Budget surplus good news for CPS, but district ‘not out of the woods’

Chicago Public Schools’ first budget surplus in three years offers some hope to a district that has faced massive shortfalls, but CPS still has a long way to go to secure solid financial footing.

That’s according to Civic Federation president Laurence Msall, who reviewed CPS’ comprehensive annual financial report released on Thursday.

The district closed out the fiscal year ending last June with nearly $324 million left over in its general operation fund, a turnaround of nearly $600 million from a year earlier when CPS closed out with a $275 million deficit.

“It is definitely better news for the district to have a positive fund balance. It is not enough to say the district is out of the woods financially,” Msall said. “And it’s certainly not enough to justify expenditures beyond forecasted revenue for the next year.

“But it shows the district, with help from Mayor [Rahm] Emanuel, was successful in getting assistance from Springfield.”

At a Chicago Board of Education committee hearing Wednesday, CPS Controller Melinda Gildart credited most of the “drastic change” to debt restructuring, TIF revenue and increased state funding.

Changes to the state funding formula passed in 2017 drove more funding to lower-income districts like CPS and allowed for a higher property tax levy, generating about $444 million more for the district.

Msall’s cautious optimism echoed that of Gildart, who said she expects numbers to “level off” next year.

“I don’t want anyone to get the impression … that all our problems are behind us,” Board President Frank Clark said.

CPS’ report says the “additional resources provide additional financial stability to CPS in the years to come.”

Even so, the Government Finance Officers Association recommends a district the size of CPS should reserve about two months’ worth of operating expenses in the general fund — close to $1 billion, or three times what CPS closed out 2018 with.

“It’s one year, not a trend. They’re facing a lot of the same pressures,” Msall said. “It should be commended, but they need to do it consistently.”

Msall also noted the district relied on $1 billion in borrowed funds to make ends meet, with borrowing expenses going up by $97 million over the previous year.

“Managing the debt has enormous potential for freeing up efficiencies and providing more bang for the dollar on the operating side,” Msall said.

The district’s’ report notes “CPS’ cash flow challenges are driven by its calendar,” with debt service and pension payments due in February and June, before property tax installments hit CPS coffers in March and August.

The annual report shows the specter of teacher pension debt still looms large for CPS, with more than $12.3 billion in unfunded liabilities.

“Though CPS is armed with more tools and better financial flexibility to address some of our fiscal issues over time, despite these improvements, historic, one-time measures taken to address previous budget gaps are coming to an end in Fiscal Year 2020 and CPS will continue to carry a structural budget gap which needs to be addressed in the years to come,” the report says.

Msall said the district needs “to come up with a comprehensive, long-range plan” as it drafts next year’s budget, because costs are likely to continue rising and the district isn’t likely to stem its hemorrhaging of students.

That number has fallen every year since 2012, when there were 404,151 students in CPS classrooms, down to 371,382 last year.

The district’s report also noted negotiations on a new contract with the Chicago Teachers Union among the “key policy decisions” facing CPS in fiscal year 2020.

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