Chicago Raises Taxes to Fund New Schools Budget
By Juan Perez Jr.
The Chicago Board of Education on Wednesday approved a $5.4 billion budget that relies on a trio of property tax hikes, the latest in a series of increases Mayor Rahm Emanuel has hit city taxpayers with in recent years.
Buffeted for years by financial crises, mass school closings and a teachers strike, Chicago Public Schools' new spending plan again relies on borrowing and a financial windfall from a gridlocked state government coming to fruition.
With the Chicago Teachers Union again threatening a walkout after working without a new contract for more than a year, CPS leaders billed the district's finances as improving, but still dire.
The Rev. Michael Garanzini, one of the mayor's most recent appointees to the school board, framed up the situation.
"St. Jude is the patron of impossible causes," said the priest when asked about who he prays to for contingencies. "I suppose I've never prayed more to anyone than St. Jude this year, because it seems pretty impossible at times to balance everything."
If $215 million in potential state pension help gets caught up in the partisan gridlock between Republican Gov. Bruce Rauner and Democratic House Speaker Michael Madigan, CPS will have to make up the difference.
"It's so close. It's just balanced, if all these things come true," Garanzini said of the budget. "But we have to start this way, otherwise we would be responsible for cuts, in anticipation of money that may not or may come. We don't want to budget that way either, so we're budgeting I think about as wisely as you possibly can given the fiscal climate and the fiscal challenges that we face."
As it has done for more than two decades, CPS will boost its regular property tax levy to the maximum amount allowed by law. The district also will collect again on a capital improvement property tax enacted last year to finance borrowing for school infrastructure projects.
But the biggest jump will come from a new tax expected to generate $250 million to help cover the district's massive teacher pension obligations. CPS officials say the district's total tax increases would cost the owner of a $250,000 home an extra $245.
The CPS tax hikes represent the latest financial pain city government has inflicted. Homeowners this month started feeling the effect of last year's record city property tax hike to shore up police and fire pensions, a $554 annual increase for the owner of a $250,000 home that's being phased in over four years.
Chicagoans also are paying $1.40 a month more in 911 fees for each landline and cellphone to cover city laborers' pensions. Next month, Emanuel is expected to call for a vote on his proposal for a new water and sewer service tax that'll eventually cost the average user $115.20 a year. The money will be poured into the city municipal workers' pension fund.
Under Emanuel, the city also has doubled water and sewer fees to modernize the system and enacted a $9.50-per-month garbage pickup fee.
In a rapid-fire 6-0 vote, the Emanuel-appointed school board also authorized a credit line of more than $1.5 billion to help the district pay its bills this year and up to $945 million in borrowing for largely unspecified construction projects.
But the school district has not said how all of that money will be spent. Instead, it laid out a preliminary $338 million capital budget. CPS plans to spend $27 million to install air conditioning at 61 district-operated and charter schools. Another $57 million is earmarked for internet bandwidth upgrades and other technology projects such as new security cameras and metal detectors.
Even as CPS struggles with declining overall enrollment and some schools that barely have enough students to fill a fraction of the building's available space, the district plans to spend $173 million to build new annexes and classrooms at some of Chicago's most overcrowded schools.
Before the vote, community groups and teachers union members protested outside district headquarters. This week, the CTU raised the specter of an October strike in a bulletin on negotiations distributed to members.
Maria Moreno, CTU's financial secretary, took aim at recent statements by CPS CEO Forrest Claypool and Emanuel that teachers need to make sacrifices in a new labor contract to help ease the district's financial pressure.
"This is an attempt to cover up the many years of board cuts that have destabilized our school district, and have caused an exodus of principals and the layoff of experienced, highly skilled teachers," Moreno told board members.
While the property tax increases have helped improve CPS' long-term financial outlook, the district still faces immense fiscal pressure.
Massive amounts of borrowing have left CPS with an enormous credit card bill that it is paying off largely with state money that's meant for classrooms. The district projects it will spend roughly $373 million, or more than a third, of the general state aid it will get from Springfield, to pay off loans. In addition, CPS also plans to drain a rainy day account of $20 million or so to help ease that pressure.
The district's finances are such a mess that its credit rating has sunk to junk status. That makes borrowing more expensive. Having already exhausted its reserves, CPS has cash-flow problems. That means the district will again borrow against future property tax money it expects to collect to cover the year's operating expenses. It's akin to a payday loan, and it's expected to result in about $35 million in interest.
Then there's the massive pension debt, much of it caused by a long-term practice of not putting in enough money or skipping payments, including an entire decade when CPS made no pension contributions under then-Mayor Richard M. Daley.
That underfunding, combined with recessions that battered the pension fund's investments, now sees the district paying hundreds of millions of dollars more each year, as required under a plan to reach a state-mandated funding level of 90 percent by 2059.
Having burned through cash reserves to cover past deficits, CPS anticipates a shortfall at the end of the budget year in a fund designated for emergencies. That account will be nearly $160 million in the hole by next June, the district estimates.
CPS has acknowledged it does not have the money to replenish those funds this year, and that the coming 2018 budget year will "present similar financial challenges." District finance officials will submit a plan as part of next year's budget to restore the fund balance by July 2019, according to school board records.
Despite the school system's continued money woes, board President Frank Clark described the "progress made" between last year's budget and this year's as "extraordinary."
"We have not solved all the problems, we have not closed every gap," Clark said during one of a series of hearings at school headquarters. "But you're looking at a budget that's so much stronger than it was just a year ago."
Last year, the district banked on $480 million in state assistance that never arrived. This year's budget relies on $215 million that's contingent on a broad pension reform pact amid the Capitol's ongoing political war.
The pledged money for CPS teacher pensions was part of the late June stopgap budget deal, but it's unclear at best whether it will end up materializing.
Lawmakers aren't scheduled back at the Capitol until after the November election, so it's unlikely that serious progress will be made before then. Talks are taking place against a campaign backdrop where Rauner and his pro-business allies are spending millions of dollars to try to take away seats from Speaker Madigan and Senate President John Cullerton.
The Democratic leaders, in turn, are spending campaign contributions that come in large part from organized labor to try to widen their supermajorities in a presidential election year, which tends to favor their party in Illinois.
If Democrats end up with even more power, they're less likely to cross the union leaders that funded their successful campaigns. Rauner, meanwhile, has been known to try to leverage CPS' money woes in his attempts to get action from lawmakers on his own agenda, which has been most recently focused on a push to impose term limits on elected officials and change the way political maps are drawn.
Asked Wednesday if he would tie the pension deal to those other agenda items, Rauner offered contradictory responses.
"My personal focus, let's change, let's fix the political system first," Rauner said. "How about we start with that. How about we do term limits, fair maps and pensions. That's simple. People get it. Politically popular. Doable."
But pressed on whether the political system changes would be required for a pension deal, Rauner said "no."
CPS chief Claypool, who's got decades of experience in government and politics, started to lay the groundwork to set up Springfield dysfunction as the scapegoat if the pension money doesn't come.
"It would be absolutely irresponsible for us to ignore that commitment from our elected leaders and cut $215 million out of our classrooms," Claypool said. "We're going to rely on that commitment."
Chicago Tribune's Kim Geiger contributed.
(c)2016 the Chicago Tribune