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The Chicago Board of Education is expected to vote on a $9.96 billion budget plan Thursday that would cut hundreds of teachers but beef up special education staff and freeze some spending in 2027.
The board legally has until late August to approve a budget. But CPS officials are pushing for approval this week to avoid missing payroll in September.
Many board members don’t like the cuts in the current spending plan. Some say they’re a painful necessity to balance the budget. Others say the district should keep pushing for more state money, press the county over a tax-revenue issue, and pass a budget that assumes those dollars will come through.
Why does CPS have to pass a budget this week to make September payroll?
Two reasons: the late distribution of property taxes and the need to borrow money.
Local property taxes, which are collected by Cook County and distributed to government agencies such as CPS, make up roughly half of the district’s operating budget. Almost all property tax dollars that end up at CPS go toward running the district’s daily operations, including salaries.
CPS is expected to receive $4.5 billion in property taxes this fiscal year.
But when the money actually gets to CPS depends on when the county collects the tax. In recent years, technological glitches have delayed tax bills, resulting in CPS and other school districts not getting local revenue in time to cover their expenses.
The district used to have billions of extra federal COVID relief dollars to help cushion the delay, said Wally Stock, acting chief financial officer at CPS. It can no longer do that because the relief funding has ended.
Stock said CPS is missing roughly $250 million in spring tax money. The county treasurer’s office says the figure is closer to $70-80 million, and a “significant portion” of it will be distributed to CPS this week. CPS has said that money, which was owed last fiscal year, won’t impact the upcoming budget.
Why does CPS need to borrow money?
When the county is late giving property tax revenue to CPS, the district takes out Tax Anticipation Notes, or TANs, a form of short-term borrowing that’s paid off when tax dollars come in.
Stock said CPS needs a few weeks to secure a loan in order to cover payroll by September, which is why it needs a budget now. Lenders require an approved budget and tax levy, the district said.
But Justin Marlowe, the director of the Center for Municipal Finance at the University of Chicago’s Harris School of Public Policy, said lenders typically want some kind of guarantee that revenue will come through and they’ll get paid back with interest, so it’s possible CPS could find a willing lender without an approved budget. But the district “would get much more favorable terms,” such as better interest rates, with an approved budget, he said.
CPS has a junk bond rating and therefore pays higher interest rates. District officials estimate it’s spent $80 million in interest since 2020 on short-term loans to make up for late property tax payments.
The county is considering extending a bridge loan to CPS. The county has about $300 million to offer in bridge loans, which isn’t enough to cover payroll, and TANs would still be necessary, Stock said.
Can CPS change the revenue assumptions to avoid cuts?
Earlier this week, CPS leaders nixed a plan for five-day furloughs by increasing how much it expects to receive from special taxing districts, known as TIFs. This amount will not be clear until the city passes its own budget in November or December.
On Tuesday, the district revised its TIF surplus estimate from $200 million to $285 million, compared to $576 million last year.
The Chicago Teachers Union and some allied board members have said that CPS should also anticipate getting more money from the state. That money makes up about one-third of CPS’ operating budget. The union and board members argue that despite an increase in school funding every year, lawmakers have not fulfilled a funding promise made a decade ago. The state formula estimates CPS is 79% of the way to being adequately funded.
But the district’s state money projections are more concrete. They’re based on the budget state lawmakers approved in May.
In a public letter in the Chicago Tribune Wednesday, school board vice president Angel Velez argued that the board can pass a budget that keeps central office and other cuts but “budgets for the revenue our students are owed,” including from the state and a county bridge loan, and “can be amended later if our partners in government fall short.”
“If the state ultimately forces us to truly consider reducing our workforce, let it be after every other option has been exhausted and our constituents have seen us try to prevent it,” he wrote.
In an interview, Velez said passing the current budget plan does not “pressure the state to commit” to what it promised.
If Velez’s suggestion works, CPS could avoid some level of its proposed cuts. If it doesn’t, CPS would have to amend its budget and risk midyear cuts or layoffs, something CPS CEO Macquline King said she had to do as a principal in 2017 when anticipated state revenue didn’t come through.
“We will continue to advocate with our partners at all levels of government to get the funding we know our students need,” King said in a statement Wednesday. “But trying to balance the budget on unrealized state revenue at the 11th hour would be a mistake with devastating short-and-long-term consequences.”
Passing a budget based on uncertain revenue, such as state aid, can result in higher interest costs when CPS tries to borrow money, said Lisa Washburn, managing director at Municipal Market Analytics. CPS carries one of the highest debt burdens among the nation’s school districts.
Even if the state approved more funding — which House Speaker Chris Welch said this week he’s interested in — it’s unclear if it would come this fiscal year, she said.
“Anybody can build a budget on hope [but] hope is not a strategy, and it may be that the state eventually does come through with additional cash, but there isn’t evidence that is going to happen anytime soon,” Washburn said.
Reema Amin is a reporter covering Chicago Public Schools. Contact Reema at ramin@chalkbeat.org.
