SAN FRANCISCO (S&P Global Ratings) July 26, 2024--The Chicago Board of Education's (CPS or the board) (BB+/Stable) recently approved budget for fiscal 2025 totals $9.9 billion, which includes $8.4 billion in operating budget and reflects an additional $149 million in school-level funding. Notably, CPS changed its way to allocate funding from student-based budgeting to need-based for district-run schools. The budget remains balanced, after a $505 million gap was closed through cost cuts from central and citywide departments, debt restructuring, vacancy savings, and the use of $233 million in remaining Elementary and Secondary School Emergency Relief (ESSER) funds. However, it does not include salary and benefit increases from the district's pending contract agreements with the Chicago Teachers Union and the Chicago Principals and Administrators Assn.; therefore, it will likely need to be amended once the contracts are finalized. Also, we note that CPS' proportionate share of contribution to the Municipal Employees' Annuity and Benefit Fund is recognized as on-behalf payment as both revenue and expenditure in the budget.
In recent years, CPS' financial position has continued a positive trajectory, benefitting from $2.8 billion in total ESSER funds and better-than-expected tax revenues. These factors have supported healthy surpluses and strengthened reserve and liquidity positions in recent years, and the board sustained a $199 million surplus in fiscal 2023, after the use of $568 million in ESSER funds. Officials project near break-even general fund operations in fiscal 2024, with an estimated use of $737 million in ESSER funds and no short-term debt outstanding at fiscal year-end. These remain consistent with our expectations at our last review.
With the depletion of ESSER funds in fiscal 2025, the board projects in the fiscal 2025 budget that future budget deficits will be in the range of $400 million to $560 million during fiscal years 2026 through 2030, prior to any new costs from the collective bargaining. As extraordinary stimulus funds subside and the board settles its union contacts, we believe the board's ability to scale its operations to match expenditures with available revenues and manage the size of short-term borrowing will be critical in avoiding potential downward rating pressure.
For more information, see the summary analysis on Chicago Board of Education, published Oct. 20, 2023, on RatingsDirect.
This report does not constitute a rating action.
| Primary Credit Analyst: | Ying Huang, San Francisco + 1 (415) 371 5008; ying.huang@spglobal.com |
| Secondary Contacts: | Scott Nees, Chicago + 1 (312) 233 7064; scott.nees@spglobal.com |
| Jane H Ridley, Englewood + 1 (303) 721 4487; jane.ridley@spglobal.com |
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