Chicago Public Schools (CPS) does not receive revenues when it pays expenses. As a result, CPS’ cash flow experiences peaks and valleys throughout the year, depending on when revenues and expenditures are received and paid. Further, revenues are generally received later in the fiscal year, while expenditures, mostly payroll, are level across the fiscal year––with the exception of debt service and pensions. The timing of these two large payments (debt service and pensions) occur just before major revenue receipts. These trends in revenues and expenditures put cash flow pressure on the District.
Over the past five years, CPS has reduced its short-term borrowing by approximately $750 million. The District continued to make progress on improving its cash flow by projecting no Tax Anticipation Notes (TANs) outstanding at the end of the fiscal year, decreasing the maximum TANs outstanding throughout the year by $150 million, increasing the number of months without TANs outstanding from 2 months to over 4 months, and saving approximately $9 million in short-term interest costs.
In FY2022, approximately $4.6 billion, or 68 percent of CPS’ current year revenues, excluding non-cash items, were received after February - more than halfway into the fiscal year. The annual debt service payment is made in mid-February, just prior to the receipt of approximately $1.4 billion of the first installment of property tax revenues. The annual Chicago Teachers’ Pension Fund (CTPF) pension payment is made in late June, just before CPS receives approximately $1.3 billion of the second installment of property taxes.
Historically, approximately 56 percent of the Chicago Board of Education’s budgeted expenditures are for payroll and associated taxes, withholding, and employee contributions. In addition, the Board’s recurring expenses for educational materials, charter school payments, health care, transportation, facilities, and commodities total approximately 34 percent of the Board’s budgeted expenditures. The timing of these payments is relatively predictable and spread throughout the fiscal year. Approximately 10 percent of budgeted revenues, which flow through the operating account, comprise debt service, annual pension payments, and interest on short-term debt.
Most organizations set aside reserves in order to weather these peaks and valleys in cash flow. The Board’s fund balance policy is to maintain reserve levels of fifteen percent of spending. As of June 30, 2022, the District projects that the general fund balance will total $1.03 billion and that CPS projects no TANs outstanding.
Revenues
CPS has three main sources of operating revenues: local, state, and federal.
- Local Revenues: Local revenues are largely made up of property taxes. In FY2022, CPS will receive approximately $3.37 billion of property taxes, of which $2.8 billion was issued to the Board’s operating fund, $464 million was distributed to the CTPF through the pension levy, and $51 million is allocated to capital projects through the Capital Improvement Tax levy. The Board receives property tax revenues in two installments, 96 percent of which are received from February onwards, over halfway through the fiscal year. The first installment of approximately $1.4 billion was due March 1 and was received into the main operating account in late February or March. The second installment of approximately $1.3 billion is anticipated to be received past July or August, depending on the deadline. In FY2021, the second installment tax penalty date was moved to October 1, 2022, which caused some property tax receipts to be delayed by approximately 60 days. Property tax receipts have grown from $2,352 million in FY2012 to a projected $3,374 million in FY2022—a compounded growth rate of 3.3 percent.
- State Revenues: State revenues largely comprise Evidence-Based Funding (EBF) and state grants. EBF is received regularly from August through June in bi-monthly installments. In FY2022, EBF totaled approximately 71 percent of the state revenues budgeted by CPS, up from 57 percent in FY2017 before EBF was created. This increase improves cash flow due to the consistency of the payments. Block grant payments are distributed sporadically throughout the year with the majority of them being received before June 30th.
- Federal Revenues: The state administers categorical grants on behalf of the federal government once grants are approved. As of June 1, 2022, CPS has received approximately $557 million in ESSER revenues in FY2022. Approximately 72 percent of this revenue was received before January 1, 2022.
- Working Capital Short-Term Borrowing: The District has the ability to issue short-term borrowing in order to address liquidity issues. Short-term borrowing allows the Board to borrow money to pay for expenditures when cash is not available, and then repay the borrowing when revenues become available. State statute provides CPS with the ability to issue this type of cash flow borrowing through TANs. In FY2022, CPS issued a maximum of $800 million in TANs to support liquidity. As of June 30, 2022, it is projected that no TANs are outstanding compared to $244 million outstanding in FY2021, a decrease of $244 million. This improvement was caused through a combination of factors including a higher fund balance, federal stimulus revenues, and other timing of revenues and expenditures. TANs are repaid from the District’s operating property tax levy. To support liquidity in FY2023, CPS is prepared to issue TANs against the second installment property taxes as the need arises. This will allow the Board to maintain liquidity despite the uncertainty of the timing of the property tax revenues. Short-term borrowing requires that CPS pays interest on these bonds. In FY2023, the Board budgeted approximately $9 million in interest costs for the TANs.
Expenditures
CPS expenditures are largely predictable, and the timing of these expenditures can be broken down into three categories: payroll and vendor, debt service, and pensions.
- Payroll and Vendor: Historically, approximately $3.8 billion of CPS’ expenditures are payroll and associated taxes, withholding, and employee contributions. These payments occur every other week, and most of the expenditures are paid from September through July. Approximately $2.4 billion of CPS vendor expenses are also relatively stable across the year.
- Debt: Long-Term debt service is deposited into debt service funds managed by independent bond trustees. These debt service deposits are backed by EBF and are deposited once a year. In FY2022, the debt service deposit from EBF was approximately $480 million in mid-February. The timing of this debt service deposit comes just before CPS received approximately $1.4 billion in property tax revenues. The remainder of the bonds are paid by personal property replacement taxes and/or property taxes that are deposited directly with the trustee, meaning they do not pass through the District’s operating fund from a cash perspective. The timing and amount of these payments are dictated by the bond documents. Once the trustees have verified that the debt service deposit is sufficient, they provide a certificate to the Board which allows the Board to abate the backup property tax levy that supports the bonds.
- Pensions: In FY2021, approximately $65 million of the pension payment was made on June 30, 2021, while approximately $14 million of the pension payment was made previously during FY2021. The timing of the bulk of the pension payment comes just before CPS receives approximately $1.4 billion in property tax revenues. In FY2022, a dedicated pension levy will directly intercept $464 million in revenue to the CTPF—these revenues do not pass through the District’s operating funds from a cash perspective. The dedicated pension levy plus the state funding for pensions means that approximately 90 percent of CPS’ pension obligation is currently funded by structural funding sources. The Board is projected to contribute $175 million in the fall of 2022 to the Municipal Employees’ Annuity and Benefit Fund (MEABF) due to the City no longer picking up the full employer pension costs for CPS.
Forecasted Liquidity
The chart below provides CPS’ liquidity profile from FY2017 to FY2022. As shown in the chart below, the District spent over seven months in a net positive cash flow position in FY2022.
Chart 1: FY2017–FY2022 Operating Liquidity Position
