The Chicago Public Schools will “run out of cash as early as this summer” and be unable to meet payroll, pension and debt payments without “third-party intervention” or a significant “cost deferral,” according to a new consultant’s report commissioned by the school system and obtained by the Chicago Sun-Times.
The firm Ernst & Young is suggesting the Chicago City Council approve two property-tax increases for the school system. It says the twin increases would be necessary even if CPS makes drastic budget cuts and gets the pension relief and greater state funding it’s seeking in Springfield.
One of the tax hikes it’s recommending would be a “separate levy” of $50 million to bankroll school construction and pay off old projects. CPS has had the authority to impose a “capital improvement tax” for more than 20 years but “never activated” it, according to sources who told the Sun-Times it appears likely Mayor Rahm Emanuel will do so.
The second tax increase — in the range of $100 million to $400 million — is far less likely to be passed. According to the consultants, it would “effectively replace general state aid” siphoned from operations to pay off school construction debt.
It’s debatable whether that second tax hike could be approved by the city council without prior Statehouse authorization. If the maximum tax increases are passed, it would cost the owner of a $250,000 home about $450 a year, according to the article.
But even if CPS wins concessions from the City Council, state lawmakers and the CTU, the district won’t be able to close its annual $1 billion budget gap, according to the May 22 report by Ernst & Young, which spent four weeks meeting with school finance officials and analyzing budget documents. The report shows that even with a capital improvement tax, a separate, even-larger property tax increase, additional state aid, increased state funding of teachers pensions, concessions from the CTU and $150 million worth of budget cuts, CPS would still face an annual $350 million shortfall.
Potentially worsening the situation are unexpected bank penalty payments, the costly legacy of a series of complex financial deals masterminded by school board President David Vitale. Those deals fell apart earlier this year as the district’s credit deteriorated, meaning CPS could be forced to pay $228 million if the banks demand their money. The district has set aside only $174 million to cover such costs.
* At least the CTU realizes the problem…
“They absolutely are deep in an imminent crisis,” CTU Vice President Jesse Sharkey said. “Maybe they won’t be able to open, and maybe the state of schools when they do open is going to be miserable.” […]
“Right now, the district needs us,” Sharkey said. “The politics of Rahm Emanuel going to Springfield are a lot different than the politics of Rahm Emanuel and Karen Lewis going to Springfield.”