Chicago Schools Take $400 Million Advance From Revolving Credit Facility

Chicago Public Schools (CPS) has taken a significant step to address its financial challenges by securing a $400 million advance from its revolving credit facility. This move, while providing much-needed liquidity, raises concerns about the district's long-term financial stability and creditworthiness. This article explores the implications of this decision and its potential impact on Chicago's overall credit rating and borrowing costs.



CPS faces a daunting financial landscape, with a projected $1 billion deficit in 2025, the largest since the pandemic. The district is also grappling with a surprise gap this year after the school system refused to pay a pension bill, further straining its finances. The city's financial disrepair has already impacted the business community, with entrepreneurs like Pete Kadens warning that the turmoil in the district could undo gains made in attracting businesses to Chicago.

The FY2025 budget, totaling $9.9 billion, represents a temporary solution to a long-term structural financial problem. The plan manages to close a $505 million budget deficit through operational reductions and efficiencies, without resorting to irresponsible fiscal practices like issuing debt to fund operations or depleting reserves. However, the budget remains incomplete, contingent upon outstanding collective bargaining negotiations and a decision on how much CPS will reimburse the City of Chicago for non-teacher employee pensions.

The Civic Federation, in their analysis of the FY2025 proposed budget, warns that such a long-term debt financing plan would add to the District's future costs and increase the likelihood of a credit rating downgrade, thereby increasing borrowing costs and undoing much of the fiscal progress the District has made over the past several years to get back to investment-grade status.



The ongoing negotiations with the Chicago Teachers Union (CTU) and the need for additional state funding significantly impact the district's ability to meet its financial obligations and maintain educational quality in the coming years. The CTU negotiations are estimated to cost CPS an additional $128 million, which will require an amendment to the FY2025 budget later this year. This cost, along with the CPS portion of the contribution to the Municipal Employees’ Annuity and Benefit Fund (MEABF), could lead to a long-term debt financing plan, increasing the district's debt and future costs.

CPS is still only funded at 81% of adequacy based on the state's Evidence-Based Funding (EBF) formula. The district projects annual shortfalls topping $500 million in 2026 and 2027, which could be exacerbated by the absence of federal pandemic relief funds. Additional state funding is crucial to address these shortfalls and maintain educational quality.

In conclusion, while the $400 million advance from the revolving credit facility provides much-needed liquidity for CPS, it also raises concerns about the district's long-term financial stability and creditworthiness. The ongoing negotiations with the CTU and the need for additional state funding further complicate the district's ability to meet its financial obligations and maintain educational quality in the coming years. Addressing these challenges requires a comprehensive, long-term plan that includes revenue options, cost-cutting measures, and increased state support.