January 13, 2025
Click here to read the full report.
Click here to read the press release for this report.
Executive Summary
The Chicago Public School District (CPS or the “District”) faces a critical financial juncture, highlighted by structural budget imbalances, rising expenditures, declining enrollment, significant near-term infrastructure investment needs, and substantial long-term liabilities. A new 21-member Board of Education (the “Board”), partially elected for the first time, inherits these challenges as it assumes oversight on January 15, 2025.
The existing FY2025 CPS budget is structurally imbalanced, heavily relying on temporary revenues and lacking provisions for impending collective bargaining costs. These financial strains, coupled with long-term issues such as declining enrollment, rising expenditures, pension liabilities, and looming credit downgrades, demand immediate and strategic action. To stabilize CPS, the Board must implement a forward-looking financial plan, addressing budget deficits with cost-saving measures, operational efficiencies, sustainable revenue sources, and advocacy for increased state support.
This new report by the Civic Federation is intended to provide the new Board, as well as other officials, advocates, parents, and community members, with a complete picture of the financial landscape of the District. To guide the Board, the report also offers several concrete suggestions rooted in the urgent need for long-term financial planning.
Financial Overview
While not an exhaustive compilation, the report provides background information and additional context about the financial challenges the Board must consider while addressing near- and long-term solutions. The Civic Federation report, Chicago Public Schools FY2025 Proposed Budget: Analysis and Recommendations, addresses further details about the District's budget and the Civic Federation's recommendations.
- Structural Budget Imbalance: The FY2025 budget, though technically balanced, relies heavily on non-recurring revenues such as federal pandemic aid, which will be depleted by fiscal year-end. This approach masks ongoing fiscal issues.
- Revenue Limitations: CPS depends heavily on property taxes (47% of revenue) and State funding (25% of revenue). However, constraints on property tax increases and insufficient state contributions create fiscal pressures.
- Rising Costs: Personnel expenditures have increased significantly due to staff expansions funded by temporary COVID-19 relief dollars. Additionally, unresolved collective bargaining agreements with the unions are expected to add hundreds of millions of dollars in costs in FY2025 and over the next three years.
- Declining Enrollment and Underutilized Infrastructure: Enrollment has dropped by over 21% since FY2010, leading to underutilized school buildings and inefficiencies in resource allocation. More than half of CPS schools are operating below 70% capacity.
- Debt and Pension Liabilities: CPS carries $9.3 billion in long-term debt and a severely underfunded teacher pension fund, with a funded ratio of 47.2%. These financial obligations limit operational flexibility and increase borrowing costs.
- Credit Risk: CPS’ credit ratings remain below investment grade. Continued fiscal mismanagement, such as an overreliance on short-term borrowing to cover annual cash flow needs, could lead to downgrades, increasing borrowing costs and restricting market access.
Immediate Challenges the Board of Education Must Address
- Collective Bargaining Negotiations: The current FY2025 budget excludes costs from ongoing contract negotiations with CTU and CPAA, with CTU demands totaling $1.8 billion in first-year costs. The final collective bargaining agreement will likely necessitate budget amendments and additional revenue sources.
- Projected Budget Deficits: Despite temporary measures to balance the FY2025 budget, unresolved pension costs and backloaded union agreements risk deficits of $508.7 million in FY2026 and $557.8 million in FY2027. These projections require long-term solutions to avoid fiscal instability, especially since they do not include the additional costs associated with ongoing collective bargaining agreements.
- District Resource Allocation: CPS has increased staffing despite declining enrollment, leading to inefficiencies; the Board must address underused facilities and align resources to actual enrollment and outcomes.
- Financial Entanglements with the City of Chicago: The Board must resolve contested financial agreements with the City, including a $175 million pension reimbursement, and integrate decisions into a long-term financial plan as CPS transitions to full independence.
Concluding Recommendations
By adopting some or all of these recommendations, the new Board can navigate immediate challenges while setting CPS on a path toward fiscal stability and fulfilling its core mission of providing quality education for Chicago's students.
- Develop a Long-Term Financial Plan: The Board must prioritize sustainable revenue generation and cost-saving measures while aligning spending with strategic goals.
- Right-Size District Operations: In partnership with the community, address enrollment declines through resource reallocation, including an immediate assessment of the best use of facilities and program resources to align with educational goals.
- Advocate for State Funding: Pursue equitable State contributions for pensions and expanded Evidence-Based Funding to close adequacy gaps.
- Resolve City Financial Entanglements: Clarify ongoing fiscal obligations with the City of Chicago to establish financial independence.
- Conduct Financial Projections: The District should conduct a financial analysis to accompany its five-year strategic plan.
- Strengthen Reserves: Build unrestricted fund balances to provide liquidity and reduce reliance on short-term borrowing.
- Enhance Financial Transparency: Increase public disclosure of expenditure details and personnel changes to improve accountability.
- Strengthen Board Capacity: Expand the Board of Education’s resources, staffing, and training to ensure they have the expertise needed to handle the District’s complex issues and fulfill their fiduciary responsibilities.
Click here to read the full report.
Click here to read the press release for this report.