Chicago Public Schools’ financial crisis can again be fixed by state oversight
By 1980, financial mismanagement led Chicago Public Schools to lose its ability to borrow money, to miss multiple payrolls and vendor payments, and to drop deep into debt. The state stepped in with a financial oversight authority. It’s time to do that again.
Chicago Public Schools is facing down a financial crisis, looking at a $500 million budget deficit and more than $10 billion in new demands from the Chicago Teachers Union.
Yet Mayor Brandon Johnson refused to make cuts, instead proposing CPS take out a short-term, high-interest loan to cover the gap, even though CPS currently owes $9.3 billion in debt. He didn’t get his loan, so Johnson demanded CPS President Pedro Martinez resign. Instead, all seven of Johnson’s handpicked CPS board members resigned. Johnson then appointed replacements, leading to calls from aldermen for city council oversight over CPS appointments and even speculation from state lawmakers about the level of state oversight needed. If the school board does see state intervention, it would not be the first time.
CPS’ own history can act as a guide for dealing with its current crisis. CPS faced an even more dire financial situation in the past, and the state created the Chicago School Finance Authority to take over its finances. A reformed school finance authority could bring the stability and accountability the school board needs without resorting to increased debt or property taxes.
This is not the first financial crisis CPS has faced
Bad as it may seem, CPS faced an even worse situation in the leadup to 1980. Financial mismanagement brought on dropped credit ratings to the point where the district no longer had access to bond markets. The district missed payroll and vendor payments. The city had seen 9 teacher strikes in the preceding 20 years.
To address the crisis, the Illinois General Assembly passed the School Finance Authority Act, specifically directed at CPS. This bill created the Chicago School Finance Authority, made up of five board members: two members chosen by the governor with the approval of the mayor, two members chosen by the mayor with the approval of the governor, and one member jointly appointed by the governor and the mayor. The School Finance Authority was charged with approving CPS budgets, financial plans and contracts. It was authorized to levy its own property taxes and issue bond debt to finance CPS operations.
According to a professor at Northwestern University’s J. L. Kellogg Graduate School of Management and board member of the Chicago School Finance Authority, Donald Haider, the authority was able to keep CPS from agreeing to CTU contracts with dramatic raise spikes in the final year of the term. He also called the authority a “clear deterrent to make sure they not only balanced the budget but they didn’t give away the store in the out years.” The authority’s powers were reduced both in 1988 and 1995, although its responsibilities expanded to include independent management assessments and audits. By 1993 the school board managed a budget surplus. The authority continued until 2010 after all its debts and obligations had been discharged.
State oversight need not increase debt or taxes
While local decision-making is generally preferable to top-down control, the Chicago School Finance Authority provides a model that the state can look to amid CPS’ current financial woes. Reestablishing the entity in modified form could provide much needed oversight over the board’s finances and provide a check to the conflict of interest between Mayor Brandon Johnson and his former employers in the Chicago Teachers Union.
A reestablished School Finance Authority need not be as disruptive to Chicagoans as the 1980 intervention, either. It need not add yet another property tax hike on Chicagoans who already face the second-highest commercial property taxes and some of the highest residential property taxes in the nation.
Nor does it need to pile more debt onto residents, each of whom are already on the hook for nearly $43,000 in debt from the city according to a report by Truth In Accounting – the second most of the 75 cities reported. That does not include the $37,000 of state debt every Illinoisan is saddled with – the third most of any state in the country.
But a new authority could provide much needed accountability to the school board simply by being able to approve or reject budgets, financial plans and contracts. Just as the previous incarnation prevented raise spikes in the final year of the term of the contract, the new authority could prevent Johnson from endangering CPS’ fiscal health by giving his CTU allies their dream contract, as he seems poised to do.
And while the original appointment process that allowed the mayor and governor to have full veto power over each member of the board could be a recipe for deadlock given the disagreement between the two, lawmakers are not tied to doing things exactly like before. Checks and balances could ensure a smoother process. For example, a newly established authority could have the governor appoint members with approval from the state Senate and the mayor appoint members with the approval of the city council, with only one member jointly appointed by the mayor and the governor.
CPS is in a state of chaos, but it is not the first time. The city’s history provides a model for how to bring order to the school district’s finances. The state has successfully intervened before, and a reestablished Chicago School Finance Authority could provide stability without resorting to new property taxes or piling on debt to Chicago’s already overburdened residents.