August 14, 2026
By Daniel Vesecky
On July 30th 2026, the Chicago Board of Education approved a $10.1 billion budget for the 2027 fiscal year. Although the approved budget largely mirrored the budget proposed by Chicago Public Schools’ CEO Macquline King, it contained one major deviation. Before passing the budget, the Board voted on the adoption of an amendment that restored existing the CEO had cut to balance the proposed budget. Many of these cuts have already been implemented. The amendment’s proponents assumed additional funding would come from the State of Illinois to cover the cost of restoring those roles. At the time of the Board vote, this additional revenue had not been promised or secured by state legislators. The contentious Board amendment amounted to budgeting on the basis of non-existent revenue and could cause significant fiscal strain at CPS if the additional State funding does not appear. This short report will examine the changes made to the budget and discuss several of the most relevant questions now facing CPS.
What Did the Budget Amendment Do?
The amendment added $100 million in spending that would reverse layoffs that the Chicago Public Schools (CPS, or the ‘District’) implemented in July to balance its budget proposal. It also reduced a $113 million spending freeze, set to go into effect in January 2027, by $50 million. The remaining $63 million spending freeze will still take effect at the beginning of next year. The layoff rollbacks and spending freeze reduction mandated by the amendment total to an additional $150 million in spending over the CEO’s proposal.
The IIllinois School Code requires all school districts pass a balanced budget, so to match that $150 million in spending and keep the budget balanced, CPS must find $150 million in revenue. The amendment approved by the Board assumes that the State of Illinois (Illinois or the ‘State’) would provide an additional $150 million to CPS, on top of the roughly $2.8 billion the State already provides.
Board members substantiated this revenue with a statement by Speaker of the House Chris Welch on Wednesday, July 29, in which he committed to securing additional funding for CPS. However, a verbal pledge from a single legislator, even the Speaker of the House, is not the same as revenue pledged by the State. Legislators hoping to provide CPS with more funding during its current fiscal year will face significant barriers. First, any additional school funding would require amending the State’s current budget, which was passed in May 2026. To do this, CPS’ statehouse advocates will need to muster a supermajority in both the State House and the Senate. They will also need approval from the Governor, who has not yet indicated his support and has questioned the availability of revenue.
The takeaway is that while new State funding for CPS is not entirely out of the question, it is far from certain. That means that this portion of the amended budget is flimsy; if the State does not provide CPS with the revenue it has anticipated, the District could find itself facing a mid-year budget gap. In fact, during the budget hearing, CPS executive leadership stated that they would not consider the amended budget to be balanced.
What Are the Implications of the Amended Budget?
The potential imbalance brought on by the assumption of State aid poses two major challenges for CPS. First is the problem of balancing the budget. If the $150 million in assumed State funding does not materialize by the end of the veto session on December 3, then CPS will have to find other ways to balance its budget. The District could accomplish this by making cuts or by finding other revenue sources. Whether the District can prepare a plan for this eventuality will dictate how disruptive these mid-year cuts would need to be.
The second concern for CPS is the impact of this decision on its credit rating and ability to borrow money. CPS is heavily reliant on short-term borrowing to balance its cash flow problems, and on long-term borrowing to finance its extensive capital needs. Lenders will be wary of a budget that assumes uncertain revenue and may view the District as a riskier borrower. Consequently, this budget could lead to CPS seeing a credit rating downgrade and higher interest payments on future loans. District leadership has even warned that it is uncertain it will be able to secure the loans needed to make payroll on September 4, though some financial experts have questioned this assertion.
What Don’t We Know?
There are many questions about CPS’ budget that remain unanswered, and it may be months before we fully understand how this amendment will play out. Here are some of the most important open questions:
Can the District balance its budget without State revenue?
If the $150 million in anticipated State funding does not appear in the fall 2026 veto session, CPS will face a mid-year deficit in December with limited options to close the gap. Some potential routes would include increasing its planned mid-year spending freezes, re-opening the possibility of furlough days, or backfilling with additional revenues from other sources. If all these measures prove insufficient, CPS may be forced to enact painful mid-year cuts to balance its budget.
What will be the size of the City of Chicago’s TIF surplus?
The likeliest source of additional revenue for CPS is from the Tax Increment Financing (TIF) surplus declared by the City of Chicago at the end of the calendar year. In recent years, TIF surpluses have provided hundreds of millions of dollars annually for CPS, capping out at $552 million for FY2026. However, TIF surpluses are volatile revenue sources controlled by the City of Chicago. And, last year’s record-setting TIF sweep raises serious questions about how much money may realistically be available to sweep in the coming year. With this reality in mind, CPS chose to budget for a lower TIF surplus in FY2027 than it received in recent years, settling on a $285 million assumption of TIF revenue. If State aid falls through, CPS would need a total of $435 million in TIF funding to avoid additional mid-year cuts. Although TIF funding may well exceed the projected $285 million, thereby helping to cushion the budgetary blow to CPS, a surplus as large as $435 million is far from guaranteed.
Will CPS’ credit be downgraded?
Credit rating agencies may view the assumption of State aid as a risky budgeting maneuver and CPS as a less reliable investment for lenders as a result. It is possible that this imbalanced budget could lead rating agencies to downgrade CPS, perhaps even reducing its status multiple times in the same movement. CPS saw rapid downgrades during its last fiscal crisis, from 2015-2017. During that time, CPS assumed State revenue that ultimately did not come through. This forced the District to take on debt to cover its operating costs, triggering an avalanche of rapid credit downgrades, the cost of which is borne by the District to this day. Any credit impact on CPS from this year’s budget will surely have similar long-term implications.
Will CPS be able to secure short-term loans? If so, how much higher will interest rates be than last year?
CPS will have to move immediately to take out short-term loans to make payroll in September. There likely will not be time for credit downgrades before these loans are secured. However, investors who lend to CPS will still be aware of the additional risk posed by the amended budget and will factor it into their negotiations with the District. Although it is unlikely that the District’s creditors will altogether refuse to provide additional loans, it is not out of the question that CPS’ market access could be curtailed. And it is quite likely that, in exchange for the added risk, CPS will have to pay higher interest rates on its new debt than in previous years.
Conclusion
Although the FY2027 CPS budget has passed, it lacks clarity on whether and how it can be implemented, and we do not yet know the final impacts that it will have on the District. The Civic Federation will continue to monitor events and provide further analysis of the extent of the impact on CPS’ budget this year and on its long-term fiscal health.