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Chicago Public Schools’ chief financial officer refuted several concerns raised by school board members in recent weeks about the district’s $10.2 billion budget proposal — and sought to reassure the board that it could borrow money in the future if there was a “true emergency.”
In a memo obtained by Chalkbeat, Chief Financial Officer Miroslava Mejia Krug said the district’s legal counsel advised that the school board can authorize emergency borrowing after the budget is passed through a simple majority vote, even though budget amendments typically require a two-thirds vote.
“This would ensure that any additional borrowing would be used to prevent cuts to schools and core district operations — in line with the request from many board members regarding a contingency plan in the case of a revenue shortfall,” Krug wrote in the memo sent Tuesday to board members.
Krug reiterated the district’s arguments that including a $200 million loan and a much-debated $175 million pension reimbursement to the city in CPS’s budget would result in cuts to schools. Currently, the budget proposal does not include either and only states that CPS would make the pension payment to the city if additional revenue comes through midyear.
She also repeated the district’s stance over the past year: That taking out a short-term loan without an immediate need would likely mean a downgrade in the district’s bond rating — which is similar to a credit rating — and result in high interest payments, potentially future cuts to schools, and impact the district’s ability to borrow in the future.
Krug said the district is concerned that a “market for additional debt may not exist” given that the district is already issuing $2.4 billion in new long-term debt. CPS has estimated that repaying additional loans could cost up to $194 million in interest, putting more pressure on future budgets already projected to have funding shortfalls.
The district’s debt-per-student ratio is among the highest in the nation among big school districts, Chalkbeat reported Monday.
Krug’s memo was sent to board members two days before the board is set to vote on the district’s budget proposal, which avoids beginning or midyear cuts to school funding but doesn’t include the pension payment to the city.
A majority of board members, made up of largely mayoral appointees and at least one elected official, have signaled their opposition to the district’s budget proposal because it excludes the pension reimbursement and has no plans for a short-term loan in addition to other borrowing the district does. Mayor Brandon Johnson, who advocated for CPS not to make the pension payment before he was elected, has said he expects CPS to make that payment as the city tries to balance its own budget for the new fiscal year.
Opposing board members have argued that not reimbursing the city is detrimental to its partnership with the city, and it’s the district’s obligation to fulfill that payment, which covers non-teaching staff, as it becomes its own elected body. The district began reimbursing the city under former Mayor Lori Lightfoot, but stopped last year because of budget challenges. The board members have also asked for the option of a loan in case cuts are necessary during the school year.
But several elected board members support the budget proposal because they’re worried that taking out a short-term, high-interest loan would negatively impact the district’s financial future and take away from classroom spending. They also say reimbursing the city for pension costs right now is not the school district’s legal responsibility and is untenable as they work to close a $734 million deficit.
Krug’s memo outlines the possibility to borrow later in the fiscal year through a simple majority vote if the district faced a funding gap midyear.
CPS must pass a budget for the fiscal year that started July 1 by Friday or it risks not being able to legally spend money and could be labeled as a district in “financial difficulty,” according to state law and the Illinois State Board of Education. The Chicago Board of Education needs a simple majority to approve the spending plan.
However, Illinois state law requires a two-thirds approval vote from Chicago’s school board when it wants to amend its budget midyear. That issue became a flashpoint in the spring, when seven board members refused to approve an amendment that would have, in part, reimbursed the city with the $175 million pension payment — meaning the board did not have the two-thirds majority it needed. Krug says amending the budget for additional expenses like the pension payment would still require a two-thirds approval.
However, CPS’s legal counsel has determined that the two-thirds vote requirement only applies to new expenses or liabilities, the memo said. But taking out an emergency loan to maintain spending outlined in the current budget would only require a simple majority vote, Krug wrote.
Krug also sought to refute claims from some board members — largely mayoral appointees — that the district has overestimated how much money it will receive from the city in Tax Increment Financing, or TIF, surplus dollars, a pool of taxpayer dollars meant to spur economic development. The city can declare a surplus of those funds annually and in the past decade, has done so every year. CPS gets 52% of whatever is declared as surplus and roughly one quarter goes to the city’s coffers.
Krug wrote that several aldermen testified during the district’s budget hearings that they expect TIF dollars to be surplused because the city will also need those dollars to help close its own budget deficit.
The district has assumed this year that it will receive $379 million in TIF surplus, or $79 million more than last year, when Johnson surplused a record amount of these city dollars. The exact amount of how much will be surplused won’t be made public until Johnson presents his budget plan later this fall.
Reema Amin is a reporter covering Chicago Public Schools. Contact Reema at ramin@chalkbeat.org.
