June 16, 2025
This report is part of a three-part educational series on what's at stake for CPS in FY2026 and beyond. Click here to view the one-page summary of these reports.
by Daniel Vesecky
As the Chicago Public Schools (CPS or the “District”) has concluded the collective bargaining process with the Chicago Teachers Union (CTU) and has come under steady pressure from the Mayor’s Office to provide a costly pension reimbursement to the City of Chicago, concerns about the District’s financial solvency have increased. A looming budget deficit of over half a billion dollars projected for fiscal year (FY) FY2026 has led to a wide variety of proposed solutions to CPS’ financial troubles. One such proposal is to revive the School Finance Authority (SFA), a state-run oversight body responsible for ensuring CPS’ solvency in the wake of a major financial crisis in 1980. SFA oversight was reduced after CPS’ financial situation stabilized in the 1990s, and it was eventually shuttered in 2010 after its last bonds expired. As of publication in June 2025, State Representative Curtis Tarver has proposed a bill that would revive the School Finance Authority. In light of this renewed discussion of the merits of the School Finance Authority, it is worth taking the time to examine its history.
The Need for the SFA
In 1980, the Chicago Public School District was on the brink of financial collapse. The crisis was triggered in part by the 1970 Illinois Constitution, which abolished the personal property tax, effective in 1979. Although the General Assembly passed a replacement tax on corporate income in 1979 (the personal property replacement tax, or PPRT), the disruption to what was then a major source of revenue for the District had contributed to the creation of a large deficit and a massively reduced bond rating that effectively left it without access to credit markets. After several years of providing bailouts, the State of Illinois refused to give the District any more assistance, whether in the form of cash or loans. The situation deteriorated so severely that many vendors refused to provide services until CPS cleared its debts with them, and the District failed to make payroll in December 1979. CPS was thus widely, and rightly, perceived as fiscally unstable.
In January 1980, with Chicago’s school district in functional insolvency, then-Governor Jim Thompson convened an emergency summit in Springfield with school officials, union leaders, representatives of the Mayor’s Office, and other stakeholders to decide how to rescue CPS’ finances. Later the same month, the Illinois General Assembly passed the School Finance Authority Act. The SFA Act created a five-person governing board of members charged with salvaging the district’s financial situation. Two board seats were appointed by the governor, two seats by the mayor, and the fifth seat was jointly appointed by both. The mission of the SFA was to provide financial assistance and fiscal oversight to CPS, leaving the Chicago Board of Education the authority over educational policy and administration. More specifically, the SFA was given approval power over the District’s annual budgets, financial plans, and contracts, including union collective bargaining agreements. Crucially, the SFA was authorized to issue debt for CPS and to levy a separate property tax for debt service. The SFA’s separate levy authority permitted it to secure property tax revenues dedicated to servicing the bonds issued for CPS’ ultimate use. This structural independence separated the SFA from the District’s low credit ratings, providing access to bond markets that CPS could no longer secure on its own.
Results
Borrowing through the SFA allowed the District to avert the immediate crisis that it faced in 1980. The SFA exercised control over CPS finances throughout the 1980s. This included targeting high spending on special education and facility management. Although the SFA took a firm stance on finances and provided a borrowing lifeline to CPS, the District continued to struggle financially for over a decade. CPS saw nine teachers’ strikes between 1979 and 1987, and the quality of school infrastructure declined as the District deferred maintenance and went without a district-wide capital improvement plan. The legislation that created the SFA required continued oversight over District finances until CPS presented a balanced budget. However, the District did not meet the SFA’s balanced budget requirement until 1993, when it produced a nominal annual surplus, which it reached only through short-term borrowing and a two-year $400 million debt-financed bailout from the State. As a condition of this financial support, the Illinois General Assembly expanded the SFA’s authority to include independent management assessments and audits of the Board of Education.
As the District achieved a technically balanced budget beginning in 1993, the School Finance Authority began to shift its role to oversight, focusing on audits and assessments rather than exercising direct control over District finances. Once state law transferred primary control of the District to the Mayor in 1995 and the District balanced its budget for a third consecutive year, the School Finance Authority ceased issuing new debt for the system and shifted primarily to the administration of its outstanding bonds.
Although CPS had managed to stabilize its budget, in FY1996, it secured a ten-year pension holiday from the State that allowed it to divert funds intended for the Chicago Teachers’ Pension Fund (CTPF) to cover operational expenses instead. This deferment of pension funding contributed to the long-term decline in the CTPF’s funded ratio, beginning in 2003 and exacerbated by investment losses in the economic downturn following the Great Recession in 2008.
The SFA finally sunsetted in 2009 after the last of its bonds was paid off and was officially dissolved in June 2010.
Revival of the SFA: What Might It Accomplish?
Today, in 2025, CPS’ current financial struggles are, once again, significant. The District has almost no cash reserves and receives property tax revenue at inopportune times, forcing it to undertake short-term borrowing throughout much of the school year to bridge revenue streams to meet operational costs. This borrowing drains financial resources by requiring the District to cover short-term loan interest payments. CPS also has high levels of long-term debt, with $9.3 billion outstanding as of FY2025—an increase of 44.9% over the last ten years alone. The problem presented by the District’s high debt levels is compounded by its weak bond rating. With one exception, credit rating agencies rate CPS at below investment grade, or “junk status.” The bond ratings increase the interest rates CPS must pay in order to secure long-term debt, which further siphons revenue from the District’s operational expenditures. In addition to the District’s lack of reserves and debt burden, it faces many other difficulties, including severe pension challenges, declining enrollment paired with increased staffing, building underutilization, and high capital investment needs. The Civic Federation’s January 2025 Financial Landscape Analysis of the Chicago Public School District: FY2025 assesses these issues in detail. Taken together, these problems paint a picture of a school district that is in difficult fiscal straits.
Despite these significant concerns, CPS’ current crisis is not as precarious as the one that inspired the State to create the School Finance Authority. In 1980, the Chicago Public Schools were unable to take on debt at all and repeatedly missed payments on regular operating expenses such as vendor invoices and payroll. Today, although the Chicago Board of Education and CPS staff leadership face structural deficits that are cause for serious concern, the District maintains sufficient liquidity to pay its bills at this time. In addition to this better cash flow position, moves to revive the SFA could indicate a lack of State confidence in the District’s governance, a move that may inadvertently harm CPS’ reputation and credibility.
Nevertheless, imposing state oversight might be an appropriate response to what has been an extended run of fiscal mismanagement. The fragility of the District’s fiscal situation is susceptible to tipping quickly into crisis, which would bring harm to its reputation, credibility, and, more importantly, its students and families.
This concern is heightened by the fact that the District is in the midst of a major governance transition. In July 2021, Illinois Governor JB Pritzker signed legislation that provided for a two-step transition from the seven-member School Board appointed by the mayor to a fully elected. 21-member board. The process began in January 2025 with a hybrid Board comprised of ten elected members, ten appointed by the mayor, and a President also appointed by the mayor. The fully elected board will take office in early 2027 after the November 2026 election. While the middle of a major governance change is a precarious time for the State to consider intervening, there is no guarantee that the evolving governance system will make the District more fiscally responsible. The transition period itself also raises questions about whether the District can maintain operational stability and improve outcomes while also managing within its financial means.
Although the time may not be right for a full revival of the SFA, the State might consider other options for increasing its oversight of CPS. A revived SFA could fulfil any combination of the following three different roles.
- A fully revived SFA could conduct full oversight with veto authority over budgets and contracts, just as the SFA in the 1980s did.
- A partially revived SFA could be empowered with authority to audit CPS and review its budgets and contracts, but without full financial control and veto power as a potential way to provide CPS with independent oversight that might better assure fiscal accountability and therefore stability.
- Any format of a revived SFA could also exist as a bond-issuing authority. This would allow CPS to access more favorable borrowing terms, effectively circumventing CPS’ junk bond ratings and high debt load, without imposing complete state control at a time when the District is in the process of changing its governance structure. However, it is important to note that, given the District’s fiscal track record, it would be imprudent and even irresponsible to create such a new source of revenue without accompanying fiscal guardrails on how such funds could be used and how the District manages its finances.
Given the structural deficit CPS is currently combating, it will likely need to request some form of increased financial support from the State. An SFA with oversight and audit authority could be a potential counterbalance that allows legislators to have more confidence in the District’s ability to use additional support wisely. Although the revival of the School Finance Authority is a potential tool for financial reformers, state legislators should study the situation carefully to ensure that they use this tool at the appropriate time and only to the extent needed.
This research was supported in part by the Joyce Foundation. The Civic Federation is a nonpartisan, independent research organization, and the views expressed in this report do not necessarily reflect those of the Joyce Foundation.