June 21, 2022
Click here to read the full report (PDF).
Click here to read the press release for this analysis.
SUMMARY
The Civic Federation opposes the Chicago Public Schools (CPS) proposed budget of $9.5 billion for FY2023 because the District has not provided sufficient justification for raising its property tax to the maximum amount of 5% allowed under the Property Tax Extension Limitation Law (PTELL) by $140 million at a time when taxpayers already face serious economic strains and when CPS has alternative options available.
Property taxpayers have already shouldered a significant burden that has helped restore CPS to financial stability, including the dedicated teachers’ pension levy and annual maximum property tax increases. When CPS was in financial crisis, it had few alternatives to these property tax increases. The Civic Federation supported these increases as well as the restoration of the teachers’ pension levy because they were critical for the District’s financial sustainability. Now that CPS is in stronger financial shape, however, it is imperative that it balance its financial needs against all taxing bodies’ collective impact on taxpayers. In particular, CPS should rein in expenditure growth, given falling enrollment and the slower rate of growth of its revenue sources.
Therefore, the Civic Federation calls on CPS to implement a more moderate property tax levy for the coming year and instead use a combination of federal funding, spending reductions and other sources to balance its budget. The Federation is well aware that CPS is facing difficult choices ahead as federal funds run out and that it must find recurring sources to close future gaps. However, the District must also be aware of its impact on taxpayers during a time when high rates of inflation are impacting household budgets and property taxes are not tied to a homeowner or business owner’s ability to pay. If CPS were to reduce its education fund levy for the next fiscal year, the Federation could potentially support this budget because there are many positive elements that improve its overall financial outlook, as discussed below.
Despite the challenges brought on by COVID-19, CPS has continued to make significant strides toward structural balance and financial stability over the last several years. The Federation was a strong and early supporter of the federal government providing historic financial assistance to states and local governments to mitigate the impacts of the COVID-19 pandemic. Federal pandemic relief funding of $730 million included in this year’s proposed budget will enable CPS to support academic and social and emotional learning (SEL) programs that will help the students most impacted by the school closures and other disruptions caused by the pandemic. Additionally, increases in State funding to CPS through the evidence-based funding formula (EBF) and the above-mentioned dedicated pension levy have all contributed to putting the District on stronger financial footing, including a much improved budgetary reserve and cash position that will help the District to weather challenges such as late property tax bills that previously would have put CPS on a crisis footing.
Despite the federal surge in funding, Chicago Public Schools still has major long-term budgetary issues that need to be addressed:
- Spending and personnel continue to increase with no apparent cost containment strategies;
- Student enrollment continues to decline, with enrollment losses in certain areas of the city and increases in others have resulted in building utilization imbalances; and
- The District’s underfunded teachers’ pensions continue to be a source of concern as they draw more property tax and general fund revenue to make up for past underfunding and inequitable funding from the State of Illinois.
All of these trends are occurring with no public long-term financial plan outlining how the District will address its challenges going forward. The Civic Federation is encouraged that the District’s financial position has improved, but urges the Board of Education to put spending controls in place now and plan for long-term financial sustainability, especially ahead of a 21-member elected school board taking over governance of the District, to be phased in beginning in 2024.
The Civic Federation offers the following key findings from Chicago Public Schools’ FY2023 Proposed Budget:
- The FY2023 proposed total spending plan for all funds of $9.5 billion is an increase of $236.0 million, or 2.5%, from the FY2022 adopted budget of $9.3 billion;
- Proposed FY2023 appropriations for general operating purposes of $8 billion are an increase of $172.1 million, or 2.2%, above the FY2022 operating budget of $7.8 billion;
- The FY2023 proposed capital budget of $764.5 million is an increase of $57.9 million, or 8.2% from the prior year. The debt service budget of $769.4 million represents an increase of $6 million from the FY2022 adopted budget;
- Property tax revenue is projected to increase by $310.8 million, or 9.2%, over the prior year budget to $3.8 billion in FY2023;
- CPS is budgeting for a total of 43,377 Full-Time Equivalent (FTE) positions in FY2023. This is an increase of 1,621 positions, or 3.9%, from the prior year. Over the past five years, personnel has increased by 17%, or 6,269 positions;
- Salary expenses of $3.3 billion in FY2023 are an increase from the prior year budget of $211.8 million, or 6.9%. Benefit expenses are expected to be nearly $1.9 billion in FY2023, an increase of $139.0 million, or 8.0% from the FY2022 budget;
- Student enrollment has declined by 18.1%, or 73,050 over the past ten years, from 403,461 students in FY2013 to 330,411 in FY2022. Over this ten-year period, preschool enrollment decreased by 37%, K-8 enrollment declined by 56,277 or 21.1%, and high school enrollment declined by 7,696 students or 6.8%;
- CPS will again rely on short-term borrowing through Tax Anticipation Notes (TANs), but the reliance on TANs has decreased from $1.55 billion in FY2017 to $900 million in FY2022. The budgeted interest cost for short-term borrowing was $12 million in FY22 and is budgeted at $9 million in FY2023;
- The District’s long-term debt increased by 34.0% in the ten years from FY2012 through FY2021, rising from $5.6 billion to $7.5 billion in long-term debt (principal only) outstanding as of June 30, 2021;
- CPS is required to contribute $860.3 million to the Chicago Teachers’ Pension Fund in FY2023. The State of Illinois will cover $308.7 million of that amount, including $295.3 million to cover the normal cost and retiree healthcare plus an additional statutorily required contribution of $13.4 million. Approximately $551.6 million of the CPS contribution will be covered by the dedicated property tax levy for teachers’ pensions; and
- The Chicago Teachers’ Pension Fund was 47.5% funded on an actuarial basis as of June 30, 2021, compared to 54.1% funded ten years prior. The Pension Fund had an Unfunded Actuarial Accrued Liability of $13.2 billion as of June 30, 2021, compared to $8.0 billion ten years prior.
The Civic Federation has the following concerns about the CPS FY2023 Proposed Budget and financial situation:
- Increasing the property tax levy to the maximum amount allowed under the Property Tax Extension Limitation Law of five percent;
- Sustainability of increased spending levels after ARPA ESSER Funds are expended;
- The District has not issued a multi-year Capital Improvement Plan in several years; and
- The 21-member elected school board will be phased in beginning in 2024.
The Civic Federation supports several aspects of the District’s current financial position and Board procedures:
- Improved level of operating reserves;
- Improved cash position and reduced reliance on short-term borrowing;
- Federal funding provided to governments in response to the COVID-19 pandemic with ARPA ESSER I, II, and III funds;
- Releasing and approving the FY2023 proposed budget before the beginning of the fiscal year on July 1; and
- Allocating additional funds to cover the CPS employee members of the Chicago Municipal Employees Annuity and Benefit Fund (MEABF).
The Civic Federation makes the following recommendations to Chicago Public Schools and the Chicago Board of Education:
- Implement a more moderate property tax increase and instead use federal funds, expenditures reductions or both to fill in a portion of the $140 million the District expects to receive from the 5% tax levy increase;
- Issue a five-year capital improvement plan and provide more detail about project prioritization in the one-year capital plans;
- Work with the State to consolidate the Chicago Teachers’ Pension Fund with the Teachers’ Retirement System in order to achieve more equitable State pension funding;
- Extend the time period for review of the proposed budget before the public hearings and Board vote;
- Resume holding Finance Committee Meetings on a regular basis;
- Issue a five-year Capital Improvement Plan and provide more detail in the one-year capital plans;
- Work with the Illinois General Assembly to address issues with the 21-member school board legislation before it goes into effect;
- Include expenditures and personnel sections in the budget book; and
- Include actual revenues in the budget book.
Click here to read the full report (PDF).
Click here to read the press release for this analysis.