A balancing act for Chicago Public Schools

Closing $370M budget gap rides on draining reserve fund, 1,200 more layoffs, pay freezes

Monday, August 09, 2010

About 1,200 city school workers will receive layoff notices this week, and principals will begin sharing the budget pain via pay freezes and six furlough days, as Chicago Public Schools officials move today to plug their remaining $370 million deficit.

With no concessions from teachers due a 4 percent pay raise, schools CEO Ron Huberman planned to unveil a $6.4 billion budget today that will leave zero dollars in the system's reserve-fund piggybank -- a move one expert said could violate School Board policy and affect the system's bond rating.

The release of a budget that officials say is finally "balanced," as required by law, comes as nearly 100,000 students begin classes today at close to 200 year-round schools.

That includes 10 year-round high schools that will be among the first in CPS to experience long-threatened larger high school class sizes -- of roughly 33 kids -- in a $30 million budget-saving move. Most of the system's 310,000 other students start classes Sept. 7.

An estimated 2,007 teachers, academic coaches and other school workers were trimmed out of the new budget, including 800 teachers and 400 clerks, custodians and other school-based workers receiving layoff notices this week.

CPS officials have urged the Chicago Teachers Union to voluntarily forgo pay raises to save union jobs and help the system plug its deficit, to no avail. Newly elected CTU President Karen Lewis has received 6,000 pages of documents in response to a CTU effort to find other savings but has yet to produce any cost-cutting suggestions, Huberman said.

"We are asking teachers not to solve the total budget crisis -- only a piece of it,'' Huberman told reporters Friday at an embargoed briefing.

"If there is a rabbit in [the CTU's] hat that can produce efficiencies that do not harm children, we'll look at it. ... School starts [today], and we have yet to get a tangible recommendation of one efficiency. Time is running out.''

Lewis said the CTU has yet to receive all the information it requested, and most of the 6,000 pages obtained thus far reflect information the union already had.

Union delegates will "weigh in'' on the latest developments at a meeting Wednesday, Lewis said. Meanwhile, she said, federal passage of an educator job-saving bill looks promising, routing part of a city tax increment financing surplus to schools is being discussed, and if "the General Assembly pays its bills, we ought to be quite even.''

In January, with state funding in turmoil, CPS officials predicted their deficit for the new school year would be $1 billion. An assortment of cuts and $400 million in pension relief brought the red ink down to $370 million by August.

Huberman said he was required by law to present a budget that filled the remaining $370 million deficit today. Public hearings on that plan are scheduled Aug. 17-19.

The latest cuts include not only a pay freeze for principals and assistant principals who enjoyed 4 percent raises last year, but also six furlough days. Said Huberman: "It was a very difficult decision because they are our front line."

The most controversial part of the budget may be its plan to tap all $190 million left in the reserve fund, leaving CPS without any reserves for the first time since Mayor Daley took over the school system in 1995.

Board policy requires that CPS hold 5 percent of its operating budget, or at least $280 million, in reserve by the end of each fiscal year, said CPS Chief Financial Officer Diana Ferguson.

CPS will meet that requirement, Ferguson said, by presenting board members with a plan that would get CPS to that point, based on at least one and possibly two of four events that have yet to occur: the state finally making $236 million in late payments, state lawmakers passing a long-discussed income tax increase, Congress passing a new educator job bill that would yield CPS an estimated $80 million, and the declaration of a TIF surplus, half of which would go to CPS.

"We have money in the [reserve] bank,'' Huberman said. "If we don't use it, we will lose more teachers and impact kids.''

Civic Federation President Laurence Msall said the move appears to violate CPS's own policy and questioned whether board members could approve it at their Aug. 26 meeting.

"Coming up with ... a wish list for how CPS may replenish its reserves is not the same as honoring the commitment to maintaining the reserves,'' Msall said.

"It appears this would be in violation of the board policy of maintaining a 5 percent reserve. Unless board members change their policy, I don't know how you can replace unallocated reserves with a plan.''

In addition, Msall said, the move "jeopardizes the CPS bond rating'' and "is unlikely to be viewed positively by bond rating agencies.'' Fitch Ratings last week downgraded the City of Chicago's bond rating, citing in part its "accelerated use of reserves to balance operations.''

Ferguson said CPS hopes to "mitigate the impact on our rating, though we clearly can't predict this with certainty.'' However, she noted that the "required payment of interest and principal for our bonds is incorporated in the budget," so "we would not be at risk of missing any payments to investors as a result [of] drawing [on] the general fund balance.''

Among the good news in the budget, Huberman said, is that CPS was able to stave off class size increases in elementary schools, raise the average high school class size to 33 instead of an originally projected 35, preserve sports for kids, hire back 30 percent of 238 laid-off academic coaches, forestall early education cuts and add $9 million in special education aides.