As Chicago Public Colleges continues contract talks with its academics union, a urgent query looms: How will the district pay for a brand new contract — and rein in ballooning finances deficits?
Cash from native property taxes, the state, and the federal authorities gas town’s public colleges. Because the feds’ contribution shrinks with COVID assist operating out and state proposals to spice up schooling spending stay modest, Chicago is more and more trying into its personal pockets to search out more cash.
In latest weeks, the Chicago Lecturers Union has repeatedly spoken of a three-pronged resolution because it retains pushing CPS to conform to extra of its proposals:
Dip into the district’s reserves.
Financial institution on an inflow of {dollars} freed up as particular taxing districts that siphon property tax income to spur growth in a particular space expire within the coming years.
Preserve lobbying the state to chip in additional.
District CEO Pedro Martinez’ administration has stated the reserves thought is untenable, a sentiment some faculty finance specialists echo.
“There is no such thing as a legendary pot of gold, so I hope we will put this to mattress,” district CEO Pedro Martinez stated at a Monday information convention.
However Martinez agrees the potential new tax income anticipated to circulate to the district as so-called tax increment financing districts, or TIFs, finish is a promising piece of the district’s fiscal stability puzzle. CPS is projected to see lots of of thousands and thousands in extra property tax income within the coming years as TIFs expire. However just like state funding that’s ramping up over time, the added TIF enhance may not begin actually shifting the needle till after the 4 years of the academics contract the district is now negotiating.
Union officers have identified that key sticking factors on the bargaining desk, similar to giving academics extra latitude to pick their very own curriculums, don’t essentially value cash. However the two sides have but to achieve agreements on educator pay and staffing — the most costly gadgets — as talks enter their eighth month. The CTU has extra not too long ago come near the district’s pay supply, asking for 4% to five% cost-of-living raises in every contract yr.
District officers have held up CPS’ monetary limitations to argue they need to maintain the road within the contentious talks.
The Civic Federation, a nonpartisan fiscal watchdog company primarily based in Illinois, launched a brand new evaluation this week cautioning the brand new partially elected faculty board, which takes workplace this week, of the district’s precarious monetary outlook.
The district is at a “crucial monetary juncture,” the report notes, with rising deficits and prices, declining enrollment, getting older and underused buildings, and greater than $9 billion in debt.
The report argues for “right-sizing” the district’s $10 billion finances, which added about 7,000 positions largely with one-time federal pandemic reduction as enrollment shrank.
Marguerite Roza of the Edunomics Lab at Georgetown College says CPS will not be alone in going through budgetary and demographic headwinds, with the top of federal COVID assist, rising prices, and shrinking enrollment. Many are bracing for belt-tightening within the coming years, with little chance of additional assist from the incoming Trump administration.
“What makes Chicago distinctive is that this push to up the spending now, when the federal reduction funds are already gone,” she stated.
However Mayor Brandon Johnson and the CTU have been adamantly against cuts they are saying will damage the district’s college students, and Martinez has shied away from broaching the subject, saying he needs to guard investments that helped college students rebound from COVID’s tutorial toll.
Can CPS dip into its reserves?
In latest weeks, the union has more and more pointed to a fund stability listed at greater than $1.1 billion, which at 10% of the district’s finances remains to be decrease than the 15% referred to as for in district coverage.
It’s an quantity that has elevated in recent times after dropping precariously within the late 2010s. The district has touted that more healthy stability in entrance of credit score businesses because it has sought to enhance its credit standing and thus decrease its runaway borrowing prices. In a memo district officers wrote to the mayor’s workplace final summer season, they famous that CPS stays one of many largest junk bond issuers in the USA, which has meant steep borrowing value tags.
Pavlyn Jankov, a CTU researcher, acknowledges at the very least a number of the reserves are tied up in day-to-day district expenditures as a result of cash from property taxes and the state is available in twice a yr whereas payroll and different bills are ongoing. Nonetheless, “it means the district has extra flexibility to make monetary choices,” Jankov stated.
He stated different districts, similar to Minneapolis, are dipping into their reserves to melt the monetary blow from the expiration of COVID reduction funds and keep at bay some cuts.
However CPS has a constant money circulate crunch. District officers stated Monday the district solely has about $66 million in precise money available, or about three days’ value of working bills. Regardless of a more healthy stability on paper, CPS continues to borrow to make payroll and pay distributors by means of the college yr — and continues to shoulder the prices of such short-term borrowing.
Martinez stated he fears that if the district, which faces a finances deficit of greater than $500 million subsequent faculty yr, “overextends itself” in addressing CTU staffing and pay improve calls for, it may need to resort to layoffs, furloughs, and different painful measures.
“We don’t need to be including positions on the one hand and shedding academics on the opposite,” stated CPS Chief Expertise Officer Ben Felton.
Roza stated leaning on reserves to cowl ongoing bills slated to develop over time is irresponsible.
“In case you use reserves to pay the primary yr, subsequent yr you haven’t any reserves and no method to pay for contract prices,” stated Roza. “You may have left the district very, very susceptible.”
Is extra property tax income coming as TIFs expire?
Roughly half the district’s working finances comes from native property taxes. Johnson ran on a promise of to not elevate them — a risk deeply unpopular with residents and the Metropolis Council.
A considerable amount of property in Chicago sits in tax increment financing districts. When cash will not be used to spur growth inside every district, the mayor and metropolis council can declare a surplus and ship {dollars} again to taxing our bodies, similar to CPS.
This yr, the district obtained a file roughly $300 million in TIF surplus cash.
However along with that surplus, CPS is a extra secure potential supply of latest income: freed-up property tax {dollars} that may start flowing to the district and different metropolis businesses as 13 TIF districts expire over the approaching years.
In keeping with public information supplied by the Chicago Division of Planning and Improvement and first reported by the Chicago Tribune, CPS is projected to see as a lot as $100 million extra in native property tax income in 2026 because of the expiring TIFs. The projections balloon to greater than $600 million previous 2031.
In an interview with Chalkbeat final week, Johnson, a former CTU worker and shut ally of the union, stated the district ought to rely on future property tax income to proceed rising its employees.
“That’s all the time been my objective — to make sure that the tax {dollars} that have been designed to assist these sister businesses, that these {dollars} really present up for the individuals of Chicago,” he stated.
The union and the district agree the top of TIFs will assist the general public colleges, and each have argued town ought to let extra of TIF districts sundown.
Jankov, the union’s researcher, stated the TIF cash — from each surpluses and expiring districts — gives a big and little mentioned supply of economic stability. It additionally will help Chicago and the district advocate extra forcefully for extra state {dollars}.
“Town is releasing a lot extra TIF {dollars} than prior to now, and it reveals that town is doing its half,” he stated. “CPS can rely on this income coming in.”
However Martinez, who had requested $190 million TIF surplus {dollars} extra than the district really bought final yr, says town can do extra.
“I admire the long-term schedule for launch, but it surely’s not quick sufficient,” Martinez stated. “It’s time to launch these TIFs for our youngsters.”
CPS officers stated a lot of the $300 million it bought in TIF surplus cash has already been devoted to protecting the prices of a brand new assist employees contract with SEIU Native 73 and different bills. That leaves about $139 million to spend on new instructor contract prices.
The district estimates that the price of its pay and advantages supply to CTU is about $120 million subsequent yr, not together with some staffing will increase and different concessions it has already provided. The additional TIF surplus might additionally cowl a cost to a metropolis pension fund that covers non-teaching CPS employees. District leaders nonetheless insist town, not CPS, ought to cowl that cost.
Ferguson, of the Civic Federation, stated the rise in property tax revenues as TIFs expire over time can supply a partial resolution to the district’s monetary woes. However within the shorter time period, these further {dollars} characterize a comparatively small piece of the puzzle.
How a lot state cash can CPS rely on?
State {dollars} make up a couple of quarter of the district’s working finances. Illinois has steered more cash to the district in recent times and the present finances contains $2.4 billion in state cash.
Nonetheless, by the state’s personal calculation, its funding for CPS remains to be about $1 billion in need of what could be thought-about “enough.”
The Illinois State Superintendent’s finances proposal for subsequent faculty yr features a modest $350 million improve to the evidence-based system — and signalled potential belt-tightening down the street. That’s the identical annual improve lawmakers have been dedicating to Ok-12 colleges since 2017 when it pledged to ramp up schooling funding. Final yr, Chicago bought roughly $25 million of the state’s $350 million improve.
Jankov of the CTU stated he appreciates that the Civic Federation report nods to state underfunding of CPS.
However, he stated, “the report goes to nice lengths in trying narrowly by means of a monetary lens as an alternative of wanted investments in our college students.”
Jankov additionally criticized the Civic Federation for suggesting the potential for a state monetary takeover — which Ferguson, the finances watchdog’s chief, defended.
Ferguson stated the district and new faculty board have to discover a path to fiscal stability to keep away from what occurred to CPS in 1980. That’s when the state created a finance authority over CPS to assist it out of a monetary disaster that concerned being lower off from the bond market and unable to make payroll.
Ferguson stated he doesn’t see a path ahead for CPS in the present day that doesn’t contain cuts to employees and different bills.
“These are arduous and politically loaded conversations,” he stated, “and we have to have them now as a result of we don’t need to have them in a state of full-blown disaster.”
Mila Koumpilova is Chalkbeat Chicago’s senior reporter protecting Chicago Public Colleges. Contact Mila at mkoumpilova@chalkbeat.org.