Budget problems at Chicago Public Schools — and others around the state — begin in Springfield
The news out of Chicago Public Schools over the last year has been grim: a deficit of $1 billion, a $721 million pension payment, debt service payments over $500 million, teacher layoffs, cuts to central office staff, rumors of insolvency, and calls for a revenue injection of hundreds of millions of dollars from the state.
So it’s unsurprising that FY2017 was the fifth year in a row that CPS has had a deficit. In prior years, the District was able to close the hole by drawing down reserves (FY2014), shifting the date it received property tax revenue (FY2015), or borrowing money — $725 million at a whopping 8.5 percent interest rate (FY2016).
This fiscal chaos is, unfortunately, a predictable consequences of a series of poor fiscal policy decisions made over time by both the District itself as well as Illinois state government.
Missing the “Foundation”
The state has contributed to CPS’s fiscal problems by consistently failing to provide adequate funding to K-12 public education. One indicator of the depth of the inadequacy is Illinois’ “Foundation Level,” the minimum per-pupil funding amount established by state lawmakers. For FY2017, the Foundation Level has been set at $6,119 per student, an amount that has not changed for eight years. This means that even though the cost of educating children has risen over that period, after inflation, the real value of the Foundation Level has declined by 15 percent, or $915 per student, since FY2010.
Even worse, the current Foundation Level generates a total investment in K-12 Education that is some $5 billion less than the cost of an adequate education, as determined by the state’s own Education Funding Advisory Board (EFAB). As illustrated below, the shortfall between the EFAB recommendation and the actual appropriated amount by the state continues to grow. It’s abundantly clear that Illinois’ funding of K-12 Education falls well short of what’s needed to ensure all students receive a meaningful opportunity to learn.
CPS underfunded its pensions
The underfunding of education by the state has contributed to the fiscal woes CPS is now facing. Unfortunately, CPS’s consistently poor policy decisions have made matters worse. One of the most serious such decisions was to underfund the Chicago Teachers Pension Fund (CTPF) beginning in the late 1990s. This decision brought a pension system that was 100 percent funded in the year 2000, down to just 54 percent funded by 2016.
By the late 2000s, the unfunded pension liability had grown so much that CPS began to see its required pension contributions increase significantly from year-to-year. The 2011–2013 pension holiday — in which CPS contributed much less than was required to its pension in order to close operating budget gaps — gave the District some fiscal breathing room, but grew the unfunded liability. Today, CPS pension payments are in excess of $700 million annually. At the same time, enrollment has declined across CPS, yet the District continues to open new schools, mostly charters.
In FY2016, lacking the revenue needed to pay for its day-to-day operations, CPS borrowed to — barely — make it through the year. However, this increased CPS’s outstanding debt and only “solved” the District’s revenue problem for one year. While CPS is undertaking some long-term savings by reducing education staff and increasing property tax revenue, the budget story has been much the same so far in FY2017: a billion dollar deficit closed by a mix of one-time revenue injections and spending cuts. And still, there is a $215 million hole that the District is still in the process of filling, even though over two-thirds of the fiscal year is over.
And in the years to come, CPS admits that it still faces at least a half a billion dollar deficit annually.
The future of 380,000 students hangs in the balance. If CPS is forced to continue to lay off teachers just to balance its already inadequate budget, the inevitable consequences are increased class sizes and diminished quality of education.