* From the Tribune…

Report: CPS on the ‘financial brink,’ state takeover not out of the question

The new Chicago Board of Education being seated Wednesday — the first to have elected members — will stare down a district on the financial brink: an imbalanced budget, rising costs, falling student headcount, a long list of infrastructure needs and steep debt and pension liabilities.

Budget watchdog group the Civic Federation warned current circumstances are “so serious that a State financial takeover… is not and should not be out of the question,” and urged the new board to right-size spending, make a long-term financial plan, and develop plans to advocate for revenue.

The new board’s immediate challenges are well-known: CPS has a $9.9 billion budget for this fiscal year that was balanced on its face, but didn’t include the costs of the first year of a new contract with the Chicago Teachers Union or the principals union. On the lower end, the contract with teachers alone could cost $125 million, but there has been no revenue source identified to pay for it. The current budget also relied on a series of one-time fixes like remaining federal COVID relief money and a tax increment financing surplus from the city.

One of the only people in the state saying that a state takeover “is not… out of the question” is the Civic Federation’s Joe Ferguson. Nobody in any major leadership position is saying such a thing, or even hinting it. Also, state money, unlike federal money, doesn’t grow on trees; the state has its own budget problems, and CPS is leaving a ton of savings on the table.

I mean, is this “debate” gonna be like Bears Stadium 2.0, where a bunch of Chicago bigshots and pundits just assume the state is running to their rescue?

The bottom line is CPS spent temporary federal COVID money like it was permanent money. And now they’re deep in a hole at the same time the state finds itself in a hole. They also have a hugely unpopular mayor, a bitter internal fight over the superintendent’s fate, a very tough teacher contract dispute, a super-controversial teachers union leader and are in a regional mass transit system that is also in desperate need of funds.

* Context from the Civic Federation report…

A failure by the Board to demonstrate responsible fiscal management for the crisis at hand could have significant consequences. Rating agencies have warned that any actions to further jeopardize the CPS’ financial stability, including drawing on reserves or issuing debt to pay for teacher salaries, would result in credit rating downgrades. Further downgrades would result in increased interest rates for borrowing at a time when the District is already paying high interest on debt due to its below-investment-grade ratings. In a worst-case scenario, CPS could lose access to debt markets if the lenders view the financial risk so significant as to require piercing the 9% threshold for tax-exempt bonds. The current situation is so serious that a State financial takeover, similar to the Chicago School Finance Authority created to address the 1980 CPS financial crisis, is not and should not be out of the question. To avoid such a drastic response, which could stabilize the District but harm its reputation, it is incumbent on the new Board to provide responsible oversight.

With large deficits projected over the next several years and no readily available revenue sources sufficient to address them as pandemic relief funding ends, the Board of Education must commit in earnest to a long-term financial planning process that moves the District away from crisis management to sustainability. Solutions to these issues will require implementing both cost-saving and revenue-generating measures, including operational efficiencies, spending cuts, and newly structured, sustainable revenue sources, potentially including increases to the property tax levy and additional financial assistance from the State of Illinois. Solutions must be forward-thinking and long-term, as CPS’ financial challenges will only grow as the District spends down the last tranche of federal pandemic relief dollars in FY2025 and awaits the conclusion of ongoing labor contract negotiations. By laying out a full picture of the financial landscape, the Civic Federation hopes to support the Board in the monumental task ahead.