Chicago Public Schools succeeded in selling $729 million in bonds for capital projects on Thursday — more than it had planned — just as a longshot but publicly trumpeted option for plugging a $215 million budget gap disappeared.
Unfortunately for the broke district, the two are unrelated: The bonds can be used to fund only capital spending. They can’t be applied to day-to-day district operations or teacher pensions.
CPS official Ronald DeNard said the bonds, which were given an “A” rating because their funding source is a guaranteed tax levy completely separate from district coffers, will pay for overcrowding relief, school modernization and critical repairs. Some 45 investors participated in the sale; buyers agreed to a 6.25 percent yield.
That’s a far cry from last February, when CPS couldn’t sell as many bonds for operating expenses as it hopes and paid dearly to lure buyers in.
“It is a success that CPS had access to the market at all. That’s a good sign that people will actually lend money to CPS,” said Brian Battle, director of trading for Performance Trust Capital Partners, a Chicago firm that analyzes bonds for investors. “Now the question is, is 6 percent a good rate? The last time CPS borrowed it was 8, the time after that 7.75. . . . Given it’s a lowly-rated school in a lowly-rated town in the worst state in the nation, yeah, 6.25 percent is a good rate.”
A different school district with CPS’ “A” rating might have been able to pay closer to 4.2 percent — a big difference, especially given how much money the district wanted to borrow, he said. But that relatively high yield likely drew in more investors who, in the end, wanted more than the $500 million in bonds CPS set out to sell.
But as the victory “gives the city a little breathing room, it solves nothing,” he said. CPS still lacks a long-term financial plan and faces the current crisis of finding $215 million for pension costs.
“It’s a very troubling way to run the third-largest school system in the country,” Battle said.
Legislators struck a bargain at the end of June to pay CPS’ normal pension costs, but only if — and it was a big “if” — they could enact “pension reform” by January. Two weeks ago, Gov. Bruce Rauner vetoed a bill to dole that money out. The Senate promptly mustered enough votes to charge past the veto and override it — a sign of hope publicly touted by school board President Frank Clark and CPS CEO Forrest Claypool.
“There’s approximately another month in the 99th General Assembly, and until that ends, I expect the state will fulfill its promise and keep its word, and provide the necessary funding for Chicago children,” Clark said at last week’s Board of Education meeting. “If for whatever reason the unthinkable occurs, we are prepared to deal with another amended budget at our next regular board meeting in late January.”
House speaker Michael Madigan had 15 days to try to override the veto — that’s until Friday — and hasn’t called his members back to the Capitol for a vote.
And now that the 15-day window has closed, Mayor Rahm Emanuel will turn his attention to the lame duck session in January before the new Illinois General Assembly is sworn in.
If that doesn’t work, the focus will shift to the spring legislative session, when the vote threshold will be lower. Instead of 71 votes in the Illinois House and 36 votes in the Senate needed to override the governor’s veto, the mayor will need just 60 votes in the House and 30 votes in the Senate.
“We’re confident the Legislature will address this issue — whether in January or in the spring session. They have acknowledged already that there is inequity when it comes to CPS,” said a top mayoral aide, who asked to remain anonymous. “We expect we’ll be able to work with them, finish the job and move forward. The leaders are meeting every day. We’re staying in touch. We’re confident it will get done.”
Although Rauner’s surprise veto blew a $215 million hole in a CPS budget that assumed state pension help, the Emanuel adviser noted that the wolf is not yet at the door.
That would happen on June 30, when CPS must make a state-mandated $700 million payment to the Chicago Teachers Pension Fund.
“If the money does not come through, we will have to cut the budget. But, we’re not tossing out drop-dead dates or setting artificial deadlines. We’re not gonna act irrationally because there’s still a lot of time to deal with this,” the mayoral aide said.
“It’s December. They’re coming back in January. And they’ll be in session in January and February. We passed a bill before. We can do it again,” the aide said. “The difference this time will be that people will actually be there. The problem we have is the calendar. It’s the holidays. Part of not being able to do an override is you’ve got to get everybody back to Springfield. That’s not easy to do.”
Chicago Democrats can’t predict what will happen, but State Sen. Kwame Raoul, D-Chicago, said he’s hopeful that money for CPS will be included in any sort of eventual agreement reached between Rauner and the leaders.
“You just heard the governor say we need to invest more in education,” Raoul said. “Well let’s first fundamentally get the money that should be there in the first place. And that’s that $215 million. When every other district in the state has the state paying its pension costs except for the city of Chicago, the biggest school district in the state and a district with high poverty levels, it’s unconscionable that we don’t act.”
State Sen. Jacqueline Collins, D-Chicago, said it’s “crucial” for CPS to get its pension funding, while warning that it’s the students who end up suffering amid the funding crisis and budget impasse.
“The students really suffer with all the machinations of adults and the misdeeds. It really impacts the children. It’s the children who we’ve lost our focus on,” Collins said. “Right now our kids are getting mixed up in the middle and they’re the ones getting trampled on.”