August 25, 2015 / 8:15 PM / 4 years ago

Warning issued over 'risky' Chicago Public Schools budget

CHICAGO, Aug 25 (Reuters) - A government finance watchdog group on Tuesday urged the Chicago Board of Education to reject a “financially risky” proposed fiscal 2016 budget because it is out of balance and does not provide a road map for solving the school system’s fiscal crisis.

The Chicago-based Civic Federation said the $5.7 billion operating budget facing a board vote on Wednesday tackles a $1.1 billion deficit with $480 million in yet-to-be approved state of Illinois funding and $200 million from debt restructuring.

“This budget is yet another financially risky, short-sighted proposal and fails to provide any reassurance that Chicago Public Schools (CPS) has a plan for emerging from its perpetual financial crisis,” Civic Federation President Laurence Msall said in a statement.

He added that if a multi-year plan is not developed, CPS, the nation’s third-largest public school system, could fail.

CPS, which is engaged in contract negotiations with its teachers’ union, has said it would have to increase the $200 million in cuts already planned or turn to more borrowing if state funding is not realized. The Civic Federation called on the district to release a detailed contingency plan so parents, teachers and taxpayers are aware of what could happen.

Spokespersons for the district did not immediately respond to a request for comment on the Civic Federation’s budget report.

Bruce Rauner, Illinois’ Republican governor, has offered legislation that includes a property tax freeze and collective bargaining limits for local governments and schools, along with pension funding relief for CPS. The Democrat-controlled state Senate passed its own bill to curb property taxes and fund CPS pensions. That measure is pending in the Democrat-controlled House.

Escalating public pension costs and budget deficits have pushed the ratings on more than $6 billion of the school district’s debt into the junk category. The latest downgrade to junk came on Aug. 14 after CPS unveiled a proposed budget for the fiscal year that began July 1.

Standard & Poor’s cited the budget’s continued structural imbalance, low liquidity and reliance on borrowing for cash-flow needs.

The Civic Federation said CPS needs to take “a long-term, comprehensive approach that will articulate the present and future educational needs of its students, the actions the district must take to meet those needs and the district’s plan to fund those needs.”

Reporting by Karen Pierog; Editing by Dan Grebler

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