As the federal government moved to support small businesses and help avoid layoffs through the early weeks of the pandemic nearly two years ago, Chicago Public Schools bus companies and charter school operators secured over $70 million in forgivable government relief loans.
Yet the school district, facing a potential financial crisis at the time, still handed over nearly $30 million of its own to the bus vendors with the same goal of heading off layoffs but no written guarantees the money would be used as intended.
In the end, a majority of those companies laid off a total of more than 600 bus drivers anyway.
And dozens of the district’s private charter operators that run publicly funded schools secured millions in those federal loans even though they hadn’t lost any of their normal taxpayer dollars, giving them a leg up on traditional public schools and other employers that didn’t have other sources of relief.
Those findings were released Monday afternoon by CPS inspector general Will Fletcher’s office in its yearly report documenting its most noteworthy investigations from the previous calendar year.
In all, CPS paid $28.5 million to 14 bus companies in the spring of 2020 when schools shut down because of the pandemic. The district expected those vendors would continue to pay their workers and be ready when buses were needed again when schools reopened — which at the time was presumed to be a matter of weeks, not months as it turned out.
Illinois education officials had advised districts to make those types of payments to keep buses ready but urged diligence in making sure workers were paid and suggested amending contracts to secure guarantees.
Yet at CPS, those payments came without written agreements to ensure the drivers and bus aides would be paid, the IG’s office found. And despite issuing the payments in May, two months after the school closures, the district didn’t check whether the companies had been paying their workers. By then, the vendors had already laid off 453 drivers and aides.
One company had already told a “key CPS student transportation official” in April that it laid off all its drivers and aides, but that official apparently didn’t share that information with his superiors, the report said.
Then once the payments were made, officials didn’t check whether they were used as intended. An unnamed top CPS manager told investigators: “We assumed the businesses would do right by their people if the district did right by the companies.” Another told the office, “Why would I [check]? There’s no mechanism to do that.”
“CPS’ failure ... unleashed a series of unintended consequences,” the report said.
Without written guidelines for the money, 10 of the 14 vendors laid off more than 600 bus drivers for varying amounts of time during the spring 2020 school closures, the investigation found. Meanwhile nine of the companies secured a total of $13 million in federal Paycheck Protection Program loans, which were forgivable if a certain portion was spent on payroll. One vendor had laid off all its drivers yet received CPS’ payments and federal PPP loans while spending 0.5% of its normal payroll, the IG’s office said.
The laid off workers meanwhile were entitled to an extra $600 a week in unemployment benefits under another COVID-related program, meaning it’s possible three different sources of taxpayer funds could have been used to cover the same bus vendor wages, the report said.
After the IG’s office told district officials of the problems in September 2020, CPS pursued written agreements with some of the companies to repay the district $3 million.
The district also looked for other similar payments made to vendors, which weren’t all flagged as such at the time. CPS found another 37 vendors offering various services had received an additional $10.9 million in those payments — nearly $5.2 million of which went to one company alone.
Buses turned into one of CPS’ biggest problems this school year, with a driver shortage affecting thousands of students’ routes and leaving many without ways to get to school. The IG’s office didn’t name any of the companies involved, so it isn’t clear if any of the vendors that received the extra money last year were involved in this year’s shortages.
Charter schools see windfall in federal, district cash
The charter school investigation, meanwhile, was prompted by a Sun-Times report in July 2020 that found 30 operators of 56 schools applied for and received the federal money even though they hadn’t lost their normal funding from Illinois taxpayers. The Sun-Times estimated the charter schools in Chicago and elsewhere in Illinois had received a total of between $31.2 million and $74.7 million in the federal loans.
CPS’ inspector general pinpointed that amount at $59.2 million to 38 CPS charter schools and related entities, $43.5 million specifically used for charter operations. The rest of the money was used for the nonprofits’ other programs.
All but one charter school followed program rules in applying for loans and spending the money, the IG’s office found. “They likely met the eligibility requirements to participate in the PPP program” because they filed applications certifying “economic uncertainty” before CPS officials announced they would fully fund charter schools for the 2020-2021 school year, the report said.
Yet CPS did not take the PPP loans or other pandemic relief funding into account when distributing its own pandemic-related aid to schools, the investigation found. Fletcher’s office recommended that CPS make sure “future COVID-19 relief funding is apportioned fairly between charter schools and district-run schools, considering all Covid-19 relief funds received by schools to date, including forgiven PPP loans.”
But CPS officials apparently told the OIG they are “unable to implement the OIG’s recommendation to equalize future pandemic relief funding. According to CPS, it is required to distribute future pandemic relief funding according to its state-approved funding formula which does not differentiate between district and charter schools or consider outside pandemic relief funding such as PPP loans.”
In 2020, U.S. public schools had access to a separate, $13.5 billion pool under the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act, which Congress passed in late March, shortly after all but essential businesses and institutions shut down. CPS’ allotment was $205 million of the $569.5 million earmarked for Illinois, some of that for charters.
As a result, the ongoing pandemic did little to endanger charter funding. An inspector general review of internal charter school records showed that the charter schools who took PPP loans increased their cash reserves or used money freed up by the loans to pay for other expenses. At least eight charter schools bolstered their cash reserves by more than $1 million each between the end of the 2018-19 school year and the end of the 2019-20. Five charters that got PPP loans reported doubling their cash on hand “that CPS considers to be exceeding its recommended level of cash reserves for charter schools.”
Five operators have since repaid a total of $7.4 million in PPP loans while nearly all the rest of the charter operators who kept their PPP proceeds had their loans forgiven. A small number of loans remain outstanding. The OIG report didn’t name which operators repaid their loans or which had theirs forgiven.