Chicago schools budget avoids 'staggering' cuts by draining reserves

Civic Federation: CPS budget is a "fiscal time bomb."

July 6, 2012

Saying the school district is making a choice to invest in children, Chicago Public Schools is announcing plans Friday to plug its $665 million dollar budget hole by completely emptying out its reserve fund, a strategy that violates the Board of Education’s own policy and sets off what one budget watchdog calls a “fiscal time bomb.”

The $5.16 billion budget proposal leaves the district without a penny in reserves as it haggles with the Chicago Teachers Union over how much teachers should be paid in their next contract. The proposed budget includes no “step or lane” increases for teachers, the built-in raises educators get for moving up in experience or credential. Step and lane increases have been part of the way Chicago teachers have been paid since at least the 1960s. The budget includes a 2 percent across-the-board pay raise for every employee in the district, at a cost of $40 million.

Chief Administrative Officer Tim Cawley acknowledged that the district’s bond rating could be downgraded by draining $431.8 million from reserves.

“The increased interest costs from a downgrade is not insignificant, but the pain felt from closing this gap with cuts instead of reserves would be staggering,” said Cawley.

The $5.16 billion budget proposal leaves the district without a penny in reserves as it haggles with the Chicago Teachers Union over how much teachers should be paid in their next contract.

He said the district was faced with two choices: “Continue to invest in these programs that we think are going to improve outcomes for students and drain the reserves, or…make significant cuts in a number of programs throughout the district, inflicting a lot of pain on schools and students while you’re sitting on hundreds of millions of dollars of reserves.”

The budget proposal calls for the district to:
• Maintain class size at current levels
• Maintain full-day kindergarten for 17,000 students
• Increase the per-pupil allotment given to charter schools, bringing the per-pupil rate for charters back to nearly where it was in the 2009-10 school year
• Institute new payments to charter schools, including assistance to pay for facilities and certain special education and social security costs
• Move forward with planned expansions of magnet, selective enrollment and International Baccalaureate programs

School officials say they’re plugging the rest of the budget hole through $144 million in efficiencies and cuts, many of which have already been announced. And the district is raising property taxes for the second year in a row by the maximum allowed, which this year is 1.5 percent, for an added $62 million in revenue.

The seven members of the Board of Education will have to vote to give the district a waiver to go forward with the budget plan, since board policy requires CPS to keep 5 percent of its operating budget, about $250 million, in reserves.

In uncharacteristically harsh terms, Laurence Msall, president of the Civic Federation, blasted the budget as a “fiscal time bomb” that doesn’t deal with Chicago schools’ structural deficit and “needs a lot more work before it is balanced.” He said the plan to drain reserves is “not financial responsible” and leaves the district vulnerable to unexpected needs or a drop in revenue. Msall said the budget forecasts that CPS will have no money in reserves next June, precisely when its Springfield pension holiday runs out and district pension obligations balloon by hundreds of millions of dollars.

“To argue that we’re not going to have reserves because it would be unfair to the schoolchildren flies in the face of the fiscal reality of what happens to those schoolchildren if the government finds itself in a place where it can’t meet its payroll, where it can’t meet its debt service expenses, where there are unforeseen developments in a year and it has no reserves,” said Msall.

Msall says the Civic Federation, which has supported recent CPS budgets that included both tax hikes and massive cuts, intends to put out a thorough analysis of the 2012-13 budget by the time the board of education votes on it later this month.

Cawley said the district has no cash flow issues and is not in danger of missing pay days or debt obligations. 

The teachers union applauded the decision to raid reserves. “Spending down all that money that was just sitting there is actually probably a more responsible thing than what they were doing—they were just depriving the kids of things that they needed,” said CTU financial secretary Kristine Mayle.

But Mayle says the union was not told that the budget doesn’t include teachers’ step and lane increases, worth about $41.5 million next year. “I’m assuming they’re doing this in anticipation of a merit pay scheme that we have not yet agreed to in bargaining, and don’t intent to agree to,” said Mayle.

Mayle says the mayor and school board members should use their connections in Washington, Springfield and the private sector to increase revenue for the district. Regarding the 2 percent raise the budget is built on, she said, “We don’t think that number is realistic.”

If a contract agreement is reached that includes more money for the teachers than what CPS has planned for, budget officials will have to rejigger numbers without the wiggle room of reserves. According to a “Budget Fact Sheet” released to reporters, without the $432 million in the reserves fund, CPS would need to make “deep cuts.” Examples included increasing class size to 50 (cost savings: $325 million) and slashing the security budget in half (savings: $35 million).

The $5.16 billion operating budget is 1 percent higher than last year’s. But it’s 5.8 percent higher than what CPS believes it actually spent last year. For the past several years, the district has finished its fiscal year with hundreds of millions of dollars more in the bank than budgets had projected.

Overall enrollment is expected to dip slightly next school year. As in other recent years, the proportion of the district’s students being educated in privately run charter or contract schools continues to grow, though budget officials say that does not have any cost savings benefits.

The budget does not appear to include significant layoffs. Cawley said the district is “making cuts all the time,” not just when the budget is drawn up.

Public hearings begin on the schools budget next week.