July 24, 2024
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Click here to read the press release for this analysis.
SUMMARY
The Chicago Public Schools (CPS) FY2025 proposed budget total of $9.9 billion presents a temporary solution to a long-term structural financial problem. The plan as presented manages to close a $505 million budget deficit through a series of strategies, including operational reductions and efficiencies, without resorting to irresponsible fiscal practices like issuing debt to fund operations or depleting reserves. However, this budget remains incomplete, contingent upon outstanding collective bargaining negotiations currently estimated to cost $128 million, and a decision on how much CPS will reimburse the City of Chicago for non-teacher employee pensions. The City had been counting on a reimbursement of $175 million. This year’s budget also uses the last $233 million tranche of federal COVID relief funds as well as other one-time sources to balance the deficit.
Negotiations around agreements with the Chicago Teachers Union (CTU) and the Chicago Principals & Administrators Association (CPAA) are ongoing and will require an amendment to the FY2025 budget later this year once the contracts are finalized. To cover the contract costs and the CPS portion of the contribution to the Municipal Employees’ Annuity and Benefit Fund (MEABF), the Johnson Administration suggested that CPS borrow up to $300 million in long-term debt financing. The Civic Federation supports CPS’ fiscally responsible decision to opt to close its deficit through various cost-efficiencies rather than borrow to meet operating costs. The City’s proposal would increase CPS’ daunting debt and increase the likelihood of a credit rating downgrade, thereby increasing borrowing costs and undoing much of the fiscal progress the District has made over the past several years to get back to investment-grade status. Such a long-term debt financing plan would likewise add to the District’s future costs as repayment of the debt would have to be diverted away from operating revenues.
The contingencies remaining this year point to an even larger deficit that CPS will need to address in FY2026 and future fiscal years due to additional collective bargaining costs and the absence of federal pandemic relief funds to fall back on. The District projects future budget deficits throughout the next five fiscal years upwards of a half-billion dollars before accounting for additional salary and personnel costs, which signals even larger structural deficits ahead. Assuming 4% raises for teachers and principals, as well as a $175 million contribution from CPS to the City’s pension fund for municipal employees, the FY2026 deficit could increase to $933 million.
The funding crisis facing the District impels the need for CPS to develop a long-term plan to control costs while generating sufficient revenues to pay for necessary increases in personnel, salaries and benefits, and other priorities. All options should be on the table and disclosed publicly as a plan that lays out revenue options in the context of projected increases to expenditures while identifying areas to improve efficiency and cut costs where possible.
Revenue options introduced by Kids First Chicago could be considered as part of the discussion to address the FY2025 and future year deficits. These six revenue options are:
- Increase the property tax levy to the statutory “extension limit”;
- Initiate a referendum for a fiscal health property tax levy increase;
- Allow all Chicago Tax Increment Financing (TIF) Districts to expire;
- Gradually consolidate the Chicago Teacher’ Pension Fund with the State’s Teachers Retirement System;
- Increase the State’s contribution to the Evidence-Based Funding (EBF) formula; and
- Implement a concentrated poverty adjustment to the EBF formula.
There is also the issue of ongoing financial entanglements between the District and the City of Chicago that must be resolved before the phase-in of the elected school board in January 2025 as a hybrid elected and appointed board. By January 2027, the Board will be fully elected. There also has not been any public discussion of whether the financial support currently provided by the City to CPS will continue. Greater clarity around expectations is imperative so that any City funding sources can be confidently incorporated into CPS’ projections.
Finally, the Civic Federation recognizes that CPS and many other school districts across the State of Illinois cannot sustainably solve the impending financial cliff on their own. The State of Illinois should play an even more significant role in supporting Illinois’ school districts. Even with the Evidence-Based Funding (EBF) formula and additional infusions of $350 million annually, Chicago Public Schools is still only funded at 81% of adequacy based on the formula, and a majority of other school districts around the State are also under the State’s prescribed 90% of adequacy funding targets —which on the current funding schedule are not projected to be fully satisfied until FY2034.
Despite the Federation’s concerns, there are some positive aspects of CPS’ financial situation. The District continues to rebuild its general operating reserves and make normal cost contributions to teacher pensions, which has helped improve stability. However, much more needs to be done to put the District on a long-term sustainable plan. The District needs to establish long-term stability through a combination of solutions that should involve both State support and local control.
The Civic Federation offers the following key findings from Chicago Public Schools’ proposed FY2025 Budget:
- The $9.9 billion proposed total budget is $500 million, a 5.1% increase from the FY2024 estimated budget total of $9.4 billion.
- The general operating budget totals $8.43 billion compared to the prior year total of $8.48 billion.
- Individual school budgets will increase by $149 million due to increased costs for required services, including:
- Services for special education students - $62 million;
- Statutorily driven increases funding for charter schools - $42 million; and
- Increased bilingual services - $7 million.
- CPS is budgeting for a total of 45,956 full-time equivalent (FTE) personnel positions, an increase of 805 FTEs from the FY2024 budget, and 96% of the positions in FY2025 will provide direct support to schools.
- Enrollment increased by 1,270 or 0.4% from the prior year, for a total of 323,251 students in the fall of 2023.
- The District is appropriating $611.1 million for its capital budget, an increase of $456.1 million from the prior year’s capital budget of $155 million.
- CPS has approximately $9.3 billion in outstanding long-term debt and had no outstanding short-term debt at the end of FY2024. However, the FY2025 budget includes:
- $817 million in appropriations for long-term debt service payments; and
- issuing up to $500 million in short-term borrowing to provide cash-flow throughout the year.
- The District has also budgeted $9 million in appropriations for interest payments on short-term debt.
- CPS will contribute $1,015.5 million to the Chicago Teachers’ Pension Fund (CTPF), which is a $7 million decrease from the FY2024 contribution total of $1,022.5 million.
- The District is projecting a budget deficit of $505 million and plans to close the deficit through a series of reduction strategies, including:
- $197 million in reduction and efficiencies in department budgets;
- $196 million in federal grant carryover, new grants and increased vacancy savings assumptions;
- $62 million in savings on debt restructuring and a reduction in short-term borrowing costs; and
- $50 million in reductions for supplemental class size funding, central office positions and a hiring freeze.
- CPS has spent approximately $2.6 billion or 92% of federal pandemic relief funds through the Elementary and Secondary School Emergency Relief Fund (ESSER) to support students and families.
- In FY2025 the District projects to spend the last tranche of its ESSER funds, which includes $233 million for school-level funding for District priorities and other local-level needs.
- CPS will receive a total of approximately $1.8 million in Evidence-Based Funding (EBF) formula dollars, which is an increase of $23.4 million from the FY2024 total of $1.7 million.
- The District ratified a new collective bargaining agreement (CBA) with the Service Employees International Union (SEIU) Local 73, which added $62 million in costs to the proposed FY2025 budget.
- Negotiations for CBAs with the Chicago Teachers Union (CTU) and the Chicago Principals & Administrators Association (CPAA) are still ongoing.
- CPS expects to amend the FY2025 budget once these negotiations are finalized to reflect any additional costs that may impact the 2025 budget.
The Civic Federation has concerns about the following aspects of the CPS FY2025 Proposed Budget and financial situation:
- Incomplete contract negotiations with CTU and CPPA;
- Sustainability of increased spending for programs after federal funds are expended;
- Future budget deficits;
- Imbalance in State funding for Chicago teacher pension contributions; and
- Financial entanglements with the City of Chicago still need to be resolved.
The Civic Federation offers the following recommendations to Chicago Public Schools and the Chicago Board of Education:
- Develop a long-term plan to prepare for impending fiscal year cliffs;
- Continue advocating for increased State funding;
- Provide additional time between the budget release, public hearings and Board approval;
- Create a working group to resolve ongoing legal and fiscal entanglements with the City of Chicago;
- Consolidate the CTPF and the Teacher’s Retirement System to equalize State pension funding for teachers;
- Conduct finance committee meetings; and
- Include additional explanation of expenditures and personnel, along with actual revenues, in the budget book.
Click here to read the full report.
Click here to read the press release for this analysis.