Chicago Public Schools Fiscal Year 2015 Budget

How to use this site

Users will be able to find documents and use interactive tools to help them better understand the proposed CPS budget for fiscal year 2015. The interactive features allow users to easily click through the budget, drilling into specific budget line details or staying at a high level overview of the District.

Users can view a number of areas of the budget including revenue and debt while also looking at every CPS school and department. Each interactive report generates graphs and charts which will make budget comparisons visual and easier to understand.

Check out our Reader's Guide for more information.

Download your own copy of the FY15 Budget Book Summary.

CPS received the GFOA Distinguished Budget Presentation Award for our FY2014 online budget site.

Debt Management

Chicago Public Schools’ (CPS) Capital Improvement Program  each year funds a variety of investments such as  new schools, playgrounds, air conditioning, expanded bandwidth and new computers for improved access to technology, academic programs (career and technical education programs, for example), and core investments in our facilities to repair roofs, fix chimneys, replace or repair boilers and other mechanical systems. This is all done to ensure students have a high quality learning environment to support a high quality education.

CPS funds the Capital Improvement Plan, described in the Capital chapter, in part through the issuance of bonds. Bonds are debt instruments that are similar to a loan, requiring annual principal and interest payments. Most of these bonds are repaid from General State Aid. Since General State Aid is also a major revenue source for core academic priorities, we face a continuing challenge to balance the day-to-day classroom needs with the need for quality educational facilities. 

 

Debt Overview

The Board of Education currently has $6.4 billion of outstanding debt. FY15 includes appropriations of $525.7 million for existing alternate bonds and PBC payments and $78.1 million from the assigned fund balance for a total of $603.8 million in debt service fund appropriations. 

 

CPS continually reviews the affordability of its capital program, minimizes debt issuance costs, and monitors existing debt for any cost-saving opportunities as part of its efforts to meet budget challenges.

 

To minimize cost, CPS funds capital expenditures on an interim basis by utilizing available fund balance to the greatest extent possible, and then draws on a $300 million line of credit financing authorized in FY14. Once capital expenditures reach this threshold, CPS plans to sell fixed rate bonds to take out the line of credit. The timing of the fixed rate bonds depends on the timing of capital expenditures and market conditions. 

 

Debt Profile

CPS has established the following debt management goals to balance costs, risks, and liquidity needs:

 

  • To borrow at the lowest cost of funds balanced against acceptable risk levels
  • To maintain an appropriate allocation of debt products and to refinance existing debt when current market conditions are advantageous
  • To maintain strong credit ratings, which keeps interest rates lower
  • To fund a capital plan that balances the need for new construction with the affordability of additional debt issuance 

 

Types of Obligations

The Board is authorized by state law to issue notes and bonds and to enter into lease agreements for capital improvement projects. General Obligation bonds are a type of financing tool frequently used by local governments and school districts, which are typically repaid from a property tax levied specifically to repay those obligations. In addition to this property tax levy available to pay debt service, CPS uses non-property tax revenues to repay its bonds (e.g. General State Aid). With these revenues available to pay debt service, the property tax can be and is abated every year, which keeps the property tax burden low. As a result, CPS bonds have two dedicated revenue sources – property taxes and specific “Alternative Revenue,” which provide an additional layer of security for bondholders. In addition to the two revenue sources available to pay debt service, the bonds are supported by a general obligation pledge of the Board to repay debt service. The Board is authorized to issue Alternate Revenue General Obligation bonds after adopting a resolution and satisfying public notice publication and petition period requirements in lieu of a voter referendum, which is typical in other school districts.

 

The non-property tax revenues supporting CPS bonds are General State Aid, Personal Property Replacement Taxes, and revenues derived from intergovernmental agreements with the City of Chicago. The majority of CPS bonds are backed by General State Aid. No property taxes have been used to pay CPS-issued bonds, although the Public Building Commission (PBC), a local government entity which constructs schools, has in the past sold bonds which do rely on property tax levies. These PBC bonds are CPS’s responsibility and represent the only CPS obligations that rely solely on property tax levies. The FY15 budget includes $52 million in payments for principal, interest, and fees on these PBC bonds. 

 

CPS has benefitted from issuing certain types of bonds in which much of the interest costs are paid by the U.S. Government, resulting in a very low cost of borrowing for CPS. These include Qualified Zone Academy Bonds (QZABs), which provide capital funding for schools in high-poverty areas at reduced interest rates; Qualified School Construction Bonds (QSCBs); and Build America Bonds (BABs). The American Recovery and Reinvestment Act of 2009 created two types of bonds that CPS was able to take advantage of: QSCBs, bonds that only school districts could sell and provided some of the lowest interest cost financing CPS has ever achieved; and BABs, bonds available to school districts and other governments that provide a substantial subsidy. The FY15 budget includes $25 million of federal subsidies for debt service.

 

Finally, when available, CPS uses state revenues to pay its bonds. CPS receives state revenue for school construction through the state’s Capital Development Board (CDB).  In the current FY15 budget, CPS projects it will receive approximately $59.2 million in CDB funds which will be used to fund debt service costs.

 

Additionally, as a result of the passage of recent legislation (PA 98-0018), CPS received approximately $31.7 million in FY14 from the State School Infrastructure Fund, funded from gaming revenues. CPS anticipates it will continue to receive approximately $13.3 million annually. All revenues will be applied toward the funding of new school construction, mostly through a bond financing. 

 

FY15 Debt Service Costs for All Obligations

As shown in the table below, FY15 includes appropriations of $525.7 million for existing alternate bonds and PBC payments and $78.1 million from the assigned fund balance (Debt Service Stabilization Fund, described below) for a total of $603.8 million in debt service fund appropriations.

 

CPS is required to set aside debt service nine months to one year and a half prior to the actual date that payments are due to bondholders. The deposit occurs in February for the payment of debt service starting April of that year through March of the following year. These payments are held in trust with an outside trustee, as required by the bond indentures. Therefore, the FY15 revenues going into the Debt Service Funds represent the amount that is to be set aside for these future debt payments. 

 

In contrast, the majority of the appropriations for FY15 represent the amount to be paid during FY15 from revenues set aside in the prior year. Therefore, CPS has varied from a more traditional presentation of Revenues, Appropriations, and Net Change in order to illustrate current year revenues supporting future year spending. The more relevant presentation is the flow of funds into and out of the Debt Service Funds in FY15, as detailed in Table 1 (below).  

 

Table 1 provides information on the debt service fund balance at the beginning of the year, the expenditures that are made from the debt service fund, and the revenues that are deposited to the fund largely to fund the debt service requirements for the following fiscal year. 

 

Table 1: FY13 - FY15 Summary of Revenues Set Aside and Appropriations for Debt Service Funds
(In Millions)

 

FY13 Actual

FY14 Estimated

FY15 Budget

 Beginning Restricted Fund Balance

338.2

466.9

485.1

 

 

 

 

Fund Outflows:

 

 

 

Appropriations

 

 

 

   Existing Bond Principal payment

73.4

148.3

154.7

   Existing Bond Interest payment

304.8

332.1

367.9

   Total Existing Bond Debt Service

378.2

480.4

522.6

   Fees

12.2

3.7

3.1

Total Appropriation for Debt Service Funds

390.4

484.1

525.7

 

 

 

 

Total  Transfers In/(Out)

(14.2)

49.8

73.6

Fund Inflows:

 

 

 

Revenues

 

 

 

   Property Taxes

53.8

52.0

55.2

   PPRT

57.7

57.0

56.2

  General State Aid

149.5

120.1

191.3

   State Capital Reimbursement

60.0

54.1

59.2

   Other Local (City IGA and Interest Earnings)

104.5

97.1

97.0

   Federal Interest Subsidy

26.2

24.5

24.7

Total Revenue

451.7

404.8

483.6

 

 

 

 

Other Financing Sources (capitalized interest, bond premium):

81.6

47.7

22.5

 

 

 

 

 Revenue Recognition

 

 

42.6

Ending Restricted Fund Balance

466.9

485.1

581.7

 

 

 

 

 

As a part of the FY15 budget, a change in the Board’s revenue recognition period from 30 days to 60 days is being proposed. This change would mean approximately $43 million of revenues property tax revenues as well as IGA revenues from the City will be added to fund balance. The full impact of revenue recognition is more fully described in the Fund Balance Statement as well as Appendix D (Financial Policies). 

 

Debt Service Stabilization Fund

In addition to the presentation on Debt Service Funds, we are also presenting a separate table showing the use of the Debt Service Stabilization Fund (DSSF). The DSSF is used for multiple purposes, including acting as a reserve for unexpected debt payments and a revolving fund to provide liquidity for debt financing activities. For example, the DSSF provides a cushion for an unexpected rise in interest rates on variable rate bonds. It will also be used in FY15 to help support the line of credit established in FY14 as described above. When the line of credit has been repaid from fixed rate bonds, the amount set aside for the line of credit will be returned to the DSSF. Because of this, we have labeled some of the appropriations from this fund as “Revolving.”  

 

In addition, there are appropriations that represent actual expenditures and will be a permanent draw down of the funds. These are shown separately as “Expended.” This includes $54 million that will be used for debt service payments that otherwise would have be paid from General State Aid. This increases the amount of GSA that is available in FY15 for the Operating Budget.   

 

The DSSF is not a traditional bond-funded debt service reserve fund. It is not a fund established under any bond documents and there are no bond requirements associated with this fund. It is an additional internal fund managed by the Board to provide additional funding for various debt and liquidity needs as they arise, as discussed above.  

 

Table 2: Debt Service Stabilization Fund (DSSF) Presentation
(In Millions)

 

 

FY13 Actual

FY14 Estimated

FY15 Budget

Beginning Fund Balance

255.0

269.2

219.4

 

 

 

 

Revenues

   21.8

19.0

    13.9

 

Appropriations

 

 

 

  Revolving

2.6

   9.7

          22.1

  Expended

5.0

59.1

          65.4

 Total Appropriations

           7.6

68.8

       78.1

Transfer Out

 

 

9.4

 

 

 

 

Ending Fund Balance

      269.2

      219.4

     145.8

 

Long-Term Fiscal Challenges

GSA and PPRT revenues needed to pay bondholders are in direct competition with resources needed to ensure we continue to fund priorities that drive academic achievement. GSA and PPRT revenues needed to fund debt increases significantly – from $247 million in FY15 to $434 million by FY17, and it stays at approximately that level through 2030.

 

The graph below shows the debt service payments for currently outstanding bonds only; this graph does not show the impact of any future bonds required to support future capital budgets.

 

*Does not include future capital project bond financings.

 

Measuring Debt Burden

External stakeholders such as taxpayers, unions, parents, government watchdog groups, rating agencies, and bondholders frequently review CPS’s debt profile to gauge its size and structure as a crucial component of CPS’s financial position. In addition to evaluating the total amount of debt outstanding and the annual debt service payments, those evaluating CPS’s financial picture also look at our “debt burden.” The purpose is to gauge how much taxpayers bear in debt costs and determine how much debt is affordable for residents, which establishes true debt capacity. Several methods of measuring debt burden are commonly employed for school districts; these include comparing existing debt to legal debt limits, measuring debt per capita and measuring debt as a percentage of operating expenditures. 

 

Legal Debt Limit

The Illinois School Code imposes a statutory limit of 13.8 percent on the ratio of the total outstanding property tax-supported debt that a school district may borrow compared with a school district’s equalized assessed value, which generally represents a fraction of total property value in the district. Because the Board has issued alternate revenue bonds for which property tax levies are not extended, these bonds do not count against the legal debt limit imposed by the Illinois School Code. Therefore, total property tax supported debt was extremely low, less than 1 percent of the legal debt limit.

 

Debt Per Capita

The Board’s per capita debt burden, or total debt divided by the City of Chicago’s population, has increased in the last decade. As reported in the FY13 Comprehensive Annual Financial Report, debt per capita reached $2,248. This is considered moderate to slightly above average relative to other comparable school districts.

 

Debt as a Percent of Operating Expenditures

Another way of measuring the total debt burden is by dividing annual debt service expenditures by operating fund expenditures. Based on this method, the debt burden for FY14 and FY15 are estimated at 8.8 and 8.2 percent of total operating expenditures respectively, reflecting the increased debt burden as a result of recent bond issues.

 

*Does not include future capital project bond financings.

 

Debt Management Policy and Credit Ratings

The Debt Management Policy of CPS provides guidance for debt management as well as capital planning and supports the Board’s ability to manage its debt in a conservative and prudent manner. One of the goals of the policy is to ensure that CPS maintains the highest possible credit rating from the three credit agencies. These agencies are independent entities and their purpose is to give investors, or bondholders, an indication of the creditworthiness of a government entity. A high credit score can lower the cost of debt issuance, much the same way a strong personal credit score can reduce the interest costs of loans and credit cards. Ratings consist of a letter “grade,” such as AA or A, and a credit “outlook,” or expectation of the direction of the letter grade. Thus, a “negative outlook” anticipates a downgrade to a lower letter grade, a “stable outlook” means the rating is expected to remain the same, and a “positive outlook” may signal an upgrade to a higher, better rating.

 

CPS meets frequently with the credit rating agencies about its budget, audited financial results, debt plan, and management initiatives to ensure the agencies have the most updated information possible. The primary rating factors for CPS concern management, debt profile, financial results, and economic and demographic factors.

 

CPS’s current credit ratings from Standard and Poor’s, Fitch Ratings and Moody’s Investor Service are A+, A-, and Baa1 respectively. Since the FY14 Budget, Moody’s Investor Service and Fitch Ratings have both downgraded CPS’s ratings and both hold a negative outlook. The rating agencies have commented on CPS’s weakened financial profile, highlighted by a sizeable budget gap for FY15, overlapping debt burden and leverage of property tax base, reduced fund balances, and an impending spike in pension payments. Just as a high credit rating can mean lower borrowing costs, deterioration in credit rating will increase interest expenses. 

 

Tools to Manage Debt Portfolio.

As part of the Debt Management Policy, CPS is authorized to use a number of tools to manage its debt portfolio. Some of the tools and techniques employed are refunding of existing debt, using derivative instruments, issuing fixed or variable-rate bonds, and issuing short-term or long-term debt. These tools are used to manage various types of risks, generate cost savings, and assist with capital asset planning. 

 

Typically, CPS issues fixed-rate bonds which pay a set, agreed-upon interest rate according to a schedule established at the time of debt issuance. However, about 20 percent of CPS’s debt is variable rate, which means that the interest rate is not set and can fluctuate.  The interest rate on variable rate debt is often lower than what can be achieved in a fixed rate market, but the rate can be highly volatile.

 

An interest rate swap is an agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. The Board’s swaps generally convert the variable rate paid to bondholders to a fixed rate through the exchange of interest payments with its counterparties. CPS only enters into transactions with a highly rated, credible, and diverse group of counterparties. 

 

The average rate on the CPS swap portfolio is approximately 4.60 percent. This cost of capital is attractive as compared to the fixed rates that were available at the time the swaps were executed. The swaps have served as an effective financial tool to lower CPS’ debt costs as well as mitigate interest rate risk. 

 

A copy of the Debt Management Policy is available on the Board’s website at http://policy.cps.k12.il.us/download.aspx?ID=42  

 

OUTSTANDING DEBT
as of June 30, 2014

Debt Outstanding

Chicago Public Schools

Closing
Date

Maturity
Date

Principal
Outstanding

Pledged Funding Source for Debt Service

PBC Series A of 1992

1/1/1992

1/1/2020

146,025,000

Property Tax

PBC Series B of 1999

3/1/1999

12/1/2018

86,915,000

Property Tax

Unlimited Tax G.O. Series 1997A*

12/3/1997

12/1/2030

17,244,992

IGA / PPRT

Unlimited Tax G.O. Series 1998B-1*

10/28/1998

12/1/2031

266,258,750

IGA / PPRT

Unlimited Tax G.O. Series 1999A*

2/25/1999

12/1/2031

436,839,119

IGA / PPRT

Unlimited Tax G.O. Series 2000BC D

9/7/2000

3/1/2032

91,400,000

State Aid

QZAB Series 2001B

10/24/2001

10/23/2015

9,440,000

State Aid

Unlimited Tax G.O. Series 2002A

9/24/2002

12/1/2022

34,820,000

IGA

QZAB Series 2003C

10/28/2003

10/27/2017

4,585,000

State Aid

Unlimited Tax G.O. Refunding, Series 2004A

4/6/2004

12/1/2020

186,580,000

PPRT / State Aid

Unlimited Tax G.O. Series 2004G

12/1/2004

12/1/2022

11,195,000

IGA

Unlimited Tax G.O. Series 2005AB

6/27/2005

12/1/2032

186,490,000

PPRT / State Aid

QZAB Series 2006A

6/7/2006

6/1/2021

6,852,800

State Aid

Unlimited Tax G.O. Series 2006B

9/27/2006

12/1/2036

305,875,000

State Aid

Unlimited Tax G.O. Series 2007B

9/4/2007

12/1/2024

197,765,000

IGA / PPRT

Unlimited Tax G.O. Series 2007C

9/4/2007

12/1/20

4,915,000

IGA / PPRT

Unlimited Tax G.O. Series 2007D

12/13/2007

12/1/2029

187,375,000

State Aid

Unlimited Tax G.O. Series 2008A

5/13/2008

12/1/2030

262,785,000

IGA / PPRT

Unlimited Tax G.O. Series 2008B

5/13/2008

3/1/2034

200,775,000

State Aid

Unlimited Tax G.O. Series 2008C

5/1/2008

12/1/2032

464,655,000

State Aid

Unlimited Tax G.O. Series 2009D

7/29/2009

12/1/2022

52,465,000

State Aid

Unlimited Tax G.O. BAB Series 2009E

9/24/2009

12/1/2039

518,210,000

State Aid/Federal Subsidy

Unlimited Tax G.O. Series 2009F

9/24/2009

12/1/2016

12,325,000

State Aid/Federal Subsidy

Unlimited Tax G.O. QSCB Series 2009G

12/17/2009

12/15/2025

254,240,000

State Aid

Unlimited Tax G.O. QSCB Series 2010C

11/2/2010

11/1/2029

257,125,000

State Aid

Unlimited Tax G.O. BAB Series 2010D

11/2/2010

12/1/2040

125,000,000

State Aid

Unlimited Tax G.O. Refunding Series 2010F

11/2/2010

12/1/2031

183,750,000

State Aid

Taxable Unlimited Tax G.O. Refunding Series 2010G

11/2/2010

12/1/2017

64,575,000

State Aid

Unlimited Tax G.O. Series 2011A

11/1/2011

12/1/2041

402,410,000

State Aid

Unlimited Tax G.O. Refunding Series 2011C-1

12/20/2011

3/1/2032

49,200,000

State Aid

Unlimited Tax G.O. Refunding Series 2011C-2

12/20/2011

3/1/2032

44,100,000

State Aid

Unlimited Tax G.O. Refunding Series 2011D

12/16/2011

3/1/2032

91,200,000

State Aid

Unlimited Tax G.O. Series 2012A

8/21/2012

12/1/2042

468,915,000

State Aid

Unlimited Tax G.O. Series 2012B

12/21/2012

12/1/2035

109,825,000

State Aid

Unlimited Tax G.O. Series 2013A-1

5/22/2013

3/1/2026

114,920,000

State Aid

Unlimited Tax G.O. Series 2013A-2

5/22/2013

3/1/2035

124,320,000

State Aid

Unlimited Tax G.O. Series 2013A-3

5/22/2013

3/1/2036

157,055,000

State Aid

Unlimited Tax G.O. Series 2013BC

12/20/13

n/a

300,000,000

State Aid

Total Principal Outstanding

 

 

6,435,425,661

 

*Excludes accreted interest accrued on 0% coupon capital appreciation bonds.

 

 

SCHEDULE OF DEBT SERVICE REQUIREMENTS TO MATURITY*

as of June 30,2014
($ in Thousands)

Fiscal Year Ending June 30

 

Total Existing General Obligation Bond Principal

Total Existing General Obligation Bond Interest

 

Total Existing G.O. Bond Debt Service

 

 PBC Leases

 

TOTAL

  2015

 

         118,237

           300,348

 

           418,585

 

52,029

 

       470,614

  2016

 

         161,191

           297,765

 

           458,956

 

51,997

 

       510,953

  2017

 

         157,518

           294,127

 

           451,645

 

52,020

 

       503,664

  2018

 

         172,767

           279,310

 

           452,077

 

52,069

 

       504,147

  2019

 

         178,875

           273,291

 

           452,166

 

52,099

 

       504,265

  2020

 

         191,621

           280,994

 

           472,615

 

30,636

 

       503,250

  2021

 

         216,950

           289,422

 

           506,372

 

 

 

       506,372

  2022

 

         203,398

           282,868

 

           486,266

 

 

 

       486,266

  2023

 

         212,098

           276,091

 

           488,189

 

 

 

       488,189

  2024

 

         216,997

           265,097

 

           482,094

 

 

 

       482,094

  2025

 

         225,483

           256,984

 

           482,467

 

 

 

       482,467

  2026

 

         502,773

           245,462

 

           748,235

 

 

 

       748,235

  2027

 

         258,915

           232,581

 

           491,496

 

 

 

       491,496

  2028

 

         268,245

           221,440

 

           489,685

 

 

 

       489,685

  2029

 

         227,667

           264,017

 

           491,684

 

 

 

       491,684

  2030

 

         491,232

           247,862

 

           739,094

 

 

 

       739,094

  2031

 

         270,124

           230,538

 

           500,662

 

 

 

       500,662

  2032

 

         235,915

           264,323

 

           500,238

 

 

 

       500,238

  2033

 

         106,205

  84,182

 

           190,387

 

 

 

       190,387

  2034

 

         127,605

  78,225

 

           205,830

 

 

 

       205,830

  2035

 

         118,675

  71,815

 

           190,490

 

 

 

       190,490

  2036

 

         126,070

  65,560

 

           191,630

 

 

 

       191,630

  2037

 

         124,600

  58,913

 

           183,513

 

 

 

       183,513

  2038

 

         149,460

  51,368

 

           200,828

 

 

 

       200,828

  2039

 

         157,890

  42,697

 

           200,587

 

 

 

       200,587

  2040

 

         166,800

  33,606

 

           200,406

 

 

 

       200,406

  2041

 

         176,070

  24,076

 

           200,146

 

 

 

       200,146

  2042

 

         185,860

  14,473

 

           200,333

 

 

 

       200,333

  2043

 

         195,275

     4,882

 

           200,157

 

 

 

       200,157

 

 

 

 

 

 

 

 

 

 

 

 

$5,944,516

$5,332,317

 

$11,276,833

 

$290,849

 

$11,567,682

*Excludes 2013BC line of credit bonds anticipated to be refinanced with fixed rate bonds in FY2015 as described in Debt Overview section.

 

Page Last Modified on Thursday, August 28, 2014