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Chicago Public Schools FY2020 Proposed Budget: Analysis and Recommendations

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August 27, 2019

Click here to read the full report.
Click here to read the press release for this analysis.
Click here to see a diagram of CPS revenues and expenses.

SUMMARY

The Civic Federation supports the Chicago Public Schools (CPS) proposed budget for FY2020 because it demonstrates continued financial stability in the third year of Evidence-Based Funding from the State of Illinois. However, the Civic Federation continues to be concerned about the District’s long-term financial sustainability.

The FY2020 CPS budget proposes total spending of $7.7 billion. This includes a $6.2 billion operating budget, a $700.3 million debt service budget and an $820.6 million capital budget. The operating budget includes increased State funding, increased property tax revenue from the dedicated teacher pension levy, a property tax increase to the cap within the Education Fund and nearly $100 million in TIF surplus. The District still needed to close an annual budget gap this year, but the gap has decreased significantly from approximately $1 billion annually between FY2014 and FY2016 to approximately $100 million in FY2020.

While the District has benefitted from increased revenue sources that are helping cover operating expenses and teacher pension funding, CPS still has significant issues to address: a dramatically underfunded teachers’ pension fund, declining enrollment, building utilization imbalances due to shifting enrollment across the City, increasing personnel and personnel costs, debt service costs increasing over the next several years, and continued use of large amounts of short-term borrowing to cover low cash-flow due to the timing of large expenditures and property tax revenue receipts. All of these trends are occurring with no public long-term financial plan outlining how the District plans to address these challenges going forward.

CPS also continues to issue a significant volume of long-term debt for capital spending without an adequate level of transparency about how the capital funds are allocated and prioritized. CPS’ lack of transparency offsets some of the positive aspects of the District’s budget because the public cannot determine why decisions are made based on publicly available information. Providing more information about staffing levels, spending and capital projects would help explain the basis for budget decisions and build public trust.

The Civic Federation recommends that CPS develop a multi-year financial plan outlining how the District will achieve its operational goals over time and continue on a path of financial stability. Additionally, CPS should issue a comprehensive five-year Capital Improvement Plan that discloses more information about the project selection process and project updates each year.

The Civic Federation is encouraged that the new Board of Education has made a commitment to better transparency and public engagement. The Federation commends the Board for livestreaming Board of Education meetings and engaging in questions and debate at public meetings. The Civic Federation encourages the Board of Education to continue looking for opportunities to improve the District’s transparency and communication with the public and all stakeholders.

The Civic Federation offers the following key findings from Chicago Public Schools’ FY2020 Proposed Budget:

  • The FY2020 proposed total spending plan for all funds of $7.7 billion is an increase of 1.5%, or $116.3 million, from the FY2019 adopted budget of $7.6 billion;
  • Proposed FY2020 appropriations for general operating purposes of $6.2 billion are an increase of 3.2%, or $191.3 million, above the FY2019 adopted budget. The increase is primarily due to a $135.8 million increase in salaries and a $66.5 million increase in benefits;
  • The FY2020 proposed capital budget of $820.6 million will be financed with about $552.8 million in long-term debt, $191.0 million in potential State capital funding and $76.9 million in other local and federal capital funding sources;
  • Property tax revenue is projected to increase by 5.0%, or $150.2 million, from $3.0 billion in the FY2019 budget to $3.1 billion in FY2020. The increase is due to a 1.9% increase in the Education Fund property tax levy (which is the maximum increase under the tax cap), taxing new property, property value growth, $67 million from the Chicago Transit TIF district for the Red-Purple Modernization project and $47.6 million in revenue growth in the property tax levy dedicated to funding the Chicago Teachers’ Pension Fund;
  • CPS is budgeting for a total of 38,037.4 Full-Time Equivalent (FTE) positions in FY2020. This is an increase of 930.4 FTEs, or 2.5%, from 37,108 FTEs budgeted in FY2019. The largest increases include approximately 250 additional teacher positions, approximately 400 additional school support staff, and 150 additional network and central office positions. Much of the increase in teacher and school support positions is driven by special education positions;
  • Salary expenses will increase in FY2020 from the prior year by $135.8 million, or 5.4%. This includes a 2.5% cost of living adjustment. Benefit expenses will increase by $66.5 million or 4.6%, primarily due to a net increase in the required CPS contribution toward the Chicago Teachers Pension Fund in FY2020. Total compensation costs are expected to increase by $202.4 million, or 5.4%, to $4.2 billion in FY2020 from $4.0 billion in FY2019.
  • Student enrollment has declined by 11.6%, or 47,257 over the past ten years from 408,571 in FY2010 to 361,314 in FY2019. Enrollment is projected to decline another 2.2% to 353,360 in FY2020. The preliminary FY2020 enrollment projection includes a 2.9% decrease in K-8 and a 1.6% decrease in high school, but a 3.8% increase in preschool.
  • CPS will again rely on short-term borrowing through Tax Anticipation Notes (TANs), but the reliance on TANs has decreased by about $700 million from FY2017, and the projected interest cost for the TANs has decreased from a high of $68 million in FY2018 to $12 million in FY2020;
  • The District’s general obligation long-term debt increased by 33.0% in the five years from FY2014 through FY2018. As of June 30, 2019, CPS had $8.4 billion in bonds outstanding;
  • CPS is required to contribute $854.5 million to the Chicago Teachers’ Pension Fund in FY2020. The State of Illinois will cover $257.4 million of that amount, including $245.5 million to cover the normal cost and retiree healthcare plus an additional statutorily required contribution of $11.9 million. Approximately $477 million of the contribution will be covered by the dedicated property tax levy for teachers’ pensions; and
  • The Chicago Teachers’ Pension Fund was 47.9% funded on an actuarial basis as of June 30, 2018, compared to 73.6% funded ten years prior. The Pension Fund had an Unfunded Actuarial Accrued Liability of $12.0 billion as of June 30, 2018, compared to $4.1 billion ten years prior.

The Civic Federation supports several aspects of the District’s FY2020 Proposed Budget:

  • Chicago Public Schools’ finances are more stable in the third year of State funding through the Evidence-Based Funding formula;
  • Pension funding for the Chicago Teachers’ Pension Fund is on more stable footing thanks to revenue measures included in the Evidence-Based Funding legislation;
  • The District has started to livestream Board of Education meetings to the public;
  • The Board of Education has committed to improving public access to board meetings and overall public engagement and transparency; and
  • The District has begun providing operating revenue and expenditure updates to the Board of Education at the Finance and Audit Committee.

The Civic Federation has the following concerns about the CPS FY2020 Proposed Budget:

  • The ongoing enrollment decline amid spending and personnel increases without sufficient explanation and with no long-term plan;
  • Continued reliance on short-term borrowing;
  • More planned increases in long-term borrowing without a five-year capital plan and little transparency about capital project selection;
  • The District could potentially move from the Tier 1 district to a Tier 2 district under the Evidence-Based Funding formula, which would mean the possibility of losing out on future State funding increases;
  • Declining trends in the Chicago Teachers’ Pension Fund; and
  • Differences between data presented in the budget book and the online interactive budget reports.

The Civic Federation makes the following recommendations to Chicago Public Schools and the Chicago Board of Education:

  • 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 to correspond to fund balance reporting requirements and the District’s current fund balance practices;
  • Include expenditures and personnel sections in the budget book;
  • Continue to 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.