August 25, 2020
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Click here to read the press release for this analysis.
SUMMARY
Prior to the COVID-19 pandemic, Chicago Public Schools had reached more stable financial footing than in previous years due to an influx in State-approved funding. Public Act 100-0456, passed in August 2017, instituted the new Evidence-Based Funding formula for statewide P-12 education funding, as well as additional funding for the Chicago Teachers’ Pension Fund normal cost and an increase to the CPS property tax levy dedicated to teachers’ pension funding. The economic crisis caused by the pandemic has resulted in significant revenue losses at all levels of government and there is uncertainty regarding how long it will take the economy to recover. For reasons beyond the Chicago Public Schools’ control, several of the District’s revenue sources are now experiencing stagnation or declines at a time when the District needs revenue growth to meet its rising expenditures.
The Civic Federation supports the Chicago Public Schools (CPS) proposed budget for FY2021 as a reasonable plan given the current economic situation facing all state and local governments. However, the Federation has serious concerns about the additional $343 million in uncertain federal funding on which the budget relies. The Federation is also concerned about risks associated with state funding and property tax revenue, as they are the major sources on which the District depends to fund its schools and programs each year.
The FY2021 CPS budget proposes total spending of $8.4 billion, which is a 6.9% increase over the FY2020 budget of $7.8 billion that was amended to include new provisions for the collective bargaining agreements with the Chicago Teachers Union and the Service Employees International Union. The District is counting on uncertain federal funding to cover revenue losses in some state and local revenue sources, as well as remote learning costs and school reopening contingencies.
In addition to the uncertainties presented by the pandemic, the District has major budget issues to address: continued use of large amounts of short-term borrowing, underfunded teachers’ pensions, declining enrollment and associated building utilization imbalances, and increasing costs for personnel and debt service to cover capital spending. All of these trends are occurring with no public long-term financial plan outlining how the District plans to address its challenges going forward.
The Civic Federation calls on the federal government to approve additional COVID-19 relief funding for State and local governments, including school districts, to use for general operating purposes and to cover revenue loss. The Civic Federation also calls on CPS to be transparent about what actions will be taken in the event that more federal funding does not come through in FY2021.
The Civic Federation is encouraged by the Board of Education continuing to demonstrate its commitment to improving transparency and public engagement. The Federation also commends CPS for being forthcoming about revenue challenges in FY2021 in the budget book narrative. Additionally, the Federation is pleased to see that the District continues to rebuild its general operating reserves.
The Civic Federation offers the following key findings from Chicago Public Schools’ FY2021 Proposed Budget:
- The FY2021 proposed total spending plan for all funds of $8.4 billion is an increase of 6.9%, or $544.4 million, from the FY2020 amended budget of $7.8 billion;
- roposed FY2021 appropriations for general operating purposes of $6.9 billion are an increase of 9.4%, or $596.7 million, above the FY2020 operating budget of $6.3 billion. The increase is primarily due to a $262.6 million, or 9.9%, increase in salaries; a $114.1 million increase in contracts; and a $124.3 million, or 36.5%, increase in contingencies. Salaries are increasing significantly because of the addition of positions for teachers, school support staff and citywide support including nurses and social workers;
- The FY2021 proposed capital budget of $758.0 million will be financed with $653.0 million in long-term debt, $47.3 million in State funding and $47.5 million in local funding and $10.1 million in federal capital funding sources;
- Property tax revenue is projected to increase by 4.2%, or $130.5 million, from $3.1 billion in the FY2020 budget to $3.3 billion in FY2021. The increase is due to a 2.3% inflationary increase in the Education Fund property tax levy (which is the maximum increase under the tax cap), taxing new property, capturing revenue from expiring TIF districts, $13 million from the Chicago Transit TIF district and $13 million in revenue growth in the property tax levy dedicated to funding the Chicago Teachers’ Pension Fund;
- CPS is budgeting for a total of 39,739.2 Full-Time Equivalent (FTE) positions in FY2021. This is an increase of 1,701.8 FTEs, or 4.5%, from 38,037.4 FTEs budgeted in FY2020. The largest increases include 381.8 additional teacher positions, 898.5 additional school support staff (primarily classroom assistant positions), and 349.5 additional citywide student support positions including nurses and social workers;
- Salary expenses will increase in FY2021 from the prior year by $262.6 million, or 9.9%. Benefit expenses are expected to remain flat to FY2020 budgeted levels.
- Student enrollment has declined by 11.8%, or 47,525 over the past ten years, from 402,681 in FY2011 to 355,156 in FY2020. Over the ten-year period, preschool enrollment has declined by 6,213, or 26.2%, K-8 enrollment has declined by 32,405, or 12.2%, and high school enrollment has declined by 8,907, or 7.8%.
- CPS will again rely on short-term borrowing through Tax Anticipation Notes (TANs), but the reliance on TANs has decreased from $1.55 billion in FY2017 to $830 million in FY2020. The budgeted interest cost for short-term borrowing in FY2021 is $19 million;
- The District’s long-term debt increased by 44.1% in the five years from FY2015 through FY2019, with $9.0 billion in long-term debt outstanding as of FY2019;
- CPS is required to contribute $885.9 million to the Chicago Teachers’ Pension Fund in FY2021. The State of Illinois will cover $266.9 million of that amount, including $254.6 million to cover the normal cost and retiree healthcare plus an additional statutorily required contribution of $12.3 million. Approximately $490 million of the CPS contribution will be covered by the dedicated property tax levy for teachers’ pensions. The remaining $128.8 million will come out of CPS’ operating budget; and
- The Chicago Teachers’ Pension Fund was 47.4% funded on an actuarial basis as of June 30, 2019, compared to 67.1% funded ten years prior. The Pension Fund had an Unfunded Actuarial Accrued Liability of $12.2 billion as of June 30, 2019, compared to $5.4 billion ten years prior.
The Civic Federation supports several aspects of the District’s current financial position and Board procedures:
- Improved level of general operating reserves;
- Transparency on revenue challenges; and
- The Board of Education livestreaming meetings and holding remote meetings during the COVID-19 pandemic.
The Civic Federation has the following concerns about the CPS FY2021 Proposed Budget and financial situation:
- Serious revenue risks and challenges, including:
- The FY2021 budget relies on a significant amount of additional federal funding not yet approved by Congress;
- State of Illinois funding is unstable due to COVID-19; and
- There are risks associated with future property tax revenues due to COVID-19;
- Personnel levels and expenditures are increasing amid continued declines in enrollment without a public long-term financial plan;
- The District continues to rely on short-term borrowing; and
- The District has not issued a five-year Capital Improvement Plan in several years.
The Civic Federation makes the following recommendations to Chicago Public Schools and the Chicago Board of Education:
- The Chicago Board of Education Should Work with Illinois’ Federal Delegation to Encourage the Federal Government to Provide Additional COVID-19 Funding Relief to School Districts and Other State and Local Governments;
- Publicly release actions to be taken if additional federal funding is not provided to CPS;
- Develop a long-term financial plan;
- Issue a five-year capital improvement plan and provide more detail about project prioritization in the one-year capital plans;
- Revise the District’s fund balance policy;
- Include expenditures and personnel sections in the budget book;
- Provide revenue and expenditure reports on a regular basis at public Board or Committee meetings;
- Work to eliminate the remaining pick-up for non-teacher, union members of the City of Chicago Municipal Pension Fund; and
- Work with the State to consolidate the Chicago Teachers’ Pension Fund with the Teachers’ Retirement System in order to achieve more equitable State pension funding.
Click here to read the full report.
Click here to read the press release for this analysis.