Chicago Public Schools FY2022 Proposed Budget: Analysis and Recommendations

Click here to read the full report (PDF).
Click here to read the press release for this analysis.

SUMMARY

The Civic Federation supports the Chicago Public Schools (CPS) proposed budget of $9.3 billion for FY2022 because it is balanced and supported by federal COVID-19 relief funding. CPS, along with all other state and local government agencies in the United States, has for the past year endured a once-in-a-century crisis and pandemic and related economic and educational disruption. Despite the challenges brought on by COVID-19, the CPS budget is making strides toward structural balance and has laid out plans for investments that will directly address the needs of students most impacted by the pandemic. However, the budget represents an increase of 10.8%, or $907.1 million, over last year’s budget and the Federation is concerned about the District’s ability to support new investments and the overall long-term sustainability of CPS’ budget after federal relief funds expire in 2024.

The Federation is pleased that the federal government provided the support necessary to mitigate the impacts of the COVID-19 pandemic for school districts and state and local governments. Federal pandemic relief funding of $1.06 billion included in this year’s proposed budget will enable CPS to address learning loss, return to in-person learning and make investments in programs that will help the students most impacted by the school closures and other disruptions caused by the pandemic. Last year, CPS adopted a budget that relied on $343 million in unappropriated federal funding. Now that this federal funding has come through, Chicago Public Schools and school districts and local governments nationwide are in better financial shape. 

Despite the federal funding surge, however, Chicago Public Schools still has major long-term budget issues that need to be addressed:

• Spending and personnel continue to increase with no apparent cost containment strategies;
• Student enrollment continues to decline, with the largest drop in recent years occurring in 2021 due to the pandemic. The enrollment losses in certain areas of the city and increases in others have resulted in building utilization imbalances;
• The District is still heavily reliant on short-term borrowing because reserve levels are not substantial enough to cover periods of low cash flow due to revenue timing; and
• The District’s underfunded teachers’ pensions continue to be a source of concern as they draw more property tax and general fund revenue to make up for past underfunding and inequitable funding from the State of Illinois.

All of these trends are occurring with no public long-term financial plan outlining how the District plans to address its challenges going forward. The Civic Federation is encouraged that the District’s financial position has improved, but urges the Board of Education to put spending controls in place and plan for long-term financial sustainability, especially ahead of a 21-member elected school board taking over governance of the District, to be phased in beginning in 2025.

The Civic Federation offers the following key findings from Chicago Public Schools’ FY2022 Proposed Budget:

• The FY2022 proposed total spending plan for all funds of $9.3 billion is an increase of 10.8%, or $907.1 million, from the FY2021 adopted budget of $8.4 billion.
• Proposed FY2022 appropriations for general operating purposes of $7.8 billion are an increase of 13.1%, or $905.6 million, above the FY2021 operating budget of $6.9 billion.
• The FY2022 proposed capital budget of $706.6 million is a decrease of 6.8% from the prior year. The debt service budget of $763.4 million represents an increase of 7.4%, or $52.9 million, from the FY2021 adopted budget.
• The FY2022 proposed budget is supported by $2.1 billion in federal funding, which is an increase of $771.2 million, or 57.7%, over the prior year. This includes $1.06 billion in ESSER II and III pandemic relief funds for school districts.
• Property tax revenue is projected to increase by 3.5%, or $114.1 million, over the prior year budget to $3.7 billion in FY2022.
• CPS is budgeting for a total of 41,756.1 Full-Time Equivalent (FTE) positions in FY2022. This is an increase of 2,016.9 FTEs, or 5.1%, from 39,739.2 FTEs budgeted in FY2021.
• Salary expenses will increase in FY2022 from the prior year budget by $169.0 million, or 5.8%. Benefit expenses are expected to increase by $41.9 million or 3.1%. However, it is important to note that these salary and benefit estimates do not reflect new programmatic investments that the District will support students impacted by the pandemic because much of those funds are held in contingency until the District is ready to procure services and hire staff.
• Student enrollment has declined by 15.7%, or 63,433 over the past ten years, from 404,151 in FY2012 to 340,658 in FY2021. Over the ten-year period, preschool enrollment has declined by 12,738, or 52.62%, K-8 enrollment has declined by 42,079, or 15.8%, and high school enrollment has declined by 8,676, or 7.6%.
• CPS will again rely on short-term borrowing through Tax Anticipation Notes (TANs), but the reliance on TANs has decreased from $1.55 billion in FY2017 to $900 million in FY2022. The budgeted interest cost for short-term borrowing in FY2022 is $12 million.
• The District’s long-term debt increased by 38.1% in the ten years from FY2011 through FY2020, with $7.2 billion in long-term debt (principal only) outstanding as of June 30, 2020;
• CPS is required to contribute $944.7 million to the Chicago Teachers’ Pension Fund in FY2022. The State of Illinois will cover $277.5 million of that amount, including $264.8 million to cover the normal cost and retiree healthcare plus an additional statutorily required contribution of $12.6 million. Approximately $43.8 million of the CPS contribution will be covered by the dedicated property tax levy for teachers’ pensions. The remaining $203.5 million will come out of CPS’ operating budget; and
• The Chicago Teachers’ Pension Fund was 46.7% funded on an actuarial basis as of June 30, 2020, compared to 59.9% funded ten years prior. The Pension Fund had an Unfunded Actuarial Accrued Liability of $12.8 billion as of June 30, 2020, compared to $6.8 billion ten years prior.

The Civic Federation supports several aspects of the District’s current financial position and Board procedures:

• Federal relief funding provided to CPS and other governments in response to COVID-19 pandemic;
• Continued improvement in structural budget balance, including improved level of operating reserves and improved liquidity; and
• The District has revised its Fund Balance Policy from 2008.

The Civic Federation has the following concerns about the CPS FY2022 Proposed Budget and financial situation:

• Sustainability of increased spending levels in the FY2022 budget and beyond;
• Personnel levels and expenditures are increasing amid continued declines in enrollment without a public long-term financial plan;
• The District continues to rely on short-term borrowing;
• The Civic Federation is concerned about a 21-member elected school board to be phased in beginning in 2025; and
• The District has not issued a five-year Capital Improvement Plan in several years.

The Civic Federation makes the following recommendations to Chicago Public Schools and the Chicago Board of Education:

• Develop a long-term financial plan;
• Issue a five-year capital improvement plan and provide more detail about project prioritization in the one-year capital plans;
• Address issues with the 21-member school board legislation before it goes into effect;
• Include expenditures and personnel sections in the budget book;
• Include actual revenues in the budget book;
• Extend the time period for review of the proposed budget before the public hearings and Board vote;
• Work to eliminate the remaining pick-up for non-teacher, union members of the City of Chicago Municipal Pension Fund; and
• Work with the State to consolidate the Chicago Teachers’ Pension Fund with the Teachers’ Retirement System in order to achieve more equitable State pension funding.

Click here to read the full report (PDF).
Click here to read the press release for this analysis.