* Bloomberg…

Illinois’s quest to take over Chicago’s schools intensified as Governor Bruce Rauner said the state can block the district from borrowing in the municipal-bond market, a claim the nation’s third-largest school system rejects. […]

The district said the state doesn’t have the power to keep it from borrowing, as Rauner claimed.

“The governor has come up with a number of novel legal theories,” Forrest Claypool, chief executive officer of the district, said in comments aired Monday on Chicago Tonight, a public-television show. “The statute is very clear that the authority he seeks to exercise does not apply to the Chicago public schools.” […]

Rauner’s administration said the statute that the district cited, which established a school finance authority that was dissolved in 2010, no longer applies. “That applied only when the reform board existed, which it no longer does,” said Catherine Kelly, a spokeswoman for Rauner. “CPS can be required to develop a financial plan and would be prohibited from issuing bonds during that period.”

* Backgrounder from the governor’s office, with emphasis in the original…

The Chicago School Finance Authority was enacted to provide financial oversight to CPS, but was legally dissolved by law on June 1, 2010. On that date, CPS was no longer “subject to” the School Finance Authority or Article 34A that established the School Finance Authority. CPS clearly remains subject to Article 34 and as a result, ISBE is now the body that maintains financial oversight over CPS.

Section 1A-8 of the School Code sets out a test for when a school district is in “financial difficulty”. That provision applies to CPS. Section 1A-8 states, in part:

No school district shall be certified by the State Board of Education to be in financial difficulty solely by reason of any of the above circumstances arising as a result of (i) the failure of the county to make any distribution of property tax money due the district at the time such distribution is due or (ii) the failure of this State to make timely payments of general State aid or any of the mandated categoricals; or if the district clearly demonstrates to the satisfaction of the State Board of Education at the time of its determination that such condition no longer exists. If the State Board of Education certifies that a district in a city with 500,000 inhabitants or more is in financial difficulty, the State Board shall so notify the Governor and the Mayor of the city in which the district is located. The State Board of Education may require school districts certified in financial difficulty, except those districts subject to Article 34A, to develop, adopt and submit a financial plan within 45 days after certification of financial difficulty. The financial plan shall be developed according to guidelines presented to the district by the State Board of Education within 14 days of certification. Such guidelines shall address the specific nature of each district’s financial difficulties. Any proposed budget of the district shall be consistent with the financial plan submitted to and approved by the State Board of Education.

A district certified to be in financial difficulty, other than a district subject to Article 34A, shall report to the State Board of Education at such times and in such manner as the State Board may direct, concerning the district’s compliance with each financial plan. The State Board may review the district’s operations, obtain budgetary data and financial statements, require the district to produce reports, and have access to any other information in the possession of the district that it deems relevant. The State Board may issue recommendations or directives within its powers to the district to assist in compliance with the financial plan. The district shall produce such budgetary data, financial statements, reports and other information and comply with such directives. If the State Board of Education determines that a district has failed to comply with its financial plan, the State Board of Education may rescind approval of the plan and appoint a Financial Oversight Panel for the district as provided in Section 1B-4. This action shall be taken only after the district has been given notice and an opportunity to appear before the State Board of Education to discuss its failure to comply with its financial plan.

No bonds, notes, teachers orders, tax anticipation warrants or other evidences of indebtedness shall be issued or sold by a school district or be legally binding upon or enforceable against a local board of education of a district certified to be in financial difficulty unless and until the financial plan required under this Section has been approved by the State Board of Education.

* And this is from CPS…

CPS welcomes the Governor’s request for additional information on the District’s finances, and will share information – much of which is already publicly available – in coming days.

· In fact, in order to sell bonds last month – which CPS did in spite of the Governor’s best efforts – CPS was required to post an extensive disclosure document that provided a true and accurate picture of its current financial situation.

· Multiple provisions in the School Code expressly contain definitions that make it clear that this doesn’t apply to CPS.

o First, CPS is subject to Article 34A in state statute.

§ While Governor Rauner’s office distributed language from Section 1A-8 of the Illinois School Code, his office failed to note that districts subject to 34A are explicitly excluded from the excerpts that they distributed.

§ Section 1A-8 of the School Code explicitly lays out the only actions the state can take in the case of a District in financial difficulty. In Section 1A-8(a), ISBE can collect relevant financial information. In Section 1A-8(b), the statute allows ISBE to make a determination about the districts’ financial conditions. In the case of districts in financial difficulty, in cities with more than 500,000 inhabitants, statute permits IBSE only to notify the Governor and Mayor of the city.

§ ISBE’s ability to take additional actions applies only to districts that are not subject to Article 34A.

o Second, CPS is clearly defined as a district in a City with over 500,000 inhabitants (Article 34).

§ The statutory language the Governor’s office shared references actions to be taken as provided in Section 1B-4, which explicitly concerns only districts in cities with 500,000 or fewer inhabitants.

* OK, much of the debate appears to revolve around statutory language like this…

If the State Board of Education certifies that a district in a city with 500,000 inhabitants or more is in financial difficulty, the State Board shall so notify the Governor and the Mayor of the city in which the district is located. The State Board of Education may require school districts certified in financial difficulty, except those districts subject to Article 34A, to develop, adopt and submit a financial plan within 45 days after certification of financial difficulty.

Article 34 of the state’s School Code deals solely with “Cities Of Over 500,000 Inhabitants - Board Of Education.” Much, but not all, of Article 34A (which created the now defunct state oversight system for CPS) was repealed.

* Just about everything everywhere else in the School Code delineates between school districts in cities over 500,000 and everywhere else. For instance, from the governor’s backgrounder…

the State Board of Education may rescind approval of the plan and appoint a Financial Oversight Panel for the district as provided in Section 1B-4

But, as CPS points out, if you go to 1B-4 the statute clearly gives controlling authority to 1A-8, which brings us back to this…

If the State Board of Education certifies that a district in a city with 500,000 inhabitants or more is in financial difficulty, the State Board shall so notify the Governor and the Mayor of the city in which the district is located. The State Board of Education may require school districts certified in financial difficulty, except those districts subject to Article 34A, to develop, adopt and submit a financial plan within 45 days after certification of financial difficulty.

And, of course, much, but not all of 34A was repealed.

* I think CPS makes a good point. However, this one’s gonna end up with the lawyers and a judge if Rauner decides to push it.