With Chicago Public Schools grappling with a $529 million deficit and no clear way to balance its budget for the fall, the state might want to take over the school district’s finances — a move that could open up new revenue opportunities, but also force CPS to make cuts that school board members and the mayor oppose.
That’s according to a new report by the nonpartisan financial watchdog group, the Civic Federation.
“Imposing state oversight might be an appropriate response to what has been an extended run of fiscal mismanagement,” according to the report. “The fragility of the District’s fiscal situation is susceptible to tipping quickly into crisis, which would bring harm to its reputation, credibility, and, more importantly, its students and families.”
The report does not specify what “fiscal mismanagement” it is referring to, but in a complementary report, the Civic Federation attributes the deficit to increased staffing, despite declining enrollment; operating too many buildings for its student population; underfunded pension liabilities; lots of expensive debt and “a lack of meaningful cash reserves.”
CPS has long been underfunded by the state. It receives about 80% of what the state says is needed to provide an adequate education. And it has gone through the $2.8 billion in federal COVID-19 relief money that masked its financial woes for the past few years.
The Civic Federation also attributes some of the financial problems to the teachers contract, which CPS concluded in April. This coming year, it will cost the school district an extra $324.5 million, including $251 million in salary increases, according to the Civic Federation.
The Civic Federation says the school system is in a particularly precarious situation as it transitions from a fully appointed board to fully elected board in 2027. It moved to a partly elected, partly appointed board in January, but the mayor still holds the balance of power.
Creating a new School Finance Authority could take some pressure off the board members, allowing them to focus on educational issues. And state lawmakers might be more likely to provide extra revenue if they trust the financial oversight of the district.
But having the state take control of CPS finances would be particularly controversial at this moment. It would remove power from elected members as well as from a progressive mayor. A bill introduced in the legislative session that just ended in Springfield would have created a new Chicago School Finance Authority. It ended up stuck in the rules committee.
The report lays out the pros and cons of reestablishing the School Finance Authority, which was created in 1980 when the district was in severe financial turmoil and dissolved 1993. The School Finance Authority could take out bonds for the district, created a property tax levy to pay it back and provided oversight of the district finances. It also forced the school district to find cost savings in facility management and special education.
The Civic Federation notes that the school system was in worse financial shape in 1980 than it is now. It was so bad back then that the school district literally could not borrow money needed to make payroll and vendors had stopped working with it out of fear that they wouldn’t get paid.
Yet, at the moment, there does not seem to be a path forward for balancing the budget, which state law requires CPS is to do. Outgoing CEO Pedro Martinez presented a budget that relies on $300 million in additional revenue from the state or city, even though neither entity has any plans to provide that extra funding.
Otherwise, Martinez told the board they would need to make significant cuts to classes and departments — something the mayor and many board members don’t want to do. Borrowing is still on the table, and the just-appointed interim CEO, Macquline King, didn’t reject the idea in an interview with WBEZ.
One of the main things that the School Finance Authority did for CPS in 1980 was borrow at relatively low interest rates. That could be helpful today as CPS has a weak bond rating with most credit agencies putting CPS at below investment grade or “junk status.” Bond ratings affect how much interest entities are charged.
Sarah Karp covers education for WBEZ. Follow her on X @WBEZeducation and @sskedreporter.