest rates, and a mandate to shrink the school district’s massive $200-$250 million operating deficit. It would also relieve the city of Chicago of the spectre of raising its own property taxes to support an out of control school system budget.

The biggest stumbling block to creating a new school finance authority would be approval by Gov. Bruce Rauner and the state legislature, since it would be an entirely new government body. While Republican state leaders called for a state-managed school finance authority for Chicago last year, after months of fighting over education funding, state legislators may be weary of dealing with yet another set of Chicago school issues, and want to extract other promises from CPS in return.

Considering Chicago schools management, the state is likely to open a whole new can of worms. Exactly who, Mayor Rahm Emanuel or Gov. Rauner, would appoint the board for the school finance authority would be the first contentious issue. How much authority the Chicago School Board will retain will be another. Proponents of an elected school board might see this an opportune time to mobilize.

Providing revenue for a school finance authority will be another contentious issue. The state might be pushed to raise CPS’ property tax cap again–which CPS has been bumping up against for decades. One possibility could be the state allocates a portion of new property taxes to pay for new school construction, with the understanding a certain number of existing schools would be closed or consolidated, cutting operating expenses over time.

Back in 1980, Mayor Jane Byrne, Gov. Jim Thompson, “a coalition of government, business, labor and community leaders” struck up an $875 million refinancing deal and established the Chicago School Finance Authority (SFA) with oversight of district finances and a mandate to only approve balanced budgets (105 ILCS 5/34A). It had five members chosen by the Mayor and Governor, and had the power to issue bonds for CPS expenses and levy a separate property tax for debt service.

Even after the SFA’s establishment, CPS continued to struggle with finances and low bond ratings, a federal consent decree related to racial segregation, a school repair and infrastructure backlog, and a number of teachers strikes throughout the 1980s. After school reform transferred control of CPS back to the mayor in 1995, the SFA maintained oversight of outstanding bonds. It was dissolved in 2010, issuing more than $1.1 billion in bonds over its 30 year run.

Last week I asked Mayor Emanuel’s communications director Adam Collins if there was any discussion of creating a school finance authority in the Mayor’s office. He was unequivocal.

““It’s not happening, period, end of story.”