To Save CPS from ‘Catastrophe,’ Watchdog Urges New School Board to ‘Right-Size’ CPS Finances

A Stark Financial Reality Awaits the New Board

Just two days before a new Chicago school board is sworn in, a report is laying out the stark financial challenges members will face and recommends the board make cuts to staff and operations while advocating for the state to help take on some costs.

The Financial Challenges Ahead

The report by the Civic Federation, a prominent government fiscal watchdog, sets the stage for incoming board members by identifying several areas causing fiscal turmoil: staffing increases, declining enrollment, underutilized and aging buildings, high debt costs, and chronic underfunding.

The COVID Relief Money is Running Out

Since 2021, the school district’s financial difficulties have been masked by $2.8 billion in federal COVID relief money, much of which went to beef up staffing. That money runs out this year. The district is now facing yearly deficits of at least $500 million before factoring in the added costs of the Chicago Teachers Union contract, which is being negotiated. The report warns against taking on additional “obligations,” such as promises to increase staff or provide raises, through an expensive teachers contract.

The Consequences of Mishandling the Crisis

The Civic Federation warned of dire consequences if this troubling period is mishandled, even as the financial picture for Chicago Public Schools is better than it was a decade ago. This could include a state “takeover” of CPS’ financial management that “is not and should not be out of the question.” Still, the Civic Federation wrote that would be a “drastic response, which could stabilize the district but harm its reputation.”

A Combination of Budget Cuts and State Funding Could Avoid the Worst-Case Scenario

The state historically has only taken over school districts when they are at the brink of bankruptcy. The report also said a combination of budget cuts, coupled with more state funding, could avoid a “worst-case scenario” in which the financial outlook worsens to the point that CPS loses access to borrowing, which in the past has triggered a state “takeover.”

A State Takeover is Not the Only Option

Ferguson said the state may want to provide additional oversight if it provides more money, noting that state involvement could take many forms. “It can be calibrated to whatever scope of responsibility or power that might be needed,” he said. But the state will need “guard rails that assures that money will be well used, and that things will proceed in a fiscally responsible manner.”

A Growing Fund Balance and Increased State Funding Provide a Ray of Hope

Despite the dire warning, CPS also has positives. Its fund balance has grown from a negative balance in 2016-17 to $1.2 billion this year, as noted in the report. And the state has been increasing education funding every year since 2018, though not to the level the state says CPS needs.

The Path Forward

The report concludes that the new school board must focus on right-sizing district personnel and operations to align with the student population and facility needs based on the level of fiscal resources available. The Civic Federation recommends that the board make cuts to staff and operations while advocating for the state to help take on some costs.

FAQs

* What is the main concern of the report?
The report warns that CPS is facing a financial crisis due to staffing increases, declining enrollment, underutilized and aging buildings, high debt costs, and chronic underfunding.

* What is the recommendation of the report?
The report recommends that the new school board make cuts to staff and operations while advocating for the state to help take on some costs.

* What are the consequences of mishandling the crisis?
The consequences of mishandling the crisis could include a state takeover of CPS’ financial management, which could stabilize the district but harm its reputation.

* What are the positives for CPS?
CPS has a growing fund balance and increased state funding, which provides a ray of hope for the district’s financial future.