October 18, 2012
Last week, Chicago Public Schools (CPS) issued an amended FY2013 budget plan based on the new contract agreement between the District and the Chicago Teachers Union (CTU). The revised budget includes an additional $103 million in spending which CPS plans to fund through cost-reductions in operations and one-time revenue sources. The Civic Federation maintains its opposition to the CPS FY2013 budget and urges the Board of Education to reject the amended budget in favor of a financially responsible plan.
Background
On July 19, 2012, the Civic Federation released its analysis of the proposed FY2013 budget for CPS in anticipation of the Board of Education’s vote on the budget scheduled for the following week. The Civic Federation opposed the proposed $5.2 billion operating budget and urged the Board of Education to reject the budget in favor of a financially responsible plan that takes into account current and growing liabilities. At the Board of Education’s August 22 meeting, some of the Board members expressed similar concerns with CPS’ proposed plan, particularly with the allocation of the entirety of the District’s operating funds reserves to balance the budget. However, the Board ultimately approved the budget.
The press release announcing the budget approval also noted that of the $50 million originally set aside in the budget for 2% teacher salary increases, $46 million would be used to fund the 512.5 new teaching positions necessary to implement a longer school day without extending most teachers’ workdays, according to the agreement made between CPS and the CTU in July. [1]
Since the budget was passed before the CTU and CPS reached a contract agreement, in a presentation at the August Board meeting, Chief Administrative Officer Tim Cawley reported that the administration would develop a revised FY2013 budget after an agreement had been reached. Mr. Cawley stated that the revised budget would undergo a public review process similar to that of the initial proposed budget and public hearings would be held. However, he noted that the revised budget review process timeframe would likely be more condensed than the initial review process.
FY2013 Amended Budget
Following a seven-day strike in September, the CTU ratified a three-year contract with CPS on October 4 and CPS released its FY2013 Amended Budget on October 11. CPS projects that the first year of the new contract will cost $103 million more than expenditures approved in the FY2013 budget in August. These additional costs include:
• $59 million for 3.0% cost-of-living salary adjustments;
• $33 million in step increases;
• $5 million in lane increases; and
• $6 million for salary/wage increases to non-teaching staff CTU members.
The press release for the amended budget stated that CPS proposed to fund the additional expenses without impacting students or the classrooms. The amended budget therefore reduces costs in the Central Office and restructures debt through the following methods:
• Capitalization of interest - $13 million
• Restructuring of debt - $42 million;
• Selling surplus property - $15 million;
• Lunchroom cost-savings - $11 million; and
• Procurement savings, delaying filling vacant positions and other administrative cuts - $22 million.
Concerns with the Amended FY2013 Budget
In addition to the concerns outlined in its July analysis report, the Civic Federation has the following concerns regarding the amended FY2013 budget:
Continued use of one-time revenue sources through debt restructuring – In its amended budget, CPS states that $70 million in General State Aid originally intended to be used for debt service will now be used for the operating budget as the debt restructuring and capitalization of interest allows the District to divert less revenue to debt service. It should also be noted that CPS intends to use the $15 million from surplus property sales to make up for the $70 million in reduced debt service. The revised budget document does not include specific information as to how the debt restructuring and capitalized interest will affect the long-term costs of the District’s bonds.
When developing its position on various municipal budgets, the Civic Federation considers bond restructuring based on the specifics of the transaction, the use of funds and the overall budget of the government. The Civic Federation is generally supportive of bond restructuring if the transaction achieves a net present value savings and does not extend debt service beyond the life of the asset. As in the case of CPS, the Civic Federation is concerned when the proceeds from restructuring are used as a non-recurring revenue source to fund operating expenses, whether it be directly or indirectly through the reallocation of funds.
Overly optimistic projections for TIF surplus revenue – One day prior to the release of CPS’ amended budget, City of Chicago Mayor Emanuel reported that he plans to declare $25 million in TIF (tax increment financing) surplus - $5 million of which will be allocated for the City and the remaining $20 million will be distributed among CPS and other taxing agencies. These funds are available for use in the governments’ FY2013 respective budgets. However, in both the original version and the amended version of the FY2013 budget, CPS projects $30 million in TIF surplus revenue. The inaccuracy of CPS’ TIF revenue estimates raises further concern about the District’s plan to fund its expenses in FY2013.
Inconsistency of information provided in the original and amended budget documents - While the FY2013 Amended budget document identifies updated sections with the term “As Amended October, 2012,” comprehensively, it does not include all of the data available in the FY2013 Proposed Budget document. For example, the original FY2013 budget included six summary data tables; however, the amended FY2013 budget includes only 4 of these tables and is missing Attachment 5: FY2013 All Funds Revenue Summary [2] and Attachment 6: FY2013 Special Revenue Funds Revenue Summary. The amended budget was issued as a separate budget plan, not as an addendum to the original budget document and should therefore include all components necessary for a comprehensive budget plan.
Lack of transparency in publicizing amended budget and review process – At the August Board of Education meeting, Mr. Cawley explained to the Board and attendees that a revised version of the FY2013 budget would be released and that the public review process of the budget would be similar to that of the original review process. When the revised budget was posted to the CPS website last week, it was not accompanied by a press release, announcement or media attention. In addition, there is no information available on the District’s website regarding a public hearing for the amended budget. The Board of Education is expected to vote on the amended budget at their October 24 meeting.
[1] Presentation from CPS Board of Education meeting, August 22, 2012. The Chicago Tribune article dated July 24, 2012 reports that 477 new teachers will be hired per the agreement between CPS and the CTU while, according to the presentation given by Chief Administrative Officer Tim Cawley at the CPS Board of Education meeting on August 22, 2012, 512.5 new teaching positions will be added.
[2] The FY2013 Proposed Budget states that a seventh summary data table is included, Attachment 7: FY2013 Appropriations by Function and Organization Level; however, it was not actually included in the budget document.